A brighter outlook for the elderly care sector
Denis Knockton, head of mid-market healthcare, Metro Bank | 07:29 Wednesday 23rd August 2017
The outlook for care home operators will continue to be challenging over the coming years, with increased pressure on staff, food and property costs as well as uncertainty around the UK's decision to leave the EU and the impact it may have on sourcing qualified nursing staff and care workers.
In relation to other UK industries, the underlying fundamentals of an ageing demographic, shortage of supply and care home closures exceeding new stock coming to market, all go some way to protect the elderly care sector from many of the macroeconomic challenges faced by the UK.
With demographic projections showing a steady rise in life expectancy, especially in those aged over 80, long-term demand trends reveal increasing average occupancy levels to more than 88% (Knight Frank Care Homes Trading Performance Review 2016). This is apparent especially for those operators providing high-quality, modern 'hotel-style' and 'home-from-home' facilities. As such, in the majority of cases, we have seen an increase in average weekly fees which now outstrip the low levels of inflation. Future fee increases will be influenced by the outcome of the government's health policy, residents' affluence and the residential property market (as many people sell their homes in order to fund their care). We have also seen a number of operators move towards private-paying residents, who are prepared to pay higher fees in return for high levels of care, quality of facilities and engagement through a range of activities and events within and outside of the home.
Staff costs are the largest price component and also the biggest challenge for care home operators across the UK. The introduction of the national living wage in April 2016 increased minimum hourly wages. With further increases in the coming years, care home operators will need to adjust their fee levels to reflect this. There is also evidence of staff leaving the sector and operators are having to work harder on retention, with many placing an increased focus on culture, morale, training and development.
There remains a strong demand for development funding, as many operators are thinking more long-term in regards to their growth strategies. Many providers are refurbishing and extending existing homes, others are acquiring and constructing new purpose-built homes. Care home operators are often in competition with residential developers, particularly in the South East of England, which places upward pressure on land values and will ultimately be reflected in the average weekly fee rates that will be required when the home commences trading.
It seems the care sector is better placed than most to weather the uncertain economic and political times ahead. The increase in demand for care home spaces resulting from an ageing demographic will come as welcome news to operators, but business owners will need to place greater emphasis on providing high-quality care services, as well as being responsive to the issues the sector is facing.
At Metro Bank, our health and social care team has been busy helping our customers achieve their strategic growth aspirations with recent examples including acquisitions, refurbishments, extensions, development of new-build homes, as well as full service re-banking arrangements.
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