Occupancy rates for UK care homes rose for the fifth consecutive year, while average fee levels outstripped RPI inflation for the fourth year running, according to research from Knight Frank.

The property consultants also reported in its UK healthcare property overview that one-third of homes achieved EBITDARM as a percentage of income of more than 30%. Knight Frank itself advised on a £12bn of healthcare deals in 2017, including the £300m sale of 122 Bupa Care Homes to HC-One.

These rises came despite the introduction and the subsequent increase in the National Living Wage, rising food and property costs and staffing challenges ahead of Brexit. Knight Frank also reported that 2017 witnesses a shift towards personal care home developments targeting the private pay market in response to the shortfall of qualified nurses.

Furthermore, Knight Frank said that investment volume as demand for the sector is now at its highest level for over 20 years, with strong fundamentals underpinning the sector, that continue to make healthcare an attractive investment proposition.

Head of healthcare Julian Evans said: ‘Key trends have included an increased demand for long-dated healthcare assets, appealing to pension funds and both domestic and international investors, attracted by the circa 30 years unexpired leases linked to RPI/CPI when compared with the average commercial property lease length of seven years. The sector’s institutional appeal is furthered by current bond market conditions, with gilts producing lower returns.

‘Meanwhile, further shaping the market has been the wide availability of capital to specialist funds that have taken a more holistic approach to healthcare investment. Notably, Impact Healthcare REIT purchased The Seed Portfolio for a handsome value of £149m in 2017. 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.

‘A further trend set to continue in 2018, is the growing demand for care beds, driven by ageing population and given the estimated shortfall of 148,777 market standard beds by 2021 coupled with 6,600 care homes at risk of closure over the next five years.’