2023 – Challenges and Opportunities for the Care Sector
Author Alison Willoughby Fleurets Divisional Director and Head of Healthcare
The last six months of 2022 saw an unprecedented level of political upheaval in the UK, with Prime Ministers and Ministers of State changing at an extraordinary rate. Added to that is a plethora of challenges, from strikes to increased utility costs and a hike in inflation rates. But what does this mean for care in the coming year? And what opportunities might there be?
Diversification and Expansion
Care remains an attractive proposition in the operational real estate and investment markets, with a growing demand that the current supply isn’t meeting. At the investment end of the market, a number of REITs and funds continue to show an appetite for growth through the acquisition of well performing groups. Some are developing new initiatives sitting alongside their social care portfolio, such as the move into affordable housing, as Octopus did in May 2022. This lateral thinking is a clear area of opportunity, developing portfolios that can meet the needs of individuals at any given stage in life and one robust enough to act as a buffer against specific headwinds in any given part of the cycle.
Older Stock Opportunities
But what of the owner operated care market? This part of the market will have its own challenges and opportunities, as always. Smaller elderly care and nursing homes may find that funding streams are less available to support acquisition or growth plans, with some funders setting a minimum bed level of 30 rooms to be considered for funding. There may be alternative use value, or conversion to specialist or supported living facilities for some properties, with a keen interest in acquiring buildings with C2 consent not showing signs of abating, and with over half the current property stock being over 25 years old, they may not keep up with the expectations of clients and their families. For those who continue to operate well and are considering selling, an experienced agent who knows the market is a must. When it comes to funding, challenger banks are gaining strength in the market, facilitating acquisitions for both first time buyers and more experienced operators looking to expand aided by specialist care home brokers. This can help buyers who perhaps may struggle to obtain funding at the Loan To Value (LTV) rate they need. This is where a specialist care home broker really comes into their own, with an understanding of the market that allows them to have an honest conversation with a funder. Being in a strong funding position is invaluable when competing for care homes on the market, with a lack of supply driving competition among buyers.
Funding and Occupancy
From an operational perspective, the recent drive to move people out of hospitals into care has real potential to unclear the bottleneck, helping the NHS and ensuring people are in the right place for the care they need, but hasn’t been in effect long enough to comment on its success (or otherwise). There is an obvious and growing demand for care, but the constraints on local authority budgets is likely to impact on those providers who rely on state funding for elderly clients.
The private market is certainly where we see most interest continuing and increasing, both for existing businesses and the development of purpose built homes and retirement apartments but the planning process can be drawn out. New construction methods are incorporating both the latest innovations in building to environmental standards, but also technology throughout the homes. The development and adoption of technology in care is going to be interesting to observe.
Our acquisition workload at Fleurets is increasing and we expect this to continue, demonstrating the lack of supply versus a healthy demand in the health and social care sector, an indication of the continued appetite of this intriguing sector. The growth in supported living for people aged 18-65 means the residential housing market is yet another key partner for social care, alongside the NHS and local authorities.
The drive in demand is only going one way; how we meet that demand will need innovation, imagination and collaboration more than ever.