Care HomesNews

Care Homes Face 30% Surge-Costs Driven by Labour, Supply and Finance costs

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

The data from Knight Frank that points to the challenges posed to the sector as costs are driven higher covers the majority of the UK care home sector and surveys operators on their individual performance, including 98,000 beds across 781 towns and cities.

This increase in costs for the sector is being driven by rapidly rising agency costs with the increase trending at 12%, combined with insurance and utilities becoming more expensive and challenges with supply chains that are further impacting build costs. This culmination of issues is predicted to result in a lag of new beds throughout 2023 and 2024.

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 whilst 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 throughout the sector to support the needs of the care home inhabitants of the future, including a rise in dementia and nursing care specialists, the importance of clinical outcomes and KPIs, 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 ESG 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, commented: “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.”

Knight Frank projects that the UK elderly care market is at risk of reaching capacity by the end of the decade, requiring as a priority the construction of new, high quality care homes and the renovation of existing stock to meet the needs of elderly residents and ensure the residential elderly care system is ready for the future. It expects that there will be an accelerated closure of tertiary assets and restrained care home development owing to building material inflation costs which will be exacerbated owing to further rising costs due to increased smart specifications necessary for future new build care homes.