Number of UK care homes falls as smaller homes swallowed up by larger new builds

The number of care homes in the UK has fallen, however the number of beds has risen, due to larger new build care homes swallowing up smaller, unsustainable homes.

In its latest Business Outlook report, care home property advisor, Christie & Co, revealed that the smaller care homes are being pushed out of the market, unable to compete with an increasing number of global investors. Between 2016 and 2018, the number of beds rose by two per cent and the number of care homes fell by 2.1 per cent.

Richard Lunn, managing director for Care for Christie & Co said: “Significant corporate development activity has put pressure on some smaller operators, as regulators and operators focus on the quality of operations as well as the physical environment.

“Diverse global capital providers now consider healthcare a favourable investment class, generating a greater range of buyers and investors than ever before. Previously defined by entrepreneurial individuals and family run businesses with traditional debt, the market now sees capital from private equity providers, international real estate, and infrastructure funds, amongst others.”

Average price for care homes lowest in five years

Interest in investing in care homes has risen over the past year and looks set to remain strong, with competition for prime sites increasing. The average purchase price for care homes rose by 3.1 per cent this year. This is the lowest in five years, with 2014 seeing a 9.8 per cent increase.

The shift in the market as global investment grows has led to care providers and developers building larger new build developments ‘which provide greater economies of scale’ with ‘smaller, nonviable assets closing’.

The location of the care home and population of the area continue to affect the value and performance of a care setting, with south east England still dominating.

“Many other regions still have an undersupply of market standard beds and competition is most relevant on a localised market basis, as operators predominantly focus on building in locations with more self funded residents rather than those reliant on local authority fees,” said Mr Lunn.

Key problems are staffing, funding and tougher regulatory environment

Care providers do have challenges to contend with and staffing, funding and a tougher regulatory environment are still key problems.

As highlighted in Christie & Co’s Adult Social Care 2018 report, there is a deficit of 20,000 nurses currently in the UK, and with a 13 per cent drop in nurse registrations in 2018, the availability of nurses looks set to shrink further.

‘Staffing has been a constant focus for operators who are developing programmes to recruit and retain trained staff,’ according to the report.

Agency staffing costs continue to affect many providers and Mr Lunn predicts this will lead to some having “to offset these costs with increases to private fees”.

Impact of Brexit

In terms of Brexit, Christie & Co believes that due to being a needs-driven market, it is ‘unlikely to bring any substantial, new issues to the care sector, however, it could exacerbate existing challenges particularly around workforce’.

Its report points out that since the Brexit vote, there has been an 87 per cent drop in EU nurse registrations since 2016. Their latest research shows the shortage of nurses is continuing to increase and care home providers are now having to source more overseas nurses whilst employing other strategies, such as upskilling care assistants to assist with basic nursing duties.

Michael Hodges, managing director for Healthcare at Christie & Co, added that as well as the supply of labour, Brexit may lead to a rise in the cost of materials and it may impact on the overall market confidence particularly in terms of investors.

In 2019, Christie & Co predicts quality will remain the key driver of value and operational effectiveness, with continued regulatory pressure on all care providers to improve services.

In addition the long awaited green paper on adult social care will undoubtedly have an impact on the sector, said the report.

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