With Christie & Co releasing their annual Care Market Review 2024 this week, Muller Property Group look at the key points and what lies ahead for the care home sector.
The UK care home market is experiencing a renewed sense of optimism, with both operators and investors reporting increased confidence in the UK property market, according to the latest Care Market Review. The report covers vital aspects of the care home market, including capital markets, land development, transactional analysis, and shifts in fee rates, offering a comprehensive view of the sector’s current state.
Below, we explore the key findings from this in-depth review.
Capital Markets: Rising Investor Confidence Despite High Costs
Healthcare remains an attractive asset class for investors due to its defensive characteristics and strong needs-driven demand. While the rising cost of capital has been a challenge, with the Bank of England base rate increasing from 3.5% to 5.25% in 2023, there are signs of stabilisation in 2024. Investment activity is picking up, with more funds entering the market and existing capital becoming more acquisitive. This resurgence in investor confidence is reflected in both real estate investments and corporate/private equity transactions.
Land and Development: Navigating a Complex Landscape
The UK planning system continues to pose challenges for care home development, with issues such as under-resourced local planning departments, new policies like Biodiversity Net Gain (BNG), and increasing construction costs due to updated energy performance standards. However, there is growing stability in construction costs, which is helping to restore confidence. Despite a correction in land values across various sectors, care home development sites remain relatively resilient, with operators recognizing the value of consented sites. The demand for purpose-built senior housing is increasing, with new developments targeting the mid-market, where demand is highest.
Transactional Market: Shifts in Buyer Behavior
Christie & Co’s transactional data shows a notable shift in the types of care homes being sold. Larger care homes (with over 40 beds) accounted for 58% of sales in the first half of 2024, up from 52% in 2023, while smaller homes (under 20 beds) represented only 11%. New entrants into the market also increased, comprising 9% of sales. However, the number of first-time buyers hit an all-time low in 2023, largely due to tough lending conditions and the sector’s ongoing recovery from the pandemic.
Small and medium-sized groups were the most active buyers in 2024, representing 33% of completions, while larger groups saw a decline in activity. This shift may be attributed to softer yields in 2023, which slowed sale-and-leaseback transactions.
Local Authority Fee Rates: Managing Inflationary Pressures
Christie & Co’s analysis of local authority fee rates reveals an average increase of 9% across England in 2024, with similar trends in Wales and Scotland. While these increases help to offset inflationary pressures, they are often insufficient to cover rising costs, particularly for self-funded residents. Most care providers have increased private fees by 5%-10%, and in some cases, more. Despite improvements, many providers continue to face financial challenges due to disparities in local authority fees across regions.
Operator Sentiment: Optimism Despite Challenges
A survey of care home operators shows mixed feelings about the future. While 60% of UK operators reported a reduction in agency staff usage, a key operational cost, uncertainty remains due to fluctuating interest rates and inflation. Nevertheless, 40% of operators in England and Scotland, and 67% in Wales, expressed plans to expand their portfolios over the next 12 months. This positive outlook highlights the growing confidence in the market, despite lingering concerns.
Finance Landscape: Increased Lending and Demand for Business Loans
Christie Finance reports a positive sentiment from funders, with a 23% rise in completed transactions during the first half of 2024. There has been a noticeable increase in operators seeking unsecured business loans and asset finance for refurbishment and upgrade projects. These projects, often delayed due to external financial pressures, made up 40% of sector lending in the first half of 2024. Despite regulatory challenges and concerns about client income, 65% of lenders expect the UK economy to grow over the next year.
Conclusion: A Growing UK Care Home Market with Challenges Ahead
Christie & Co’s 2024 Care Market Review provides an optimistic outlook for the care home sector, driven by increased investment activity, stabilising land and development costs, and positive operator sentiment. However, challenges remain, particularly around financing, fee rates, and navigating the complex planning landscape. With many operators and investors planning expansion, the sector looks set to grow, provided these obstacles can be effectively managed.
For both investors and operators, the upcoming months offer a mix of opportunities and challenges as the UK care home market navigates changing economic and regulatory conditions. With multiple care home development site across the UK, Muller Property Group have instructed Christie & Co on the sale of a prime land parcel located on Pen-Y-Pound Road in Abergavenny, earmarked for the development of a 60-bed care home. For more details about this site, please visit the dedicated website.
