Care Operators Feel The Squeeze As National Living Wage Takes Effect
Average business property prices in all sectors once again increased in 2015 according to Business Outlook 2016 – the annual state of the markets report from property specialists Christie & Co.
The increase in average prices across the Care sector was 4.7% which is weighted by sector according to transaction volume, compared to 9.0% across all sectors, and Christie & Co predicts that the value of businesses across the medium term will continue to rise and outstrip pre-recession levels, in line with any increase in their profitability.
Christie & Co’s analysis, which tracks the average price movements across the sectors in which it operates, showed average price movements in 2015 as:
- Hotels: + 9.2%
- Pubs: + 10.1%
- Restaurants: + 9.9%
- Care: + 4.7%
- Retail: + 10.3%
- Medical: + 10.8%*
*data relates to Pharmacy only
With the exception of the Care sector, values largely recovered to pre-recession levels over 2015. Encouragingly, merger and acquisition activity has been evenly spread across all the business sectors covered by Christie & Co – Retail, Hotels, Restaurants, Pubs, Care, Childcare and Medical. This is one key differentiator between 2015 and 2014, when the Hotel market was hectic but other sectors weren’t to the same extent.
Richard Lunn, Managing Director – Care at Christie & Co commented: “2015 saw regional values improve, but we haven’t seen a significant increase in value although the top end of the market is seeing a premium on the back of interest from REITs. Following the National Living Wage announcement, we may see more care homes coming to the market in 2016 and we certainly expect to see growth in the private sector.
The announcement of the introduction of a National Living Wage affects the Care sector more than any other sector served by Christie & Co, given the high level of current Minimum Wage staff and published pay differentials between different grades of staff, which have to be maintained. As primary purchasers of care services, local authorities already have substantially squeezed budgets, and this makes it difficult for providers to pass on costs. It will be easier for providers of Private Pay services to mitigate some of this margin squeeze by passing the increased costs onto self-funded residents. However, local authority funded providers will find it harder to do so.”
Relatively subdued volumes coming to the market in 2015 created a scarcity of assets in the private owner-operator market that further fuelled price growth, while continued low interest rates and an improved lending environment created an appetite to acquire. This disparity between supply and demand looks set to continue in 2016 alongside a gradual increase in single asset transactions.
