Care home profitability dented due to rising costs

Julian Evans, head of healthcare, Knight Frank

Staffing remains the number one challenge for care home operators both in terms of cost and recruitment, according to global property adviser Knight Frank.

Average staff costs increased 50% over the past decade, measuring £25,938 in 2018/19 on a per resident per annum basis.

The rise was down to increases in the National Living Wage, which is £8.21 for people aged over 25, according to Knight Frank’s UK Care Homes Trading Performance Review 2019.

Both the Conservative and Labour parties have pledged to increase this if they were to win the next general election.

The review found that difficulty in attracting qualified nurses and carers at competitive rates in the UK had led to operators becoming increasingly reliant on agency staff to deliver care, often at extra cost.

This was directly impacting the bottom line, with average profit margins down 0.9%, and nearly 5% over the past 10 years.

The Knight Frank care home index, which collects data from corporate care home providers, revealed the average weekly care home fee had risen 8% in the past 12 months, adding to the trend seen in the last ten years.

This was due to extra staff costs as well as increasing medical fees as older people enter care later and with more intensive needs.

Property costs rose 15% over the past year, averaging £2,316 per bed per annum in 2018/19.

Increases occurred in all regions of the UK, with rises in utilities, council tax, insurance, repairs and maintenance.

Food costs grew 8% to reach £1,578 per resident per annum or £4.32 per day.

The report said: ‘Food price inflation is at its highest rate in five years and a weakening pound sterling has also made imported goods more expensive. Operators are also making significant efforts to improve the quality of produce they provide, adding to the level of spending.

‘This is particularly the case in the private pay market where food costs averaged £1,852, per resident per annum in 2018/19.’

The review said profitability did not ‘make pretty viewing’, with average EBITDARM falling from 32% in 2008/09 to 27.4% in 2018/19.

‘Broadly speaking, year-on-year fee increases have not been enough to counteract escalating staff costs and protect profit margins,’ it said. ‘Operators also endured significantly increased property costs in 2018/19, and many of these are unavoidable if care home managers are to ensure the smooth running of homes.’

Julian Evans, head of healthcare, Knight Frank, said: ‘Demand for elderly care beds remains robust in the UK, however staffing continues to be the main issue of concern in the industry, with many providers affected by the social care funding crisis.

‘The shortage of nurses is a huge concern, given the demand for specialised nursing care, such as dementia, has never been greater. A comprehensive solution is needed to address this and increase the number of registered nurses available to the care sector.’

Despite the challenges, Evans said the outlook was promising.

He said: ‘The senior living property market is one of the fastest growing residential markets in the UK. The sector could prove to be a vital in improving health and wellbeing for the over 65’s and allow for a smoother transition from family home to full residential care.

‘We expect to see greater synergies between the senior living and care home sector as operators look to provide residents with both low-acuity assisted living and high-acuity care on the same site.’