Rob Kinsman, Regional Director for Care at Christie & Co, gives an overview of the social care market for the year ahead
In many ways, 2023 was a year of consolidation, 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. Deal volumes were robust, whilst buyers scrutinised staffing costs, any reliance on agency, and utility contracts. Positively, we didn’t see a material deterioration in asset values for going-concern deals, and the performance of the sector fared well compared with other asset classes such as retail and offices.
Deals in the healthcare investment market reflected the higher cost of capital, with yields moving out relative to the peak of the market in 2022.
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 ESG credentials, together with future bed demand needs, remain compelling for investors.
We saw a greater number of developments in the regions, and this will continue into 2024 as the demand for elderly care spaces continues to exceed supply in most parts of the UK.
In 2024, we expect that:
- Values will remain stable with strong occupancy levels and investor demand offsetting higher debt costs
- Capital market activity will increase with a more stable interest rate environment
- There will be an increased number of OpCo transactions, as operators seek to expand their portfolios without tying up capital in real estate
- We’ll see an increase in distressed smaller assets as higher interest rates bite, particularly for those care homes in converted, period properties which are unable to leverage economies of scale and are often reliant on local authority fees
- New build development activity will increase across broader geographical regions as developers seek less competitive operating markets. However, the rate of new care home openings is unlikely to match the pace of closures and we will therefore see a further reduction in bed capacity across the country which will ensure robust occupancy levels for providers but also place greater pressure on the NHS
- There will be an ongoing rationalisation from larger providers and third sector providers, providing growth opportunities for acquisitive regional operators
- Continued protractions and uncertainty in the planning system will constrain supply of consented care home development sites
- We believe the Government announcement in December that overseas social care workers can no longer bring dependants into the country will not have a material impact on investor confidence and transaction volumes
For a wider review of the care market in 2023, and outlook for 2024, read Christie & Co’s Business Outlook 2024 report: christie.com/business-outlook-2024
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Image depicts Rob Kinsman, Regional Director for Care at Christie & Co