• Kevin Murphy

UK : Investing in Healthcare Property

The London commercial and prime markets have been the top choices for investing but another sector that should entice new investors in 2018 is in care and nursing homes. There was a net loss of 2,612 care beds in the UK with declines most notably in London for the year of 2016. Knight Frank reports that the number of new care home registrations in 2016 was at 106 adding 5,497 new beds into the UK marketplace.Compared to previous year, 2015, there were 119 new registrations with 5,805 new beds.

Home Care Market Trends 2015 to 2017

There have been changes in the sector most notably in the size of the care homes to manage capacity from 49 beds in 2015 to 52 in 2016. While this might be a small change it indicates that demand is becoming greater in investing in larger care home facilities.

The Greater London area saw the highest decline in the care home sector as some existing properties were re-developed for other uses. The city had ranked number one nationally in bed space for care centres but is now second after South Glamorgan in Wales.

The county of South Glamorgan is reported to have benefitted in reaching the top spot because of its labour market, lack of supply for facilities and a strong economic future. The report states:

‘The uptick to top spot may come as a surprise to many, but its position as a top three county in the 2015 and 2014 Index does indicate an area which has been ripe for care home investment and development for some time.’

While falling to second place in the 2016 analysis Greater London is still considered a desirable location for investors in the care home investment market despite the cost of labour and land. Knight Frank reports that for England and Wales:

‘Its strong economic fundamentals are unrivalled and as supply continues to narrow to one of the lowest in England and Wales, there will be growing need to replenish the loss of beds. While the economics of developing and investing in care homes within Greater Care home development prospects.’

Other locations seeing increased residential care homes are Yorkshire and the Humber which brought to market eight new homes between October 2015 and September 2016.

Most of the hot spots for residential care homes are in the southern region of Britain with Suffolk surging in the rankings to third place for 2016 from 11th in 2015 for care properties.

The analysis shows the Central areas of Scotland including Stirling, Falkirk and Clackmannanshire to be the top spots for home care development prospects. The low cost of labour and above average growth of the over-65 population are expected to bring increased future care homes.

Lothian and Grampian could also benefit from home and nursing care developments due to its 200,000 over-65 population. Glasgow & Renfrewshire are the locations where much of the activity in Scottish home care developments have been active for the past several years.

The April 2016 introduction of the National Living Wage (NLW) and the UK vote to leave the EU would increase the financial budgets of care facilities impacting the future growth for developments. The report says:

‘Yet, with the Chancellor’s recent Autumn Statement indicating a further rise of the NLW from £7.20 per hour to £7.50 per hour (for workers aged 25 and over) from April 2017, the further closure of care homes looks all but inevitable.’

It is expected that the over-65 population will rise from 11.6 million in 2016 to 12.9 million by 2021.

Despite problems with funding, costs of construction and labour issues including a shortage of nurses Knight Frank reports for 2017 they advised on a record volume of UK healthcare property transactions of £12 billion.

Forecast for 2018

In the latest Knight Frank analysis, UK Healthcare Property 2018, Julian Evans, FRICS Head of Healthcare, Hotels & Leisure says :

‘Furthermore, 2017 has seen a significant uplift in investment volume as demand for the sector is now at its highest level for over 20 years. Strong fundamentals underpinning the sector continue to make healthcare an attractive investment proposition.’

‘With investors becoming more accustomed to the sector, we envisage a strong appetite for investment to continue in the year ahead. We will also continue to see a strong interest from overseas investors, taking advantage of the weak sterling.’

Trends in the sector for 2018 include the growing demand for care beds with an expected shortfall of 148,777 by 2021 and the possible closure of 6,600 care facilities within the next five years.

Mr. Evans says for the long term entering 2018:

‘...across all real estate markets, technology will play an even greater role in the sector’s evolution, both in terms of operational care provision, as well as the design of the physical assets.

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