Commercial Insights - UK healthcare: The impact on care homes.

What we know

Workforce is vital. While we should applaud the NHS professionals working to save lives in hospitals, we cannot forget the role played by 1.6 million people working in the adult social care sector. This includes 685,000 people working in care homes, most of which are highly skilled but low-paid nurses and carers. The lack of PPE and testing kits available to the sector has been in the spotlight, and rightly so. We are now seeing greater availability of such equipment, helping operators to reassure staff and admit new residents without fear of putting existing residents at risk.

Occupancy rates will fall. Initial estimates suggest a mortality rate of 15% for those aged 80 and over, with even greater risks reported for those with acute medical needs – such as care home residents. The rate of mortality will of course vary from care home to care home, but the death toll will have an aggregate effect on the UK market. Occupancy has begun to fall slightly as a result of deaths, but also because of the decline in new admissions. This may change as testing becomes more widespread and admissions return to normal levels.

What we expect

Smaller homes are potentially more at risk. Care operators are well-equipped to deal with seasonal flu, as well as diseases such as dementia and Alzheimer’s, but COVID-19 is an unprecedented challenge. While not a blanket rule, outbreaks are likely to have a more pronounced effect on smaller independent care homes, typically with less than 40 beds. Our analysis shows that around half of UK care homes are below this size and those without large group backing or the economy of scale to absorb occupancy loss, are at greater risk.

"…the building of new care homes and other healthcare facilities will remain vital in servicing the demands of our ageing population."

Long-term drivers remain robust. It is going to be a difficult year, but there are some key factors supporting long-term growth in the sector. This is not to underestimate the challenges, but to remind stakeholders that the fundamentals for this property are still strong. A significant decline in bed demand will not be enough to derail the growth in the number of over 85s in the approaching decades. Furthermore, its important keep in mind the UK’s strong global reputation, both as a healthcare market and a destination for global capital.

What we question

How prepared was our healthcare system? The NHS and the government did respond quickly to this pandemic, but compared to other advanced countries in Europe, the UK healthcare system looks undersupplied. The total number of hospital beds managed by NHS England has fallen 23% in the last 20 years (Source: NHS Digital), while the population of the country has increased by 15%. Furthermore, critical care bed provision in the UK equates to around 6.5 beds per 100,000 people compared to 29 beds per 100,000 in Germany.

Is there still a development opportunity? Most definitely – While there may be some delays to the construction pipeline, the building of new care homes and other healthcare facilities will remain vital in servicing the demands of our ageing population. COVID-19 is likely to have further implications in terms of design as new builds reshape to deal with future pandemics. Furthermore, the prospect of an economic downturn will enhance the flight to quality among healthcare investors and new developments will provide a means accessing the prime end of the market.