Care homes face 30% surge in costs

UK care home operators’ costs are set to rise by £165 million this year, representing a 30% increase, due to increased costs of labour, supply and finance according to research by property advisor Knight Frank.

Knight Frank stated that its data covers the majority of UK care homes covering 98,000 beds Rising

Costs being are being driven by rapidly rising agency costs with the increase trending at 12%, combined with insurance and utilities becoming more expensive, and problems with supply chains. Knight Frank predicts these issues will result in a lag of new beds throughout 2023 and 2024.

The research highlights that the UK is on the brink of a significant demographic shift that will see the over-85 population grow from 1.6 million in 2020 to 3.7 million by 2050. Knight Frank predicts that by 2035 there will be a shortfall of 58,000 beds across the sector while the growth in the UK’s elderly population is such that by 2050 an additional 350,000 people will potentially need an elderly care bed, almost doubling the level of bed demand within 30 years. Furthermore, with 100,000 beds at risk of closure, this projected bed capacity hiatus means that existing operators will benefit from an increase in occupancy as demand is set to outstrip supply.

Knight Frank has predicted the adaptations needed to support care home residents of the future, including a rise in dementia and nursing care specialists, the importance of clinical outcomes and key performance indicators, design adaptation for future Covid-19 events, a growth in technology and telemedicine, and larger care home sites to include independent living units.

Despite these forthcoming headwinds the sector remains attractive to investors, with environmental, social and corporate governance positively driving institutional capital into social care and senior living. Additionally, pension funds are reallocating capital away from retail and into defensive sectors with an especial increase of investment into ‘beds and sheds’. This interest in unsurprising given the sector has proved resilient with yields compressing despite the impact of Covid-19 and Brexit.

Julian Evans, head of healthcare at Knight Frank, said: “As we continue to recover from the pandemic there is a sustained demand for high-quality beds, and increasing attraction from investors and pension funds. However, increased costs and disruptions in the supply chain are posing significant challenges to the development of the much-needed quality new build care homes. We currently face the perfect storm posed by rising costs of labour, supply and finance and if we do not act could risk a crisis in care provision. Urgent action from the government is needed to support this essential sector as it strives to deliver for our ageing population.”

Date published: January 11, 2022

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