Home Market Updates What’s next for the UK care market? 

What’s next for the UK care market? 

by Kirsty Kirsty

Lee Howard, Regional Director for Care at Christie & Co—a leading specialist in advising on the buying and selling of care businesses—shares his insights on the state of the UK care market over the past year and offers his outlook for the year ahead. 

2024 was, in many ways, a year of growth in the UK care market, with the majority of operators reporting an improvement in occupancy levels and a reduction in agency usage. We saw a return in buyer confidence which resulted in an increase in transactional activity across the market, especially from the first-time buyer and independent segments. However, deal times were delayed as issues with the Care Quality Commission (CQC) persisted. 

Operational recovery, the easing of bank lending, and strong investor demand across all asset types resulted in heightened completion volumes across the sector and an average 1% rise in prices achieved for care businesses. We sold fewer closed, vacant care homes in 2024 (12% of our overall completions), compared with 2023 (16%). This is largely due to a material reduction in closed care home instructions and not a reflection of declining investor appetite for re-purposing this stock. ‘Small/medium-sized groups’ (groups of 3 to 19 care homes) was the most active buyer group in 2024 thanks largely to the return of occupancy, a notable shift from the most active in 2023 which was first-time buyers and independent purchasers.  

There was a clear reemergence of real estate investment activity following a relatively benign market environment in 2023 whereby investors adjusted to a range of factors including higher interest rates, inflationary pressures, and an upward movement in government gilts. In 2024, we saw yields stabilise with market activity seeing a notable pick up. 

​​The land and development market faced stronger headwinds due to construction cost inflation, ongoing challenges in the planning system, 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, remain compelling for investors. We saw a greater number of developments coming forward in untapped regions including the South West of England, Wales and London and this will continue into 2025.  

Policy & government funding 

It was disappointing that the social care sector was overlooked in the Autumn Budget 2024. It is, however, positive to see the Government delivering on an increase in NHS funding (before reform) which is a necessary start, with more details on future funding expected in the NHS 10-year plan in Spring. The ongoing issue of local governance financing was also acknowledged with an increase in funding of £1.3 billion for Councils, £600k of which is earmarked for social care (adult and children’s), though a fraction of this is likely to reach the elderly care sector. The additional increase in the National Living Wage and employer National Insurance Contributions creates further stress on employers where staffing costs are already at circa 60%. 

Whilst the increase in Capital Gains Tax was not as great as we had anticipated, the overall tax burden is now at a historic high. What we have now, though, is certainty, which is key for our markets to operate effectively. Business owners can now plan their exit strategies with the knowledge of their tax burden, and we expect to see some much-needed stability in the market. 

Predictions for 2025 

In the UK market this year, we expect to see: 

  1. Increased activity with interest rates easing  
  1. Increased deals funded by REITS  
  1. Continued first-time buyer activity  
  1. Margins squeezed on those dependent on local authority fees  
  1. ESG credentials will become increasingly important for both owners and funders  
  1. Existing operators will continue to expand with a preference for businesses with upside 
  1. Concern around staffing cost increases versus local authority fees  
  1. We remain positive that healthcare will continue to be a key target sector for investors 

@Christieco 

christie.com 

Image Depicts, Lee Howard, Regional Director – Care at Christie & Co  

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