Care home sector recovers from pandemic despite inflation

Occupancy within the UK care home market has reached pre-pandemic levels, at 84.3%, in comparison with last year’s 79.4%, according to Knight Frank’s 2022 UK Care Homes Trading Performance Review. The report, representing approximately 79% of the corporate market, totalling more than 100,000 beds across 781 towns and cities, reported a 5% rise in occupancy and an increase in profitability in the care home sector over the past year. Knight Frank collated data from across the UK care home sector and surveyed operators on their individual performance. The report further revealed that operators are seeing increased demand for beds and that average weekly fees increased by 3.3% year-on-year to £980 per week. The report further highlighted the significance of government and regulatory support for the sector in both the short and the long term. It stated that while the sector has shown resilience, with fee increases despite unprecedented circumstances amid a cost-of-living crisis, the next question is to what extent fees can continue to grow to absorb inflationary pressures, particularly given there will be increased scrutiny on energy price rises, labour costs and legislation. Property and food costs have experienced cumulative rises of 40% and 15% respectively, while according to the sample the average cost of utilities at a UK care home is around £58,000 annually. Knight Frank therefore expects that more and more emphasis will be placed on how government intervention will be able to limit cost growth in this area. Knight Frank’s research highlights vast disparities in profitability depending on homes’ care standards and size. Homes with an “inadequate” Care Quality Commission rating traded at a margin of 22%, compared with homes with an “outstanding” rating, which traded at a 34% margin. The most profitable size range is homes with 60 to 100 beds, which trade at approximately 29%. Another major challenge facing the care home sector is the growth in the UK’s elderly population, which will potentially lead to a near doubling of demand for care beds by 2050, increasing by 350,000 beds against current levels of demand. Care home closures and this growing elderly population means that supply is failing to keep pace with demand, despite a healthy new development pipeline. The UK elderly care market is at risk of reaching capacity by the end of the decade, the report found, heightening the need for new homes to be built and for existing homes to be future-proofed and modernised. Julian Evans, head of healthcare at Knight Frank, said: “Despite further economic turbulence, we have seen further evidence of the resilience of the sector, as proved by rising occupancy rates and stabilising profit margins. However, it would be remiss not to acknowledge the potential headwinds due to inflationary pressures, with rising energy costs, the cost-of-living crisis and staffing shortages, and to what extent average weekly fees can increase in line with these costs to ensure that the sector is best positioned to absorb these. “There is no doubt that support from the government, local authorities and regulators is crucial in these challenging times, and while we do remain optimistic on its outlook, the sector will be leaning on a combination of its operators, investors, developers, lenders and local government to maintain its resilience through the next 12 to 24 months.” To send feedback, e-mail akanksha.soni@eg.co.uk or tweet @AkankshaEG or @EGPropertyNews Photo © Shutterstock