MIKE TIERNEY, DIRECTOR OF DEBT FINANCE
With one-in-six scale-ups in the UK operating within the health and social care space*, at Oaknorth we’re proud to stand behind a sector that supports others. Since our inception in 2015, we’ve witnessed the transformation of such a vital industry from basic facilities for the elderly to the emergence of purpose-built, hotel-like homes servicing a broader clientele. So, what is driving this change? And what opportunities lie ahead?
It’s no secret that historically care homes were often older, converted properties with modest amenities. Initially catering primarily to elderly care, these basic facilities were built with the intention of residents being able to spend the last few years of life there. The industry has gradually expanded to accommodate specialised needs such as dementia, nursing care and much more. And, as the sector matured, purpose-built homes began to emerge, offering modern amenities akin to upscale hotels, catering to residents seeking both comfort and quality of life.
What spurred this transformation? We can attribute this change to several factors, foremost among them being the UK’s ageing population. With people living longer than ever before, the demand for care homes has surged. Moreover, societal expectations have shifted, with residents and their families seeking a higher standard of living during their twilight years. Additionally, there’s a growing emphasis on environmental sustainability, with operators increasingly adopting green initiatives to meet evolving consumer preferences.
Despite the sector’s evolution, it faces formidable challenges. The biggest challenge we’ve seen from care home operators and investors that we’ve worked with is balancing rising costs with affordability pressures. Staffing, in particular, represents a significant expense, with wages comprising a substantial portion of operating costs. Regulatory compliance also remains paramount, with adherence to stringent standards essential for maintaining a positive reputation and attracting residents.
An imbalance between demand and supply looms large over the care home sector. The ageing population, coupled with evolving regulatory requirements further complicates matters, as outdated homes struggle to meet modern standards. In fact, 56% of all care homes in the UK are over 20 years old, with less than 25% between 0-10 years old**. This highlights a serious need for action within the sector to bring older homes up to contemporary standards and the importance of continuing to develop new facilities.
Looking ahead, we are extremely optimistic regarding the sector’s prospects. Despite recent upheavals such as the COVID-19 pandemic and energy crises, stability appears to be returning. With interest rates steadying, we foresee a resurgence in both development and upgrade projects.
At OakNorth, our appetite for lending to the care home sector remains strong as we closely watch its evolution and growth. Our experts have an in-depth understanding of the challenges and opportunities that lie ahead and look forward to partnering with care home operators and investors to deliver exceptional care and quality of life for generations to come.
If what you’ve read today resonates or you’re interested in learning more, please get in touch with our team of experts to discuss your funding needs.
*According to research we published with the Social Market Foundation in 2023.
** Knight Frank UK Care Home Trading performance review 2023.
