Colliers International’s latest edition of its Healthcare Market Review reveals that in the last twelve months, the sector has continued to provide occupancy, income and fee challenges and opportunities in equal measure however overall, the healthcare investment market is still attracting great interest.
In contrast to the more positive pattern of recent years, there have been generally negative trends in the elderly, personal and specialist care sectors but the nursing sector has proved a little more resilient.
Colliers’ 23rd edition of the Healthcare Market Review provides an in-depth analysis of the healthcare property and business sector, focusing on key drivers of the care home industry, covering occupancy rates; average weekly fees; payroll and non-payroll costs and profit margins.
Walter Boettcher, Chief Economist at Colliers International commented: “The healthcare investment market is still proving resilient despite the challenges posed by Brexit.
“Reviewing UK REIT performance since the EU referendum in June 2016 shows that healthcare properties performance, as measured by share valuations, were less affected and recovered faster than mainstream UK property asset classes, especially those with exposure to central London.
“Ex-London assets and assets secured by long operational income linked to the real economy look to be generally affected less by Brexit than those with greater exposure to the financial economy. In contrast to the EPRA UK indices as a whole, which remain down by 3% since June 2016, Healthcare REITS are up by between 11% to 15%.”
The research shows that the personal care sector has seen pressure this year, with static fees and only a small increase in average occupancy levels (0.1 percentage points since H1 2016 to 91.8%). With rises in RPI in recent periods, personal care fees have fallen over 3% in real terms over the year. Whilst non-payroll costs have remained static, there has been a marked increase in payroll costs over the last half year. Overall, profit levels have fallen for the sector.
Within the nursing sector, occupancy levels have fallen to below 90.5% in H1 2017 (down 0.7 percentage points since H1 2016) but fees have risen by 5.2% in nominal terms and 1.9% in real terms in 2017, continuing the strong growth seen last year. With small variations in payroll and non-payroll costs, profit levels in general show only a small decrease in percentage terms so overall, resulting in a generally positive picture.
The report also highlights that in the specialist care industry, occupancy rates have remained fairly stable (91.2%) and fees have shown steady growth, giving a positive picture regarding ‘total income’ levels. There has been a marginal increase in both payroll and non-payroll costs, which has resulted in falling EBITDAR levels in percentage terms.
Adam Lenton, Head of Healthcare at Colliers International commented, “Demand for quality care provision in care homes, through primary care and the NHS, continues to intensify. This is offset against limited progress with improved facilities, planning regulations, staff recruitment and retention and private investment – and that’s before we make a dent in the Brexit negotiations and the ensuing ramifications of our departure from the EU.
“Within the private healthcare sector, many existing operators and investors are working proactively to address the issues within their remit and reach; self-regulation, re-investment, creative staffing solutions are tried and tested to try and provide the best care provision possible under seemingly relentless circumstances.
“The results over time can be extremely rewarding and deliver strong occupancy and profitability but it’s a difficult balance to get right. The healthcare sector needs more investment, development, proactive government support and strategic thinking, integration and public/private sector collaboration. With the demographic challenges we face, the issues will continue in the coming years and the sector will adjust and rise to challenges, as it has done over the past 25 years.”