Christie & Co analyses transactional healthcare market in inaugural ‘Care Market Review’ report
Specialist business property adviser, Christie & Co, has today launched its first Care Market Review 2022 report, which analyses the transactional healthcare market in the UK: looking at buyer appetite, transactional activity and investor demand, local authority fee increases, and the funding landscape. It also includes an operator survey which gives an insider view on occupancy and agency staff usage from some of healthcare’s leading operators.
Transactional Activity
Christie & Co reports strong demand for care home opportunities throughout the UK, with a 78 % increase in completions from 2020 to 2022, and deal numbers significantly ahead of pre-pandemic levels. This year, offers sat at an average of 101 % of asking price, underlining that strong investor appetite with competitive bidding is commonplace. Christie & Co noted, however, that, with the changing macro-economic landscape, the trend moving forward will be driven by a number of factors including the availability of capital and the alignment of vendors pricing expectations relative to prevailing market conditions.
New instruction levels increased by around 30 % from 2020 to 2021 and they continue to grow as operators capitalise on the buoyant market conditions and strong values achieved.
The company notes that its most active buyer type over the past five years has been independent operators with one or two homes which, on average, transacted on 41 % of deals in the sector. So far in 2022, corporate operators and investors have made up 33 % of deals while first-time buyers made up just 7 % – a fall of 9 % since 2018 which is reflective of the increasing funding challenges for first-time buyers, the regulatory burden of the CQC, and the increase in quality, higher value stock on the market.
Thanks to a competitive marketplace and the increased use of technology in care homes which can allow for some operational work to be conducted remotely, buyers are increasingly looking further afield, with almost half (48 %) of deals in 2022 concluded to buyers who live over 100 miles from their target business. A large number of deals were concluded in and around urban centres, yet there has been an increase in the number of care homes transacting in rural and coastal areas.
Closed care homes
Over 1,500 care homes ceased trading between 2015 and 2020. This was not solely linked to CQC ratings, as over 40 % of care home closures in 2020 had ‘Good’ ratings and were closed for a range of reasons, including margins and cost pressures.
A record 31 % of the care homes Christie & Co sold in 2021 were on a closed basis – 56 % of these were sold for ongoing healthcare use, whilst 26 % were sold for residential conversion. The number of closed care homes sold dropped to just 13 % in 2022, however, an increasing proportion (80 %) of these closed homes were sold to care home providers.
Local Authority fee rate increases
When analysing local authority fee rate rises across the UK in the fiscal year 2022/23, Christie & Co found that fee increases fall short of inflationary cost pressures in the sector. There was a large disparity between fee increases throughout the UK, from 3.1 % to 12.8 %, with an average residential fee increase in England of 5.4 %, and nursing fees rising by 6.8 %. Going forward, the company expects the burden on the self-funded client base to increase.
Operator sentiment survey
Christie & Co interviewed a cross-section of local and regional providers in the UK to gain insight into some of the operational challenges they’re facing.
With resourcing placing a huge strain on care home operators, 52 % of respondents said that they have a widespread use of agency staff. Those that have obtained a sponsorship licence to recruit staff from abroad have been able to tap into new markets for their recruitment needs and this has been successful for many. However, with over half of providers still having to use agency staff to fill their rotas, business costs are increasing further.
While 43 % of operators said occupancy has returned to pre-pandemic levels, for 57 %, occupancy is still recovering. There is a wide variation in occupancy trends across the UK, with many smaller regional operators saying that their homes are largely back to pre-pandemic levels and larger providers generally reporting lower overall average occupancy rates. Positively, though, the majority report good enquiry levels, which suggests that occupancy rates will continue to re-build during 2023.
Funding Landscape
The report concludes with a look at the funding landscape written by commercial finance specialist, Christie Finance, which has seen 8.33 % fewer funded deals in the sector this year, as operators look to their portfolios to expand or restructure existing debt. The average loan size increased by 5.8 %, which suggests that funding in the sector is evolving to provide more refinance to buy or expand.
First-time buyers making offers on care businesses fell from 48 % in 2021 to 45 % in 2022 due to the perceived difficulties in raising finance. This area of the market has been more challenging as the recognised lenders retrench to service existing operators with proven track records.
Rob Kinsman, regional director – care at Christie & Co, comments, “The last couple of years have presented the sector with huge operational challenges, but it is heartening to see that investor appetite has fully recovered. We have confidence that the entrepreneurial nature of the sector will ensure the transactional market continues to thrive despite the growing economic headwinds.”
To read the full report, visit: https://www.christie.com/news-resources/publications/care-market-review-2022/