Care home sector 'exceptionally resilient' with investor appetite 'increasing'

Despite all the challenges of the past year, with care homes battling the pandemic and also seeing a rise in workforce shortages due to Covid, the mandatory vaccine and Brexit, there has been strong demand from care home investors and this looks set to increase in 2022.

In its annual Business Outlook report, ‘Business Outlook 2022: Adjust, Adapt, Advance,’ specialist property adviser, Christie & Co, anticipates 2022 being a ‘busy year’.

Richard Lunn, managing director for Care at Christie & Co, said that despite the operational challenges currently, particularly around staffing, “the outlook for the sector is very good”.

He added: “The buoyancy of the sector and the strength of investor appetite makes us optimistic for the year ahead.”

Christie & Co saw the number of care home transactions increase by 14 per cent in 2021. Encouragingly it also saw the number of distressed transactions, when a care home is sold as the owner is in financial distress, fall to eight per cent. In 2020 the number of distressed transactions were 13 per cent and in 2019 they were 18 per cent.

Richard Lunn said: “We completed on 200 deals last year and most were to existing operators”. He believes investors have been helped by the ‘low interest rate environment’.

The report states: ‘The care sector is underpinned by need and, over many years, the demographic trends in the UK have fuelled significant investment activity with operators and investors expanding their presence in the knowledge that people are living longer but with an ever-increasing range of health conditions.

‘Through the pandemic, and despite the many challenges, the sector has proven to be exceptionally resilient, with care providers and their staff playing a vital and inspiring role. This resilience has also been seen in the transactional market, with 2021 seeing a resurgence of M&A activity at all levels of the market.’

2020 also saw the the arrival of European investors including the French healthcare fund, Pierval Santé, which acquired a group of Care UK investments from Legal & General in a deal brokered by Christie & Co.

Cofinimmo, one of the largest property funds in Belgium, entered the UK market and Korian, one of the largest European operator consolidators, completed its first UK platform acquisition.

Christie & Co completed over 50 per cent of all individually transacted care home deals in the UK during 2021.

'Slow uptick in occupancy levels'

There has been a lot of concern in the sector as to when care homes will return to pre-pandemic occupancy levels, with Mr Lunn saying: “We are starting to see a slow uptick in occupancy levels” and operators are seeing a “steady increase in new resident enquiries”.

According to Mr Lunn, one of the positive things that has come out of the pandemic is that care homes have had a higher profile “in terms of being seen as a great place to invest capital”.

He believes there will continue to be a focus on new purpose built care homes with wet rooms, etc.

Jane Ashcroft, chief executive of Anchor Hanover care group, which has 114 care homes, is also optimistic for the future but warns the sector will still see some distress this year due to workforce shortages coupled with energy costs rising and inflation in food costs.

She said: “2020 was the big surprise and dealing with the impact of Covid.

Then there was "the reality of 2021" and realising “this keeps going then”.

“Clearly the world is not going back to what it used to be."

Anchor has recently become a real living wage employer with Ms Ashcroft saying: “I don’t want to be cared for by someone on the minimum wage who is just doing the job because they need a job.”

The Living Wage Foundation increased its real living wage rates in November 2021 to £9.90 an hour across the UK and £11.05 for those in London, from its previous rates of £9.50 throughout the UK and £10.85 in the capital.

Anchor Hanover Group will be focussing on the retirement apartment side of its business over the next 8-10 years and in that time plans to add 6,000 more apartments to its portfolio.

Ms Ashcroft also anticipates occupancy levels returning to pre-pandemic levels and says Anchor would already be in this position if it had the right workforce numbers.

She says: “For those providers that are delivering quality services we should see a really strong return.”

'We are starting to break down stereotypes'

She is also optimistic that people’s preconceptions of care homes are changing saying: “We are starting to break down stereotypes, out of date, if they were ever right, views of what care homes are.”

That belief “that people just sit in circles watching rubbish on the TV.”

This was helped during the lockdowns, as the media began to focus their attention on care homes and care home staff used TikTok to showcase the activities and compassion that goes on in care homes.

To read the whole of Christie & Co’s report go to www.christie.com/news-resources/business-outlook/2022/

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