The skilled nursing sector recorded its first annual inventory increase since 2017, but new development activity is slowing sharply as elevated construction and financing costs continue to weigh on project feasibility.
According to Marcus & Millichap's first-half 2026 skilled nursing report, the volume of units under construction fell to a record low in early 2026. The slowdown comes even as operating fundamentals continue to improve. Occupancy growth decelerated for a fourth consecutive year during the 12 months ended in March, though the national occupancy rate still surpassed 87%, reaching its highest level since 2016. Tightening availability helped push annual rent growth above 5%, the fastest pace recorded since at least 2008, according to the report.
Marcus & Millichap said demographic tailwinds tied to the nation's aging population are expected to continue supporting occupancy gains and rent growth, particularly as development constraints limit the pace of new supply entering the market.
At the same time, labor conditions remain a central operational challenge for skilled nursing operators. Employment in the sector continued recovering during the year ended in March, though staffing levels remain below pre-pandemic operating capacity.
Job growth slowed to 2.6% over the period, marking a second consecutive year of deceleration. According to the report, elevated turnover has largely offset hiring gains, creating an environment defined more by workforce replacement than meaningful expansion.
Still, the labor picture may be showing early signs of stabilization. Marcus & Millichap noted that slower hiring activity across competing service-sector industries could modestly improve the availability of applicants for entry-level healthcare roles. Recent federal policy changes may also ease staffing pressures. The report pointed to adjustments surrounding proposed minimum service requirements as a factor that could help improve workforce stability in labor-constrained facilities.
Investment activity also accelerated during the past year, though regional trends varied significantly.
Transaction volume increased across multiple pricing tiers during the 12 months ended in March, with Sun Belt markets continuing to attract heightened investor interest. The Southwest posted nearly double the number of trades compared to the prior year despite recording the lowest occupancy levels among all regions.
Meanwhile, transaction activity in the Northeast and Pacific regions declined modestly even as those markets maintained the highest occupancy rates nationally.
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