With care homes, quality is the best strategy

Finding the best care for elderly relatives is always going to be a stressful, time consuming and emotional process. This challenge is exacerbated when a growing lack of beds is coupled with rising costs, and an increasing need to invest to bring older properties up to standard.

We’re focused on working with excellent operators who understand that quality of care not only leads to the best outcomes for those they look after, but can also lead to a good long term return on their investment, while providing employment and becoming a crucial part of the local community.

State of play

The statistics paint a stark picture, and also highlights the opportunity. The UK currently has 480,000 beds across 12,000 care homes. With the number of people aged over 80 expected to increase by 1.1 million between 2022 to 2032 to reach 4.5 million, an additional 144,000 beds are anticipated to be needed to meet population growth in the next decade.

The existing pipeline of care home beds is not sufficient to meet this population growth. In September 2023, there were 132 care homes providing 5,900 beds under construction and 23,300 beds in the planning system. By 2050, there is expected to be a shortfall of more than 200,000 beds, showing a mismatch in the supply and demand metrics. This imbalance has led to rising costs of care provision, with fees rising by almost 20% in the last two years.

Quality of care is intrinsically linked to quality of premises and while the Care Standards Act has been in force since 2000, many properties still don’t conform to measures such as minimum room sizes. If the Act was enforced on existing propositions, it would have shut down too many homes, with many still requiring upgrading, reconfiguring and retrofitting.

Seizing an opportunity

The acute shortage of adequate care home beds can be attractive to inspiring investors and operators looking to invest in the sector. This element of the living sector is clearly going to continue to be in high demand over the coming decades, however, success relies on an operator’s ability and commitment to providing a good quality of care.

Being able to do this recently has been hindered due to labour challenges, with Brexit reducing the number of available workers, leading to many rural areas in particular struggling to attract the staff needed.

While care home staff often receive low salaries, the best operators invest in their staff and pay them well. This means they don’t end up paying higher costs to an agency, and provide good working conditions. When they achieve this, they’re able to provide high-quality care which invariably leads to thriving businesses.

When an operator that gets the provision of care right, there are long term financial and communal returns to be had. The overall market value of the sector is estimated at £23bn, having dipped to £17.4bn in March 2021 during the pandemic.

Backing quality strategies

Our goal is to see where excellent operators could do an even better job in a new or improved property and back their strategy.

In 2023, we identified the care home sector as an area where we could apply our expertise to support the need for more beds, at a higher standard. Specifically looking to significantly increase our provision of development funding to proven operators to help them create new and better spaces that enhance their portfolios.

A factor in providing good quality care is that it can take a while for the costs to balance out against income when a new care home opens. Care homes can take some time to fill up, and therefore this needs to be factored into business models and cash flow forecasts regarding investment.

Our strategy is to back proven operators who already have a strong brand and can lean into their existing business in order to support new homes until they become established.

Care home development is underway, but it is not enough to support the sector’s growth. We remain ready and able to back operators that can not only provide exceptional care with a robust business model, but provide new homes and beds that fit for the future.

Find out more at aldermore.co.uk/realestate

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