Demand and Transaction Volumes in Care Market at 14-Year High in 2022

Business property adviser, Christie & Co, has today launched its Business Outlook 2023: Finding Clarity report which reflects on the themes, activity and challenges of 2022 and forecasts what 2023 might bring across the industries in which Christie & Co operates in, including the care sector.

The business reported a 14-year high in the level of demand and volume of care homes transacted by its care team in 2022, with interest from a range of buyers including a number of new European organisations who are looking to either enter the UK market or increase their presence.

Corporate investors accounted for 33 per cent of Christie & Co completions in 2022 which is a significant increase from 22 per cent in 2018, reflecting the increasing use of sale and leaseback finance and a wide level of activity from a cross section of UK, US, and European REITS together with institutional capital. This is further illustrated by analysing where buyers are based relative to the businesses which they acquire. In 2022, 48 per cent of Christie & Co’s care deals were concluded to buyers located over 100 miles from the target business, a 19 per cent increase since 2015, which reflects a national and international buyer base.

Christie & Co notes ESG (Environment, Social and Governance) as a key priority for investors within the sector who are particularly well-placed to deliver good ESG outcomes. Whilst many care homes in the UK are older and less energy efficient, operators are embracing the opportunity to make environmental improvements, a trend that is particularly prevalent in new build developments.

As part of its annual price index, Christie & Co notes a 2.7 per cent increase in pricing in 2022 which reflects a strong appetite for care, however this is tempered by increased interest rates, capital costs, and operational costs.

Sentiment Survey
The business property adviser anonymously surveyed care market participants from across the country to gather their views on the year ahead. When asked about their sentiment for 2023, 34 per cent said they are feeling positive, 32 per cent said neutral, and 34 per cent reported feeling negative which, Christie & Co said, gives cause for optimism this year. When asked about their plans for 2023, 73 per cent of respondents said they were looking to either buy, sell, or both in the year ahead, while just 27 per cent said they don’t plan to buy or sell.

The Funding Landscape

Since January 2022, amid macro-economic volatility, lenders have begun to put the pandemic behind them and focus on inflationary costs and interest rate increases. Increased external pressures have heightened the due diligence a lender will pursue through a funding process, however, despite this, the debt market remains buoyant and diverse.

Market Predictions
In the year ahead, Christie & Co expects:

• Demand for good quality assets and general buyer sentiment to remain strong
• The trend of an increasing number of operators taking leases is likely to continue
• Sale and leaseback finance will continue to underpin a notable number of transactions, although yields may soften as a consequence of wider macro-economic factors
• Occupancy should fully return to pre-pandemic levels by year end
• Workforce challenges and cost inflation are likely to remain as the two key operational headwinds
• More signs of distress will likely emerge, particularly for smaller older style assets which are reliant on local authority funding
• Further transactional activity in the OpCo market

Richard Lunn, Managing Director – Care at Christie & Co, comments,
“The sector continues to be impacted by cost pressures and workforce issues – challenges not unique to care – yet 2022 demonstrated, yet again, the strength of both the sector and the market itself, as we saw record levels of demand and transaction volumes last year along with strong pricing. We remain optimistic for the year ahead that, despite headwinds, the care sector and its fantastic workforce will thrive.”

For the full report, visit: christie.com/business-outlook-2023

 

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