A crucial metric

Patrick Collins, senior analyst, healthcare – specialist markets at Cushman & Wakefield, analyses fill rates of care homes for older people and why there is an undersupply of high quality, modern and purpose-built settings

For operators, investors and developers, the time taken for a care home for older people to reach mature occupancy is a crucial metric. Stakeholders target development locations with the necessary micro-market dynamics to support fast fill rates and high fees, with the latter somewhat aided by the former.

We’ve leveraged our database of trading data to analyse fill rates across a UK wide sample of purpose-built elderly care homes (54 in total), all of which started trading between 2018 and 2022.

Our analysis of purpose-built homes, developed no earlier than 2019, suggests that homes fill up at an average rate of 3% of capacity, or 2.6 residents per month, across the first 24 months of operation. After the first two years of operation the average occupancy of homes in our sample was 71%.

The trend line shows a mild parabolic, as would be expected, with beds filling faster in the earlier months of operation, and then slowing in the later months as homes approach mature occupancy and resident departure becomes a relevant factor.

Some homes filled rapidly in their early months of operation whereas others struggled to get out of the blocks. Given all of these homes were developed in 2019 or later, the pandemic is likely to have negatively impacted fill up in many of them, particular those which opened during national lockdowns associated with peaks in Covid-19 deaths.

A wide range of factors influence the rate at which a home reaches mature occupancy. Few factors are more important than location, this being more than just the micro position, but also that of local underlying demographics and supply-demand dynamics.

One cannot dismiss however the actual merits of the scheme, the appearance of the home, fee rates, the operator’s brand strength, the success of marketing campaigns and pre-opening sales programmes, the relation of the home in terms of quality and specification to the surrounding competition, and many other factors.

Perhaps reflective of the myriad of factors determining the success of occupancy ramp-up in a new care home, slicing our data regionally revealed no significant differences.

However, looking at the average monthly increase in occupancy by year, it is evident that the pandemic dampened the occupancy progression of homes in lease-up, no doubt through a combination of departures, as residents sadly passed away, and greater difficulty attracting residents due to negative publicity about the risks of contagion in older people’s care homes.

The chart below shows the average monthly increase in the occupancy rate of homes in their first 24 months of lease-up, by year.

It is encouraging to see that monthly fill rates recovered to pre-pandemic levels in 2021 and 2022, following the initial impact of the pandemic on the sector in 2020.

Additionally, the fact that care homes in lease-up maintained an average monthly lease-up rate of 2.42% in 2020, despite the challenges presented to the sector that year, is indicative of the undersupply of high quality, modern and purpose-built care homes in the UK, which underpins investment in the development, operation and ownership of these assets.