Care Homes have proven to be a countercyclical real estate asset class, performing strongly in economic downturns, according to Savills’ latest report.
KEY POINTS
144,000 additional care home beds needed to meet population growth in the next 10 years
The number of people aged over 80 in the UK is forecast to increase by 1.1m between 2022 and 2032, to 4.5m. With life expectancy no longer increasing, the ratio of over 80s to care home beds is a good proxy for demand and indicates the need for an additional 144,000 care home beds over the next 10 years, or 14,400 new beds per annum, just to keep pace with population growth.
c.30,000 care home beds in development pipeline by 2032
There are currently 132 care homes, comprising c.5,900 beds, under construction, of which 65 are expected to complete in 2023. Looking further ahead, there are an additional c.23,300 beds at different stages in the planning system.
It is estimated that 95% of these beds will be delivered by 2032, which will equate to c.3,000 per annum and help meet the mounting need. However, there remains a significant lack of new supply coming forward to meet future demand, highlighting the very strong case for increased development.
175 days to secure planning permission in 2022 – although the planning process is getting faster, it still presents a hurdle
In 2022 there were 221 applications for new care homes across the UK: 46% of these have secured planning permission to date and on average took 175 days to progress from application to permission.
This is down from an average of 252 days in 2017, indicating some progress in reducing planning timelines.
Only 14,500 care home beds delivered since 2020, and the sector remains significantly undersupplied
Across the country around 300 new care homes have been completed since 2020, adding an additional 14,500 beds. Close to half of these new beds are in London, South and East England.
The new delivery equates to an average of c.3,900 beds per annum, which is less than one-third of the 14,400 beds needed to maintain current ratios, given population growth.
c.66% of new development planned in London, South and East England
The majority of pipeline is coming forward in South and East England, driven by higher levels of housing wealth, which underpins the ability of residents to pay for private care.
However, this also highlights a challenge facing the sector in terms of how to deliver much-needed care homes in less affluent markets.
61% of care homes have an EPC C or above
The majority of existing care home stock has an EPC Grade C or above, putting the sector in an advantageous position compared to the broader residential market, where only 40% of homes meet or exceed EPC Grade C. In the short term, this positions care homes favourably to comply with forthcoming energy efficiency regulations, which are slated to mandate a minimum EPC Grade C by 2027.
However, regulations are then expected to tighten further to require an EPC Grade B from 2030, which will create a need for further investment in, or potentially the replacement of, approximately 70% of existing care home stock, intensifying the focus on ESG and Sustainability standards for new developments.
Read the full report: Spotlight: UK Care Home Development