Ian Wilkie director of HPC Healthcare Property Consultants an award-winning, independent firm offering specialist advice and services to those operating and investing in the care sector has been looking at opportunities within the care home market as increased regulation and funding pressure continue to affect the sector.
Much has been written of late concerning the impact of the national living wage on the care sector. In particular, the focus has been on those businesses and areas of the country which are reliant on local authority funding and where it is feared there will be a significant shortfall in fees, relative to the increasing cost burden. The concern is that, as the impact the national living wage takes effect, we might lose valuable care services which are unwilling or unable to meet the rising cost.
The reality is that we are already into that next phase of evolution in the UK care home sector. In 2015 HPC released a research document showing that, over a 3½ year period, the average number of beds registered every year in newly opened care homes was almost equally matched by the numbers lost through home closures. What the document also highlighted was that the vast majority of new development was in more affluent areas. Laing & Buisson subsequently reported that 3,000 beds were lost from the elderly care market over the following 6 month period. It is clear from our dealings in the sector that these trends continue unabated. National living wage has served only to exacerbate the problems and accelerate the polarisation of the sector.
The problem is that local authorities are being asked to make significant budgetary cuts, and social care will always be in the spotlight. The 2% Council Tax precept announced in the Chancellor’s Autumn Statement will go some way to plugging the gap in social care funding. It is however widely acknowledged that this is both inadequate and flawed, in that the most deprived areas, which are by definition in greatest need, will be those least able to benefit from the rise due to Council Tax rates which are inherently lower than their more affluent counterparts.
The Care Quality Commission (CQC) continues to put additional pressure on operators through implementing more stringent requirements. The regulator has undoubtedly become tougher since having its shortcomings very publicly exposed in the wake of the Winterbourne View scandal. It is of course correct that the CQC does its utmost to protect the most vulnerable in our society, but that should be as a result of working alongside the care providers. The continued disconnect between the CQC and the local authority commissioners who set the fee rates continues, inevitably, to cause problems. A system in which those who lay down the requirements whilst publicly dissociating themselves from any responsibility in funding the means of meeting said requirements is, in the long term, untenable.
All of this might sound like terribly gloomy news, yet we are seeing as much investment in the UK care home sector as we have for many years. Institutional investors continue to look for attractive deals, seeking out not just good operating tenant covenants but also quality property assets in demographically attractive areas. We are also seeing a step-up in activity from mid-market consolidators – those existing operators with small to medium sized portfolios, good track records and an appetite to grow their estates. At single-home level, there has been as much activity from new entrants to the sector over the last 12 months as there has been for many years. So in spite of all the challenges then, what attracts all these parties and where are the opportunities?
The most obvious is plain and simple demand. It is what we have known about the sector for years and what has attracted people to operate within it for years. If you are prepared to look beyond the zeitgeist politics of austerity and regulation, the fact remains that the population is ageing and although the terminology and infrastructure may evolve, the fundamental demand remains.
Over the last five years or so we have seen a step-change in the design of care facilities. This is not just restricted to the super-luxury new care homes in affluent areas, but can be seen in innovative designs provided by housing associations and non-profit operators. We are seeing a real move to make care properties more pleasant places to be for all generations, encouraging more frequent and longer visits and also integration of local communities through offering shared facilities. This next generation of design offers a real opportunity for creative architects and providers to shape the future of care provision in the UK.
Whilst the CQC has been criticised for an over-zealous approach to implementing standards, there is no doubt that expectations generally in 2016 are considerably more advanced than they were 25 years ago. The barriers to entry are now much higher, but to a new wave of professional and pragmatic operators who have cut their teeth in a world of greater compliance and regulation, there are opportunities to benefit from meeting the 21st century demands of residents, families and commissioners of care services.
The inevitable effect of fiscal and regulatory pressure is that we are seeing care homes closing or being sold off by group operators. It is not always the case that these disposals represent the end of the line and with new investment, under new ownership, these properties can often present excellent redevelopment and turn-around opportunities.