Last Updated on January 12, 2024

Business property adviser, Christie & Co, has launched its Business Outlook 2024 report, which includes the health and social care sector. The report reflects on the themes, activity and challenges of 2023 and forecasts what 2024 might bring across the industries that Christie & Co operates in.

Overview

2023 was a year of consolidation, according to Christie & Co, with the majority of operators reporting that occupancy had returned to pre-pandemic levels. Staffing issues eased slightly due to the successful recruitment of foreign staff via the sponsorship licence, although this may be impacted by recent immigration policy changes. The demand for bed spaces remained high, particularly for dementia care places, and fee increases predominantly kept pace with inflation.

The transactional market adjusted to an environment of significantly higher interest rates, placing greater emphasis on debt serviceability. Christie & Co reported 'robust' deal volumes and a 14% rise in completions in 2023 compared with 2022.

Wider cost pressures had a significant impact on providers of smaller, converted care homes which do not have the economies of scale and are less energy efficient. This increased the rates of care home closures at a time when demand for bed spaces should be increasing. Consequentially, the proportion of closed care homes Christie & Co sold in 2023 increased to represent 19% of its deal volumes, this was compared with 13% in 2022. The number of distressed sales also increased, with Christie & Co noting a 7% rise in 2023.

On the other hand, Christie & Co's report did not see a material deterioration in asset values for going-concern deals – noting a 0.4% decrease in its annual price index – and the performance of the sector fared well compared with other asset classes.

The development market faced stronger headwinds due to construction cost inflation and the availability of debt. However, the need for future-proof care beds remains undiminished and the underlying environmental, social, and corporate governance (ESG) credentials, together with future bed demand needs, remains compelling for investors, according to Christie & Co. The business property adviser saw a greater number of developments in the regions last year and expects this to continue into 2024.

Christie & Co also identified other economic pressures, operational challenges, sector funding and sustainability as key themes influencing the sector. Commentary on these topics can be found in the report.

Market sentiment

As part of its annual sentiment survey, Christie & Co surveyed healthcare professionals across the country to gather their views on the year ahead. 48% of people said that they feel positive about the year ahead – a 14% rise on survey figures reported in the previous year – while just 9% feel negative. When asked about their sale and acquisition plans in 2024, 77% said they are planning to buy and/or sell this year.

The finance landscape

The care sector continues to be well supported by both traditional and alternative funders; with the level of finance Christie Finance generated for its clients having increased by 28% between 2022 and 2023. Income potential and cashflows were seen as particularly reliable due to the sector's needs-driven nature, however, there are now more intense audits, assessments and monitoring from lenders around how operators will manage the impacts of the rising cost of living and increase in debt costs on their business.

In 2024, Christie Finance has outlined that it is hoping for a more stable economic environment which, when combined with currently reducing inflation and the increased cost of living mostly now absorbed by operators, should lead to a more fluid finance market, the organisation has predicted.

Market predictions

In 2024, Christie & Co expects:

• Capital values will remain stable with strong occupancy levels and investor demand offsetting higher debt costs.
• Capital markets activity will increase with a more stable interest rate environment.
• Increased number of operating company (OpCo) transactions as operators seek to expand their portfolios without tying up capital in real estate.
• Growing distress for smaller assets with rising staffing and capital costs, largely driven by the increasing minimum wage.
• New build development activity will increase across broader geographical regions as operators seek less competitive operating markets.
• Ongoing rationalisation from larger providers and third sector providers.
• Continued protractions and uncertainty in the planning system will constrain the supply of consented care home development sites.

In response to the launch of the Business Outlook 2024 report, Richard Lunn, Managing Director at Care at Christie & Co, said, 'Despite the undoubted economic headwinds, the care sector remained resilient through 2023. Good levels of demand and a limited availability of stock enabled pricing to hold up well. Moving into 2024, we have had a busy January so far and are positive about the prospects for the year ahead.'

For the full Business Outlook 2024 report, visit the Christie & Co website.

In other news, the UK Health Security Agency (UKHSA) has reminded the public that it’s not too late to book their flu and COVID-19 vaccinations.