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Darting through the decades: Future demand for older people’s care homes

Recent research from Knight Frank shows that care home operators could face cost increases of up to 30% over the coming year and, with many providers already struggling in the current market, what does the future for this sector look like? Julian Evans from Knight Frank explains where efforts could be focused to paint a brighter picture.

The care home sector has been in the spotlight like never before over the past two years and it’s become clear that demand for beds is rapidly outstripping the supply coming through.

Our research suggests that by 2035 there will be a shortfall of 58,000 beds across the sector, whilst the growth in the UK’s older population is such that by 2050 an additional 350,000 older people will potentially need a care bed, almost doubling the level of bed demand in the next 30 years.

With 100,000 beds at risk of closure by 2040, this projected bed capacity hiatus means that existing operators should benefit from an increase in occupancy as demand is set to outpace supply. However, various barriers stand in the way of allowing the sector to truly benefit from the increase in demand, potentially leaving people without the care and support they need.

On top of the supply issues, UK care home operators could see their costs rise by up to 30% this year due to macro issues including the increased costs of labour, supply and finance, which have compounded. We are at a crisis point and the future of the sector depends on how we act in the next few years.

Challenges of Brexit and staffing issues

As the pandemic starts to loosen its grip on the national and international focus, the challenges of Brexit are showing no similar signs of abating. Knight Frank expects that UK care home operators will see costs rise by £165m this year, with staffing the main area of concern, both in terms of costs and supply.

We’ll see inflations in the pay rates, from minimum to living wage; however, without a clear career progression, and with competition from other industries, including the likes of large logistics companies promising ‘golden handshakes’, the care sector is struggling to compete for the limited number of workers available.

And that’s having a knock-on effect. Huge swathes of care homes are having to close due to staffing issues whilst regulators force them to have a minimum number of staff to operate. Even the much-needed newly built care homes are resorting to delayed or phased openings as they remain unable to fully deliver the necessary service and customer experience. This means that, despite the growing admissions demand, the sector simply cannot provide what is needed.

Whilst this is neither a new challenge for the sector, nor limited to care homes, as retirement living and homecare also face these issues, the reduction in migrant workers as a result of Brexit has undoubtedly exacerbated things.

A comprehensive solution is needed to address this. The sector needs to be looking at ways not only to recruit more care workers, but also to increase the number of registered nurses available to the care sector, with a current shortfall of 40,000. The shortage of nurses is especially concerning, given the demand for specialised care, such as dementia, which has never been greater, and which is set to increase.

The Government is moving to remedy these challenges by streamlining and relaxing the checking process, sourcing staff from alternative non-European countries including the Philippines and allowing asylum seekers to apply for healthcare and hospital jobs; however, this is yet to relieve the squeeze that the industry is experiencing.

Innovation opportunities

Care operators have been tested and appreciated over the last two years like never before, and the pandemic has only underlined the sector’s importance. It has always been indispensable in our society as demand for beds and quality care continues to grow with our population, but with this newfound appreciation in the national dialogue, there has been increasing interest from institutional capital and continued investor appetite. This means that there are opportunities for operators to innovate in order to meet growing and evolving demands.

We anticipate that investment into the sector will remain robust, from a broad church of domestic and overseas investors seeking defensive healthcare assets to diversify their portfolios, however it is clear that more inward investment is crucial.

My position has always been that, as with any sector, in health and care, primary product will prevail and prosper whilst those facilities that are not up to scratch will inevitably fall away. The good operators – who take the lead and embrace the opportunities to innovate, be nimble, and invest in infrastructures which will deliver the care of the future – will succeed.

As such, futureproofing existing facilities is vital for operators. The sort of adaptions which we expect throughout the sector to support the needs of the care home inhabitants of the future include:

  • A rise in dementia and nursing care specialists.
  • A focus on the importance of clinical outcomes and key performance indicators.
  • Design adaptation for future COVID-19 events.
  • Growth in technology and telemedicine.
  • Larger care home sites to include independent living units.

Focus on ESG and sustainability

The environmental, social and governance (ESG) movement is positively driving institutional capital into social care and senior living, however developers and operators themselves have a long way to go to meet the ever-increasing sustainability standards. The Building Research Establishment’s Environmental Assessment Method (BREEAM) will soon no longer be a cherry on top but will be imperative to the value of developments.

However, the impracticalities of retrofitting buildings which are typically used in the sector, such as old rectories or hotels, has resulted in social care lagging behind on Government targets. Operators and owners need more proactivity in terms of futureproofing and implementing other basic systems.

An optimistic outlook

Despite the clear challenges that remain ahead around increasing costs, staffing and development shortages, there are many opportunities for forward-thinking operators, and the sector remains a strong proposition for investors.

In 2021, the UK healthcare property market saw £2.34bn of transactions, whilst £5.41bn was invested in the European healthcare property market despite the impacts of the pandemic, demonstrating the continuing resilience in the sector.

However, care home development must be a priority given that the UK elderly care market is at risk of reaching capacity by the end of the decade. We must ensure that we construct new, high-quality care homes in parallel with guaranteeing the renovation of existing stock to meet the needs of older residents and ensure the residential care system is ready for the future.

This represents an excellent opportunity for all stakeholders given the older population projections across the UK, which imply there will be unprecedented demand for residential care in decades to come, creating a huge opportunity for those ready to invest.

Julian Evans is Head of Healthcare at Knight Frank. Email:  Twitter: @JulianMEvans

What are your focus areas for ensuring your business keeps up with market trends? Share your insights and feedback on this article.


About Julian Evans

Julian Evans is Head of Healthcare at Knight Frank. Since 1994, Julian has concentrated on the valuation, acquisition and disposal of trading businesses. He specialised in healthcare consultancy and now annually advises on approximately £12bn of healthcare property. Julian’s experience has primarily concerned acting for corporate and private operators, banks, institutions and funds in the valuation, acquisition and disposal of trading care homes, specialist (acute) care homes, hospitals, day centres, medical surgeries, investments and C2 development sites throughout the UK and Europe as well as care villages, retirement apartments and day nurseries.

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