Care Sector Shows “Exceptional Resilience” As Demand Continues To Outstrip Supply, New Report Finds
The UK’s residential and nursing care sector has continued to demonstrate resilience through the first half of 2026, despite mounting cost pressures, ongoing workforce challenges and a shifting regulatory landscape, according to the latest Sector Pulse Report from specialist lender OakNorth.
The report, published this month, finds that demand for care remains structurally strong, driven by the UK’s ageing population, rising clinical acuity among residents and continued pressure on NHS services. Occupancy levels across elderly care homes are said to be broadly in line with, or slightly above, pre-pandemic levels, with demand increasingly weighted towards nursing, dementia and complex-care provision.
According to figures from the Association of Directors of Adult Social Services (ADASS) cited in the report, 94% of directors say NHS pressures are causing adult social care to take on responsibilities previously delivered by the health service, underlining the growing importance of higher-acuity care. Funded Nursing Care rates rose by 5.4% for 2026/27, offering some relief to providers, though operators with significant local authority exposure continue to face pressure where fee uplifts fail to keep pace with cost inflation.
Supply remains the sector’s biggest challenge
The report highlights that supply continues to lag far behind demand. UK care-home bed numbers have grown by just 2.4% over the past decade, well short of growth in the older population. Around 79% of homes are now more than 20 years old, 38% are converted properties, and almost a third of beds still lack en-suite facilities — a gap the report says is widening the performance divide between modern, purpose-built homes and older stock in need of significant investment.
Planning constraints, high construction costs and regulatory complexity continue to restrict new development, reinforcing the value of modern, purpose-built care homes for both operators and investors.
Workforce costs continue to bite
Labour remains providers’ largest operating cost. The National Living Wage rose to £12.71 per hour from April 2026, while higher employer National Insurance contributions continue to weigh on margins. Vacancy rates have improved to around 7.0%, but tighter immigration rules have significantly reduced international recruitment, shifting the focus firmly onto domestic recruitment, staff retention and productivity rather than simply filling posts.
Digital adoption accelerates
The report points to rapid progress on digital transformation, with Digital Social Care Records now in use across 83.7% of CQC-registered provider locations, covering 92% of people receiving care. Beyond improving day-to-day efficiency, digital tools are said to be strengthening medicines management, audit trails and inspection readiness, with providers also investing in telecare and remote monitoring ahead of the UK’s analogue telephone network switch-off in January 2027.
Retirement living on the rise
Demand for retirement living and Integrated Retirement Communities is also gaining momentum, the report notes, as more older people seek housing that supports independent living for longer. Operators are increasingly exploring rental and mixed-tenure models to widen access, and institutional investors continue to be drawn to the sub-sector’s long-term demographic fundamentals, even as planning constraints and development costs limit new supply.
Recent lending activity
The report also details several recent OakNorth financing deals supporting expansion across the sector, including a £28.5m loan to D2 PropCo to grow its supportive housing portfolio across Wales and England, a £15m loan to developer Aspire LPP for a new 74-bed care home in Surrey, a £10.8m loan to Chatham Waters Care Home Limited to open a 75-bed home in Kent, and an £8.3m loan to Chrysalis Homes for a retirement development in Renfrewshire, Scotland.
Looking ahead
The report’s outlook for the next six months points to continued long-term demand growth, with the UK’s pensionable-age population projected to rise from 12.4 million to 15.3 million by mid-2049, and the over-85 population expected to more than double over the same period. Fee recovery is expected to remain the key profitability challenge for operators with heavy local authority exposure, while larger M&A transactions are likely to face closer scrutiny following recent Competition and Markets Authority reviews.
Workforce reform, including the proposed Fair Pay Agreement, is also expected to remain a major focus for providers as they weigh up its long-term implications for recruitment, retention and operating costs.
Commenting on the findings, Ben Barbanel, Chief Lending Officer at OakNorth, said the sector’s long-term fundamentals “have rarely been stronger,” adding that demand continues to outpace supply and is creating significant opportunities for operators investing in modern facilities, specialist care and operational excellence.
He said OakNorth remained committed to backing experienced management teams investing in new care homes, retirement communities and specialist accommodation, and confirmed the lender’s continued confidence in the sector’s long-term outlook.
