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Care offers attractive long-term prospects for investors, says Knight Frank

The long-term prospects for the care and healthcare market remain attractive to investors, Knight Frank has said in its latest UK Healthcare Property Market Overview.

It cites improving occupancy, based on average occupancy rates of 79.4 per cent in 2021 (-9.7 per cent on 2020). Head of healthcare Julian Evans said: “All signs [point] towards continued growth and occupancy rates in the high eighties looking to 2022 and beyond. This would see the sector’s average occupancy return to pre-pandemic levels.”

Care profits (earnings before interest, taxes, depreciation, amortization, rent, and management fees) as a percentage of income averaged 26.2 per cent in 2021. This is a fall of 0.6 per cent against 2020’s figure, a less significant drop than expected given the pandemic’s impact on occupancy. Similar figures for the nursing care sector improved slightly by 0.1 per cent on the previous year. “The resilience… points to strong trading in the sector in light of significant headwinds,” says Evans.

He continued: “2021 is a story of consolidation and normalisation. We have seen continued demand from a broad church of both domestic and international investors capitalising on the UK’s demographic trends and the sector’s favourable supply/ demand dynamics to generate stable long-term returns, whilst occupancy rates continue to recover from the impact of Covid-19.”

Transaction volumes provide further evidence of the healthcare property sector’s emergence from the impacts of the pandemic. Whilst 2020’s record transaction volumes were not replicated in 2021, more than £1.4 billion of transactions were completed in 2021, just 5.7 per cent shy of the ten-year average. Driven in large part by strong interest from international investors, the early investor caution seen at the outset of the pandemic seems to be fading as the sector slowly moves towards normality.

Long-term, investors expect to see demand for elderly care beds grow in line with the UK’s demographic shifts, and the availability of 20-30-year lease terms will continue to offer prospects for strong long-term secure income returns. Those investors looking to diversify their portfolio allocations and re-weight away from more conventional asset classes will also be drawn to healthcare (including care), among other alternative assets. Institutional investors will also be attracted to the sector for its positive environmental, social and government credentials.

Current projections indicate that the growth in the UK’s elderly population will potentially lead to a near doubling of demand for care beds by 2050, increasing by 350,000 beds against current levels of demand. Care home closures and this growing elderly population mean that supply is failing to keep pace with demand despite a healthy new development pipeline. The UK elderly care market is at risk of reaching capacity by the end of the decade, heightening the need for new homes to be built and for existing homes to be futureproofed and modernised.”


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