Care home operators are set to see occupancy rates slowly rise and profits steady as the impacts of the pandemic recede and demand for beds remains strong, according to Knight Frank.
Its 2021 Care Homes Trading Performance Review, which collated data from across the UK including 98,000 beds across 781 towns and cities, pointed to signs of stabilising occupancy rates across the UK in the latter half of 2020/21.
The fall in occupancy during the first few months of the pandemic saw rates drop to 79.4% from 87.9% the previous year.
‘At the time of writing, whilst occupancy is still some way from the pre-pandemic levels in the high eighties, operators are now generally reporting a slow recovery and with a backlog of potential residents we are confident that this upward trend will continue,’ the report said.
Its research indicated operators are experiencing increased demand for beds and a corresponding backlog of potential residents, in addition to average weekly fees increasing by 6.7% year-on-year.
Its analysis showed EBITDARM as a percentage of income fell from last year’s level of 26.8% to 26.2% in 2020/21. Knight Frank said 11% of operators surveyed reported an EBITDARM margin of over 40% of income this financial year, signalling many operators’ capacity to adapt and withstand the challenges of the pandemic.
The report however highlighted disparities between the profitability of newer and older stock. Margins fell from an average of 31.4% for newer homes to 25.2% for older stock.
‘Against the backdrop of the pandemic it’s encouraging to see the start of a rebound in the care home market. Rising occupancy rates and stabilising profit margins across the sector are an indicator of sustained demand for high-quality beds, and this year’s UK Care Homes Trading Performance Review points to its resilience,’ said Julian Evans, Knight Frank head of healthcare.
‘But there is no doubt that significant challenges remain. The impact of government support on profit margins is still an open question and the disparity in margins between new and old units is a cause for concern given the proportion of care homes which are more than 20 years old.
‘However, if developers and operators focus on building new, high-quality homes and retrofitting older units, we remain confident in the future prospects of the sector.’