CHICAGO—Many participants at last week's NIC National Conference on seniors housing in Chicago worried that the nation could be in for a repeat of the 1990s, when commercial developers with little experience in this specialty overbuilt and caused a glut of supply. Of course, there's no doubt that the US has an aging population, and in the near future this will spur tremendous demand for new housing that provides special services for seniors. Still, to help avoid the gluts of the past, a group of experts convened an afternoon session to show developers how to properly size up markets and determine the need for the various types of seniors care.

Beth Mace, the chief economist at NIC, began by explaining the inherent complexity of this sector's demographics. “You don't just need to look at the seniors in the market, you need to pay attention to the adult children because sometimes they are the decision makers,” she said. Furthermore, seniors deal with a whole range of life issues, and an analysis that gauges the demand for independent living can't also properly gauge the need for assisted living, skilled nursing care or memory care.

The first and most important step when conducting a market analysis is defining the market's area. “If you get this wrong, everything else is wrong,” said Susan B. Brecht, president of Brecht Associates, Inc. a Philadelphia-based consulting firm. And doing so involves more than drawing lines on a map. “We never use a radius.” A simplistic approach like that may cause you to ignore a large number of potential competitors just outside those lines that will draw away potential clients. Likewise, a simple radius would include developments that are not really competitors because they provide radically different services.

“You just can't run the numbers,” Brecht adds. A proper, in-depth analysis involves talking to actual people to determine the quality of care provided by competitors and includes examining whether these homes have alliances with respected universities or hospitals. A seniors living development in your targeted area may not look impressive on paper but have built up a deep loyalty with its residents and their families. “You can't assume because you're new that you're better.”

Brecht advises seniors living developers on all types of projects, including CCRCs, independent living, assisted living, memory care and others. But always the worst request she gets is, “'just tell me where the hotspots are. Where should I build?'” To developers, hot spots have a high concentration of higher-income consumers and low market penetration. But in seniors living this type of calculation sometimes does not work. An area can have relatively few options for seniors but those that do exist have earned tremendous loyalty from the adult children. And other regions have what may look like an oversupply on paper, but couple that with high occupancy rates and long waiting lists.

Considerations like this are why Mace began the session by saying that testing markets' feasibility for seniors living “is part analytics and part art.”