Our market
Demand for care beds for the elderly is rising but the number of available beds has been flat, creating opportunities for our business to grow.
The over 75s are the fastest growing part of the UK population. As people live longer, their care needs are becoming more complex and with too few care beds available, many elderly people end up stuck in hospital for far too long. The UK urgently needs more care home beds, so people have the right setting for their care and to relieve pressure on the NHS.
Projected UK population aged over 75 (000s)
6.5 million people
There are 6.5 million people aged over 75 living in the United Kingdom. That number is forecast to increase by 55% to 10.1 million over the next 25 years. These increases will happen during the lives of our long leases.
Care needs are becoming more complex
While rising life expectancies are good news, the downside is that most people will spend the last 15 years of their life with some ill health. Around 10% of people over 80 have care needs that make it difficult for them to live at home.
Many people end up stuck in hospital beds, which means they’re in the wrong setting for the type of care they need, particularly if they have dementia. On average during 2023 there were just over 12,000 people in hospital every night who had no clinical reason to be there but could not be safely discharged. Half of those people, nearly all of them elderly, had been waiting more than 21 days to be discharged. This “bed blocking” increases costs for the NHS and has a knock-on effect on other patients, who can’t be admitted to hospital without a vacant bed.
Since the COVID-19 pandemic, there’s evidence that people are moving into care homes later than before, that they’re more likely to be frail or ill and that their stays are shorter. This is creating a longer-term shift in the industry, with increasing demand for care providers who can deliver higher acuity care.
Dementia is the most common acute condition affecting people in care homes. Around 70% of care home residents suffer from some form of memory loss, ranging from mild impairments to severe dementia. The Alzheimer’s Society projects that the number of people with some form of dementia in the UK will rise from just over 900,000 in 2020, to over 1.2 million in 2030, with the greatest rise being amongst people who have a severe form of the condition. By 2022 dementia and Alzheimer’s disease had already replaced heart disease and cancer as the leading cause of death in England and Wales.
Increase in people living with dementia in the UK
Projections by the Alzheimer’s Society
Over 10%
of people over 80 have care needs that make it difficult to live at home
The number of care beds isn’t responding to demand
Despite the ageing population and rising acuity, the number of available care beds for elderly care has been stagnant. Between 2012 and 2021, the number of beds in nursing and residential care homes fell from 11.3 per 100 people aged over 75 to 9.4 – a 17% decrease. Looking at longer-term trends, an estimated 25% of over 85s lived in care homes for the elderly in 1996. By 2017, this had fallen to 15%. This reflects several factors, including a shift in social care policy towards home care. It might also reflect an element of rationing in the care system, as many older people struggle to access the care they need.
Although the care home market is attractive for existing care homes, the economics make it difficult to create much new supply.
Construction costs have risen substantially over the past two years, making it difficult to deliver a high-quality new care home for less than £200,000 per bed. In contrast, an older home with an established record of providing good-quality care can cost less than £100,000 per bed, which we believe offers a better risk adjusted return. Given the higher capital costs of new homes, tenants have to pay higher rents – up to 20% of their revenues as opposed to our average of 12.6% – which means they have to pass these costs on by charging higher fees to their residents. This means higher fees do not automatically translate into better care, which depends more on the quality and stability of the team than the building.
Staffing rotas are highly regulated and tend to be similar in new and older homes. The higher fees needed by newly built care homes limit the number of residents who can afford them, restricting the size and growth of this segment of the market.
Slightly older homes also offer opportunities to add value, by updating them, adding facilities and improving their environmental performance, which is another reason we favour this part of the market over new builds.
Bed supply hasn’t increased to respond to forecast growth in demand
17% decrease
in the number of beds per 100 people over the age of 75 (2012-2021)
The market is highly fragmented
There are currently just over 12,000 registered care homes in the UK. Our market is unusually fragmented. Over the past 15 years that fragmentation has increased as the market share of the top-10 care providers in the UK has declined from a peak of 27% in 2006, to 19% in 2023. The market share of sole traders operating one or two care homes has also declined, from over 80% in the early 1990s, to under 30% today.
Where there has been growth is of mid-sized care providers operating between three and 80 homes. Developing partnerships with operators in this space has given us the opportunity to acquire good-quality assets at attractive yields.
Highly fragmented market
12,000
registered care homes in the UK
Growth is driven by our target tenant base in the mid-market by size.
Government policy and funding for care is complicated
To put it mildly, government policy and funding for adult social care is a complicated field. There is no national government budget for adult social care in England. A person’s care needs might be met by their local authority’s social services budget or by their local NHS Trust, and the individual or their relatives may also have to contribute to the cost.
Most local authorities support their adult social care costs through a council tax levy and, in certain situations, local authority or NHS funding is means tested. The system is ripe for reform, but successive governments have failed to implement it, despite numerous white and green papers, plus industry reports. Our tenants are experienced at delivering care in this complex environment while also running sustainable businesses.