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News Release

Increasing revenues, occupancy rates and demographic change creating new opportunity in the Care Home sector

27 September 2016 - Latest annual research from JLL into the care home sector highlights rising fees, strong occupancy levels and rising profitability. The research also highlights that a new demographic wave is set to increase and change demand for the type of elderly housing required.

The 2015/16 research was based on a survey of a wide range of care homes run by a mix of corporate and independent operators across all regions. Information was analysed on the key performance indicators of the sector including average weekly fee, wage costs and non-staff costs.

Key findings in the report include:

  • Occupancy levels have gradually increased over the last three years. The best performing region overall is the East Midlands at 92%, up from 89.8% in the previous year.
  • The average staff cost per resident is £19,078 in 2015/16, 7% higher than in 2014/15. The introduction of the National Living Wage (NLW) in April 2016 will have a huge influence on staff costs over the next year.
  • The research suggests that for most operators, Local Authority fees would need to increase by a minimum of 2% per annum simply to compensate for the effects of the NLW.
  • There has been a gradual increase in average weekly fees over the past three years.
  • Best performing region for nursing care in South East England at 91.6% with all other regions, other than the north east being above 85%.
  • Non-staff costs per resident fell from £5,114 in 2014/15 to £5,054 in 2015/16
  • Despite various challenges, EBITDARM* remains robust. The average stands at £9,054 per resident per annum which is 3% higher than the previous year. Nursing homes and residential care homes are seeing only marginal differences in profitability. 

Phil Hall, Chairman of JLL’s Healthcare team, commented: “While there are of course challenges for the industry including wage inflation, the introduction of the NLW and lack of qualified staff, there is great cause for optimism in the sector. Since March this year we have seen positive fee increases from local authorities and NHS Chief Executive Simon Stevens is to be congratulated on recognising that more funding is needed for social care to address strains across the NHS.”

An ageing population is increasing the demand for care homes but also polarising the market. An increasingly wealthier elderly demographic is driving a gap between the private pay market and the socially funded market, with private pay supporting above inflationary increases in private fees by up to 5% per annum while the average social fee increased by 2.3%.

Joe Guilfoyle, Head of Healthcare Corporate Transactions at JLL, added: “Investors have tended to focus on the best in class homes in the market with private pay customers due to this increased polarisation. However, there is now a lack of available high quality portfolios remaining for investors to target. As a result, private equity investor focus is now turning to those with the development and operator skills to create the next generation of high quality care homes. There are now new opportunities emerging in the mid-market.”

* EBITDARM stands for Earnings before Interest, Tax, Depreciation, Amortisation, Rent and Management Costs. A common measure of profitability between trading businesses and particularly care homes, this is sometimes stated post rent and head office costs (EBITDA) but for consistency and comparability within our dataset, all of the measures of profitability within this document are stated in terms of EBITDARM only. ​