UK care home sector set for shake-up
New development and investment required to meet deep and growing market need for care homes
As one of the sectors in the front line of managing the health impacts of COVID-19, care homes have been forced into the spotlight and their reputation faced scrutiny. JLL’s latest report, “UK Care Homes: An opportunity to build communities and invest capital” highlights the need for a shake-up in a sector that will continue to face demographic pressures and the urgent need for more modern care homes to accommodate a growing number of residents who require long-term care.
According to the report, demand for long-term care amongst older people in the UK requires 110,000 additional beds over the next decade to meet an ever-growing market. In fact, the greatest challenge will come from the pace and scale of growth in over 85s. This age group is set to increase by 27.5% per annum to 2030, with an estimated 460,000 more people in this age group in the next decade. This is seven times the growth rate of the overall UK population and 16 times faster than the working age population.
With 465,000 care home beds in the UK currently, 5,000 fewer than in 2015 and 55,000 fewer beds than in 2000, the sector is significantly lagging in size and scale to match the demographic changes in the country. So, there is a pronounced structural imbalance between supply and demand.
Despite the scale of development in the last decade, purpose-built homes less than 20 years old account for just 22% of all care home supply. Conversions from houses, hotels and other uses still account for 51% of all beds, while 73% of all beds, both purpose-built and conversion, predate the 21st century. The lack of institutional grade care homes in the sector has also been one of the main challenges for investors in recent years.
Anthony Oldfield, Director, Healthcare Capital Markets, JLL, said: “With the increasing life expectancy in the UK, more modern and fit-for-purpose care home developments are required to meet the large and rapidly growing market need. Demand for beds will continue to increase with these demographic pressures and the time for operators, developers and investors to plan and develop solutions is now.”
There is compelling need to develop more purpose-built care home accommodation to meet a growing investor demand. Care homes have consistently produced high returns compared to other real estate sectors. The most recent MSCI index shows total returns of 8.4% in 2019, compared to 4.4% for Residential and 0.6% for all property.
James Kingdom, Associate, Living Research, JLL, added: “Institutional investor appetite for modern well-let care homes remains strong but more purpose-built care home accommodation is needed. We can expect investors looking for stable cash flow in the current environment to be attracted by the defensive returns that care homes offer, in addition to the long lease durations, which should generate interest among new investors looking to diversify their portfolios.”
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $18.0 billion, operations in over 80 countries and a global workforce of more than 94,000 as of March 31, 2020. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated.