UK care home operators are set to see occupancy rates rise slowly and profits steady as the impacts of the pandemic show promising signs of receding, according to global property adviser Knight Frank.
In its 2021 UK Care Homes Trading Performance Review, Knight Frank found average occupancy is down year-on-year from 87.9 per cent from 2019-20 to 79.4 per cent in 2020-21.
However, operators are now generally reporting a slow recovery and Knight Frank expects this upward trend will continue.
“Operators are experiencing increased demand for beds and a corresponding backlog of potential residents, in addition to average weekly fees increasing by 6.7 per cent year-on-year,” it added.
The report, which collates data from across the UK care home sector and surveys operators on their individual performance, records 98,000 beds across 781 towns and cities.
Sector-wide EBITDARM as a percentage of income, meanwhile, fell from last year’s level of 26.8 per cent to 26.2 per cent in 2020-21.
However, Knight Frank expects profitability will likely to be sustained amid the easing of nationwide lockdown restrictions and the resurgence in occupancy rates.
Furthermore, 11 per cent of operators surveyed reported an EBITDARM margin of over 40 per cent of income this financial year, signalling many operators’ capacity to adapt and withstand the challenges of the pandemic to deliver strong financial results and a continually high standard of care for residents.
Nevertheless, the 2021 Care Homes Trading Performance Review also points to numerous unresolved challenges including the extent of how future government support, such as the adult social care infection control fund, will aid the sector and affect long-term profitability trends in addition to concerns around rising staff and property costs.
Knight Frank’s research also highlights “vast disparities” between the profitability of newer and older stock with margins falling from an average of 31.4 per cent for newer homes to 25.2 per cent for older stock.
This demonstrates how the profitability of the sector, and the wellbeing of residents, hinges on the refurbishment of older stock and the development of new and high-quality care assets.
“Against the backdrop of the pandemic it’s encouraging to see the start of a rebound in the care home market. But there is no doubt that significant challenges remain,” said Knight Frank head of healthcare Julian Evans.
“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,” he added.
“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.”
