Operators face ‘significant challenges’ due to rising costs

Julian Evans, head of healthcare, Knight Frank

Care home operators are set to see costs rise by £165m this year because of increasing prices for labour, supply and finance, research by property adviser Knight Frank has revealed. 

Its data, which surveys operators on their performance and includes 98,000 beds across 781 towns and cities showed the rise, representing a 30% increase, is being driven by growing agency costs combined with insurance and utilities becoming more expensive. There are also challenges with supply chains, which are further impacting build costs.

These issues are predicted to lead to a lag of new beds throughout 2023 and 2024, it said.

LaingBuisson’s Care Homes for Older People last year said capacity had fluctuated in a narrow band between about 465,000 and 470,600 registered beds over the past seven years, a variation of about 1%.

Knight Frank predicts by 2035 there will be a shortfall of 58,000 beds across the sector and by 2050 an additional 350,000 older people will potentially need a care bed, almost doubling the level of demand within 30 years. Furthermore, 100,000 beds are at risk of closure, it said.

It predicts adaptations will help support the needs of the care home residents in future, including a rise in dementia and nursing care specialists, design alterations for potential pandemic events, a growth in technology and telemedicine, and larger sites to include independent living units.

Despite the challenges, it said the sector remained attractive to investors, with ESG driving institutional capital into social care and senior living. Additionally, pension funds were reallocating capital away from retail and into defensive sectors, with investment into ‘beds and sheds’.

‘As we continue to recover from the pandemic there is a sustained demand for high-quality beds, and increasing attraction from investors and pension funds,’ said Julian Evans, head of healthcare at Knight Frank.

‘However, increased costs and disruptions in the supply chain are posing significant challenges to the development of the much-needed quality new build care homes. We currently face the perfect storm posed by rising costs of labour, supply and finance and if we do not act could risk a crisis in care provision.

‘Urgent action from the government is needed to support this essential sector as it strives to deliver for our ageing population.’

Knight Frank projects the UK care for older people market is at risk of reaching capacity by the end of the decade, requiring the construction of high-quality care homes and the renovation of existing stock to meet demand.

It expects there will be an accelerated closure of tertiary assets and restrained care home development owing to building material inflation costs that will be hit by further rising prices because of increased smart specifications which will be needed for new build properties.