The UK’s care homes remain a compelling proposition for investors, providing a defensive investment opportunity in the face of Brexit, according to the latest research from global property advisor Knight Frank.
Knight Frank’s 2018 Care Homes Trading Performance Review demonstrates that the sector continues to be resilient despite uncertainty, with occupancy rates standing at a record high of 89.4%, whilst average weekly fees have risen for the seventh consecutive year, by 3.7% to £773. Profitability stands at 28.3% as measured by EBITDARM.
Increased life expectancy has driven a rise for the sixth successive year in care home occupancy with rates at a record high of 89.4%. This is expected to increase further with the number of people over 85 in the UK predicted to more than double in the next 23 years to over 3.4 million according to the Office for National Statistics, demonstrating that demand in this sector will continue to rise.
Julian Evans, Head of Healthcare, Knight Frank, commented: “Despite operational challenges, the care home sector remains a highly attractive investment. In our view it is the one that is least affected by Brexit volatility as demand is typically driven by domestic factors.
“The defensive characteristics of the sector and long-term income combined with the fundamental strength of the occupational market makes the care home sector appealing to those investors wishing to diversify their asset portfolios.
“We predict that despite current economic uncertainty and rising costs, care homes will remain a compelling asset class for investors as they seek to balance risk and return.”
Demand for care home beds continues to outstrip supply, as unviable care homes continue to close. In the last year there were 226 home closures encompassing 6,740 beds. This is due to rising staff costs, which have increased 4.7% in the past year, the continued impact of the National Living Wage, a constrained labour market and an acute shortage of qualified nurses. In addition, many buildings are not fit for purpose, with 85% of UK care home stock over 40 years old, and with insufficient funding available for the refurbishment and future-proofing of existing care homes.
Knight Frank predicts that the UK requires in excess of £15 billion to upgrade existing beds in order to future-proof the industry and that approximately 6,500 care homes are at risk of closure over the next 5 years, which equates to 140,000 beds.
The Knight Frank Healthcare team was named HealthInvestor’s Property Consultants of the Year 2017 and Best Healthcare Property Advisors at the AI 2017 M&A Awards.