The care home sector is facing a national crisis, due in part to a net loss in UK care homes and beds with further closures all but inevitable, according to the latest research from Knight Frank.
However, the crisis and imbalance of demand outstripping supply has driven increased investor appetite, as it becomes clear that there is a need for future-proof new build care facilities, meaning that there still remains a significant opportunity for developers and investors to capitalise.
Knight Frank’s ‘UK Healthcare Development Opportunities 2017’ report has identified a decrease in the number of registrations of both new homes and new beds, which, combined with the long-term trend of increased de-registrations, caused a net loss of 166 homes and 2,612 beds across the UK market in the 12 months to September 2016, with bed losses most severe in Greater London.
In this period there were 106 new care home registrations, bringing 5,497 new beds to the market which is a decline on 2015 where the market saw 119 new registrations and 5,805 beds. One factor to mitigate against this decline is that the average size of a newly registered care home has increased, implying that the growing need for bed capacity will be met through larger homes.
Julian Evans, head of healthcare at Knight Frank, commented: “The UK care market is facing an imminent crisis as the sector struggles to cope with a national shortage of beds. Our research suggests that if de-registrations continue to exceed the number of new registrations that come to market, approximately 6,000 beds are at risk of closure over the next five years.
“But this disparity of care bed supply and demand presents increasing opportunities for investors, and combined with the fall in sterling has generated a truly global appetite for the sector, with the care home sector likely to be the stand out asset class of 2017, particularly for those investors wishing to diversify their asset portfolios in the current uncertain economic climate.”
Knight Frank predicts that the trend of bed shortfalls will continue as the UK enters a new period of uncertainty following the Brexit vote with factors such as an acute shortage of nurses and rising staff costs due to factors such as the National Living Wage forcing the closure of unviable care homes.
Nevertheless, this erosion of supply, coupled with the UK’s rising ageing population which is forecast to rise from 11.6 million in 2016 to 12.9 million by 2021, will spark development interest, despite emerging headwinds, leading to further opportunities for investors.
In 2016 there were locational differences in the best future prospects for care home investment and development, with South Glamorgan overtaking Greater London to take the top spot in the 2016 Care Home Development Index, despite the southern regions of the UK continuing to offer the most active development pipeline.