Care Market Outlook: Property

After a challenging time for the care sector, which was exacerbated by a second wave of the virus, we are seeing promising signs of recovery in the care business property market.

Demand for care homes remains strong across all buyer groups, as it was pre-pandemic, but the second wave of the virus delayed some care homes coming to the market as owners grappled with COVID-19 outbreaks and occupancy challenges.

In our recent care operator sentiment survey, 45% of respondents said their occupancy has recovered, yet 39% said their occupancy levels were below 80% which shows that there is still a way to go before the sector returns to pre-pandemic levels.

The strength of buyer demand, coupled with a relative shortage of stock, means that pricing is holding up well, with multiple offers being routinely received. There is improving appetite across the spectrum, with the top end being fuelled by strong investor interest which is cascading through the rest of the market.

The strength of investor interest reflects a variety of factors, including the return to the market of a number of funds which paused acquisition activity last year. There is a notable requirement to deploy a significant level of capital and, this year, we have also seen significant interest in the healthcare sector from overseas investors. One example is SCPI Pierval Santé, a specialist healthcare real estate fund based in France which entered the UK market in June with the acquisition of a portfolio of prime care home investments let to Care UK, a deal which Christie & Co was pleased to broker on behalf of the vendor, Legal & General.

The development market continued largely unabated through 2020, as developers and operators took a longer-term view off the back of the forward-looking demographic demand drivers, and the structural undersupply of future-proof care beds in the UK. Development activity remains robust thanks to the high demand from a range of institutional, sector specialist and overseas investors for new build care homes, let on long-term leases to good quality operator covenants.

As with the going concern market, a relative shortage of opportunities has resulted in strong interest and a compression of yields for such forward funding opportunities. We expect this trend to continue as new capital enters the market, with many investors actively targeting healthcare due to its strong needs-driven underpin and operational real estate exposure.

Multiples and pricing for care businesses have remained largely unaffected by the pandemic, however operational challenges have impacted many operators’ financial performance. 45% of sentiment survey respondents believe values would increase during 2021, with 33% expecting little improvement. Lenders are closely monitoring occupancy levels and supporting operational performance across their client groups, with indications that many providers fared better than expected.

For more on the care business property market in 2021, read Christie & Co’s mid-year review https://www.christie.com/news-...