Healthcare Development Opportunities - Research 2021 - Knight Frank
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Care home development stays Will the pandemic accelerate The outlook for development – active in the pandemic the rate of home closures? we ask the experts Healthcare Development Opportunities Research 2021
H E A LT H C A R E D E V E L O P M E N T O P P O R T U N I T I E S 2 0 2 1 H E A LT H C A R E D E V E L O P M E N T O P P O R T U N I T I E S 2 0 2 1
2 3
SPOTLIGHT ON THE UK FIG 2 | De-registered beds vs new-registered beds
The impact of the pandemic
Care home occupancy, measured as the
12 months to April 2021
CARE HOME SUPPLY De-registered beds New registered beds
percentage of registered beds occupied
by residents, has inevitably fallen over
the last year. Knight Frank analysis shows
8,110 5,500 6,740 6,350 6,460 6,500 6,790 7,060 6,500 5,380
that UK-wide occupancy declined from
89% to 79% (as of April 2021) since the
outbreak. Encouragingly, occupancy rates
are now recovering with existing residents
vaccinated against the virus, and a backlog
of new elderly residents beginning to refill
care homes. As for supply levels, Figure
2 shows that 5,380 new care beds were
registered in the 12 months to April 2021 –
a notable decline from the previous year.
Although new-registrations also includes
The challenges of the last year have limited the growth of the UK elderly care home
properties that may have changed use to
market. A quick recovery is vital to ensure we build enough homes to meet future demand.
elderly care, the vast majority are new build
facilities. The pandemic forced many such
developments to delay construction (and
Market size
registration) in the middle part of 2020, but
FIG 1 | UK elderly care home beds
In our latest assessment of the UK care many have since proceeded and we have
home inventory, the market measured 2016/17 2017/18 2018/19 2019/20 2020/21 seen a bounce-back in activity in 2021.
480,072 beds spread across 12,034 care 2011 452,909
Source: Knight Frank, Tomorrow's Guides uu
homes (as of April 2021). This was only
a moderate increase of 0.1% on the Care home occupancy,
2012 461,091
previous year, but not surprising in a year measured as the percentage
when developers and care businesses of registered beds occupied
FIG 3 | De-registrations (12 months to April 2021)
paused to deal with the pandemic. by residents, has inevitably
2013 467,786 as % of total stock
fallen over the last year
uu
2014 467,223
uu Greater London
The number of de-registrations (home
The pandemic has forced Yorks. & Humber
closures) fell only moderately in the
2015 469,627
greater acknowledgment of 12 months to April 2021. As shown in
East Midlands Figure 3, Yorkshire & Humberside and
the hugely important role
the Greater London area saw the largest
that residential elderly care 2016 467,401
Wales
level of de-registrations, with the latter
plays in supporting any
East of England losing 2.3% of stock to closure. Inadequate
healthcare system
2017 471,571 care standards, financial issues, or a
uu North East
combination of both are typically the
South East main reasons for closure. Some homes
2018 472,716
also temporarily de-register to carry out
Limited supply growth has been an West Midlands significant refurbishment or extensions
ongoing trend, as shown in Figure 1,
2019 477,101
to the property. We suspect that the full
with UK care home supply growing by Scotland
financial impact of the pandemic is yet
only 6% over the last decade. When
North West to fully play out in the market. With the
we consider that the UK’s over 65 2020 479,573 government now concluding its year-
population has grown by 22% over the South West
long financial support package, we could
same period and is forecast to grow by see an uptick in de-registrations. While
Northern Ireland
a further 21% in the next decade, it’s 2021 480,072
large-scale operators have adapted and
0.0 0.5 1.0 1.5 2.0 2.5
easy to understand why many people performed very well in the pandemic,
are concerned by the current level of Source: Knight Frank, Tomorrow's Guides Source: Knight Frank, Tomorrow's Guides poorly managed care homes could yet be
care beds. casualties of the pandemic.
H E A LT H C A R E D E V E L O P M E N T O P P O R T U N I T I E S 2 0 2 1 H E A LT H C A R E D E V E L O P M E N T O P P O R T U N I T I E S 2 0 2 1
4 5
Much of the market is in need of
an upgrade FIG 4 | Why the UK care home market needs upgrading NEW BUILD CARE HOMES
As shown in Figure 4, much of the UK
care home market is made up of older
converted stock that lacks essential
en-suite facilities. This is not to say that
older converted homes can’t provide New build activity has remained buoyant as developers and investors
the very highest standard of residential press ahead with development sites.
care, but many homes in this category
71%
are increasingly unfit for purpose and
Developers have
most likely to experience regulatory and
remained active FIG 5 | UK new purpose-build care homes completed
financial pressure.
Southern England Midlands Northern England East England
As shown in Figure 5, 71 new care homes
Scotland Wales
En-suite or full wet room provision of homes are older (4,610 beds) were added to the market
90
should be a given for any elderly resident, than 20 years in 2020, compared to 79 homes (5,530
but especially so with the benefit of beds) in 2019. This is an impressive
At least
40%
facilitating resident isolation during the figure when you consider the freeze on 80
pandemic. 29% of UK care home beds construction sites from April to June of
still lack en suite provision. Nobody 2020 and the financial uncertainty that 70
wants to see care homes struggle, but may have delayed or reversed many
the Covid-19 pandemic may act to of homes are converted from decisions on development. Activity in 60
accelerate the closure of outdated homes other use and many will 2021 has so far been active with 35 new
and replace them with high quality be outdated care homes (2,430 beds) already delivered 50
future-proofed assets. or due for completion by mid-year.
40
How COVID has impacted care uu
home design There is a healthy balance
30
of development across
The pandemic will no doubt prompt
UK regions, the only
a change in the way care homes are 20
exception being Wales
designed and configured moving
where developers have been
forward, with particular emphasis
reluctant to break ground 10
placed on internal circulation, air
29%
uu
quality and ventilation. 0
Some of this stock was rolled over from
2016 2017 2018 2019 2020 2021 (May)
Further focus is likely to be directed 2020 but developers and investors have
towards transitional and communal space remained keen to press ahead with new Source: Knight Frank
with a view to maintaining an element of beds lack en suite sites despite the economic issues. There
of social distancing. This also presents facilities is a healthy balance of development
(commercial, business and service) to
21%
a strengthened argument for en-suite across UK regions, the only exception the pandemic. 2021 will be a challenging
C3 residential may serve to promote the
resident rooms suggesting the benefits being Wales where developers have been year with regards to development
emergence of smaller supported living
of this extend far beyond that of resident reluctant to break ground. The long-term financing across the whole commercial
facilities. Additionally, the simplification
experience to future virus control too. drivers of this market have definitely real estate sector.
of existing use classes and PDRs as well
been a feature of developer confidence.
of homes are currently rated as amendments in line with a promise of Finance / Funding
Finally, similarly to the shift in
by the CQC as “requires faster turnround times on applications
preferences that we have seen in the PDR Whilst appetite towards the sector
improvement” suggests that we could see a growth in
residential markets we are likely to see is more favourable in comparison
or “inadequate” The overhaul of the planning, development activity.
greater attention paid to the already to conventional real estate classes,
commercial use classes & permitted
important outdoor and breakout spaces. It The UK is on the brink of a significant conventional bank debt terms have
development rights will play a significant
is useful to note that whilst the mentioned demographic shift that will see the over become less desirable. Therefore,
role in the freeing up sites and the ability
is a result of prioritising infection control, 85 population grow from 1.6 million in forward funding as well as sale and
to deliver new care assets.
developers will need to be careful that 2020 to 3.7 million by 2050. As such, leaseback deals are likely to remain the
it doesn’t lead to a compromise in the Firstly, the new PDR to allow change many developers and investors have been fundamental key to unlocking further
quality and standard of resident life. of use from the new use class E undeterred by the shorter-term impact of site development moving forward.
H E A LT H C A R E D E V E L O P M E N T O P P O R T U N I T I E S 2 0 2 1 H E A LT H C A R E D E V E L O P M E N T O P P O R T U N I T I E S 2 0 2 1
6 7
across the UK and introduce the key
Cost of raw materials & Supporting site selection: England. This includes Greater London
labour slowing new build Knight Frank Development FIG 6 | New care home fill rates variables that should be examined in
which has the highest index score
Hotspots Index the site section process.
The BCIS Materials Cost Index states a in 2021. These counties score highly Lowest Average Highest
5.6% year on year increase in the price of Careful and well-informed research is because of the expected demand for 100% Figure 6 demonstrates the importance
raw materials such as aggregates, timber, a vital part of the development process care beds, indicated by high elderly of understanding local supply and
90%
and steel as at Q1 2021. This is a result of and Knight Frank’s Development population growth, economic growth demand characteristics before
the global pandemic’s effect on factory Hotspots index gives a simplified and wealth. Levels of wealth and 80% embarking on new developments.
supply, port timings in addition to rising insight into which locations present income are a driver of bed demand 70% According to research conducted before
shipping costs causing a continued the best future prospects for care home because residents are increasingly the pandemic, the average new build
60%
shortage of such goods, with demand development. The index analyses self-funded. The main barrier to care home takes at least two years
50%
therefore outstripping supply. The knock- 50 counties in England and Wales development in these counties are to reach full occupancy. However,
on effect of this, in addition to a lack of and 12 in Scotland, based on eight typically land values and staffing, 40% fill rates vary, with high quality sites
quality labour available is a slowing effect variables comprising demographic and with the cost of both much higher for reaching 70% occupancy within one
30%
on the speed of new build delivery. economic projections, levels of wealth, respective developers and operators. year, while others can take longer
20%
existing bed supply, the future supply to reach maturity. Such differences
Although there are clear issues with Other counties scored highly in England
pipeline, land values and operational 10% can translate into gains or losses of
finance and build costs, the fact that the and Scotland for different reasons. For
performance. The table shows a county’s income into the millions over a 3-year
market is driven by an unrelenting need example, Cornwall and the Highlands 0%
ranking on each of these variables and period, highlighting the importance of
for care beds could provide shelter from in Scotland score well not because of 0-1 year 1-2 years 2-3 years 3 years or more
the total index score indicates a county’s investing time and money into the site
wider economic headwinds. exceptional demand prospects but
total score relative to the national Source: Knight Frank selection process.
because of very low levels of current and
Therefore, we expect new care home average with indices above one implying
future supply. Ergo, the core purpose
development to remain active in 2021 above average scores.
of this index is not to determine where
and beyond, however it is vital that we
In this index, 5 out of the top 6 counties developers should build, but to provide
support this process.
are located in South East and Eastern a guide to the different opportunities
Care home development hotspots index 2021
COUNTY REGION ELDERLY ECONOMIC WEALTH CURRENT FUTURE LAND AVERAGE STAFF TOTAL
POPULATION* GROWTH* SUPPLY SUPPLY VALUES WEEKLY COSTS SCORE
FEES INDEX
England and Wales - top 12 counties out of 50 in analysis
1. Greater London Greater London 1 1 1 3 20 50 13 42 1.55
2. South Glamorgan Wales 19 8 15 10 32 10 1 41 1.50
3. Cambridgeshire East of England 9 6 9 11 36 44 18 21 1.32
4. Berkshire South East 6 2 2 8 41 46 5 48 1.29
5. Essex East of England 15 11 28 14 14 38 27 18 1.23
6. Buckinghamshire South East 5 3 4 12 47 46 2 47 1.23
7. Cornwall South West 34 15 43 7 5 14 7 50 1.16
8. West Midlands West Midlands 33 33 24 1 10 25 31 23 1.13
9. West Yorkshire North West 24 22 23 29 27 9 39 9 1.12
10. Lincolnshire South West 22 24 22 21 16 21 42 14 0.80
11. Gloucestershire South West 12 23 13 49 2 29 9 46 1.11
12. Wiltshire South West 3 16 14 23 44 34 12 38 1.11
Scotland - top 6 counties out of 12 in analysis
1. Highlands & Islands Scotland 9 10 4 3 2 1 8 1 1.36
2. Lanarkshire Scotland 2 6 8 5 1 4 11 4 1.26
3. Grampian Scotland 5 2 1 8 6 10 2 9 1.20
4. Lothian Scotland 1 1 3 6 7 12 3 12 1.15
5. Central Scotland 3 5 6 4 12 4 4 8 1.12
6. Borders Scotland 8 7 10 1 8 2 7 6 1.05
Source: Knight Frank *Based on 15 year projection, 2021 to 2036
H E A LT H C A R E D E V E L O P M E N T O P P O R T U N I T I E S 2 0 2 1 H E A LT H C A R E D E V E L O P M E N T O P P O R T U N I T I E S 2 0 2 1
8 9
Supporting site selection – year for development activity, there will
not be a shortage of appetite for new Figure 10: Under construction and planned care home developments
its all about granular data
care homes. Under construction In planning or tender
Data has a huge role to play in site
selection and having easy access 5,000
Looking further into the future,
to market data is essential for any 4,500
projections suggest that we must build
prospective care home development. 4,000
more care homes to service future
Benchmarking chosen locations against 3,500
demand (Figure 11). The growth in our
No. of beds
broader regional metrics allows investors 3,000
elderly population is such that by 2050 an
and developers to address demand- 2,500
additional 350,000 people will potentially
supply imbalances and provides vital 2,000
need an elderly care bed – the level of 1,500
intelligence into local fee levels, staff
bed demand will almost double within 1,000
costs and much more. Our Development
BUCKS
OXFORDSHIRE
30 years. Despite the new beds being
GREATER
LONDON
BERKSHIRE
500
SURREY KENT
consultancy team can take your research
HAMPSHIRE
WEST SUSSEX EAST SUSSEX
developed, the level of home closures 0
even further, providing market-leading
BUCKS
means that supply is not keeping pace South South East East London West North Scotland Yorks. North Wales Northern
feasibility studies that take due diligence East West Midlands of Midlands West & East Ireland
with demand. The UK elderly care market England Humber
and research to greater levels of detail.
is now at risk of reaching capacity by the
Source: Glenigan
OXFORDSHIRE end of the decade and this is a worrying
Looking forward projection. We must build more care
GREATER The development activity we have seen homes and actions must be taken to
LONDON grew sevenfold between 2019 & 2020 with innovative methodologies such as
BERKSHIRE in the last year is a very encouraging sign support existing homes and operators
$84 of every net $100 into equity funds modular construction for example.
and this looks set to continue judging to make sure the residential elderly care
placed with ESG funds over same period) As the social aspect of ESG becomes more
by the current pipeline. As shown in system is ready for the future.
SURREY KENT the importance of ESG in development of of a topic of conversion, more and more
Figure 10, there are over 7,000 beds
care assets remains very apparent. institutions have sought to align their
HAMPSHIRE currently under construction and a
ESG operational activity to several of the UN
further 10,000 in the planning or tender
WEST SUSSEX EAST SUSSEX
With global investor and occupier demand As care assets are often more difficult Sustainable Development Goals, e.g. goal
stage. Many of these homes are situated
for sustainable buildings on the rise, the to evaluate in terms of ESG than assets 11 of Sustainable Cities and Communities,
in Southern England, The Midlands
emergence of sustainable finance from which fall into the more conventional we can expect to see investors and
and East of England where the demand
lenders as well as a growing desire to place real estate classes, unlocking sustainable developers place further emphasis on the
characteristics are typically stronger
money into ESG strategies (According building processes has become more long-term social impact of each asset.
and investors have remained confident
to Calastone, Inflows into ESG strategies important which opens the door for
in forward funding new developments.
While 2021 may not be an exceptional
Figure 11: Projected shortfall of elderly care beds (000s)
Bed shortfall Bed Demand* Bed Supply**
FIG 7 | Elderly population FIG 8 | Elderly care beds (per FIG 9 | Staff costs (per bed
growth 2021-2036 (persons 1,000 person over 65) per annum)
1,000
over 65)
800
£32k
600
31.1%
£31k
36.4%
57.5%
£30k
35.2%
400
39.9%
41.3%
37.7%
37.8%
200
30.6%
MARKET CAPACITY
30.6%
£27k
£27k
0
-200
-400
UK
England
South East
Oxfordshire
Oxford
UK
England
South East
Oxfordshire
Oxford
UK
England
South East
Oxfordshire
Oxford
2040
2050
2030
2048
2044
2046
2049
2045
2028
2034
2038
2042
2043
2026
2036
2025
2029
2035
2039
2024
2022
2023
2032
2033
2047
2027
2037
2041
2021
2031
Sources: Knight Frank, Laing Buisson, Tomorrow's Guides, ONS, BMJ.
Source: ONS Source: Tomorrow's Guides Source: Knight Frank * Excess deaths in 2020 have been built into this projection. ** Future supply is based on the growth rate seen between 2011 and 2021.H E A LT H C A R E D E V E L O P M E N T O P P O R T U N I T I E S 2 0 2 1 H E A LT H C A R E D E V E L O P M E N T O P P O R T U N I T I E S 2 0 2 1
10 11
DEVELOPMENT OUTLOOK: use property classes into healthcare or
retirement living residences. We may
investment and development in non-
premium demographic areas that have
Nick: The number one challenge, pre or
post-pandemic is in my view the delays,
ASKING THE EXPERTS
also see further opportunities within historically been largely passed over. obstacles and lack of consistency in the
secondary tier markets for mid-market planning process. Over recent months
products where reasonable fees can Q3. What will be the number one this has been exacerbated in some areas
be achieved coupled with lower challenge to new development in of the country with the inertia caused
land values. the aftermath of the pandemic? in dealing with Nitrate/Phosphate
offsets. As we continue to ensure we
Nick: As operators become released Mandip: The planning process remains deliver our programme of sites on
from the operational intensities faced a key challenge. We continue to see time, forward planning and visibility
during the pandemic, bandwidth will operators and developers invest in is key. Whilst we will look to mitigate
become available to focus on business challenging sites within desirable risk around this through growing our
growth which will undoubtedly lead markets due to the scarcity of suitable land bank there needs to be investment
To get a better steer on the outlook for care home development we have collected the to more investment in new care land i.e. greenbelt sites. For such and commitment from all levels of
views of Mandip Bhogal, Development Consultant at Knight Frank and Nick Broadbent, homes. If this could be supported opportunities, we continue to support government that will ensure timely and
Development Director at LNT Group. LNT is one of the UK’s leading purpose build residential by a social care sector that was more their planning processes via our consistent decision making through the
care home developers. The group currently have a construction pipeline of 80 plus sites and appropriately funded, there would needs assessments and alternative planning process.
5,000 beds spread across the UK, putting them at the very centre of the market. be an ability to fund widespread site assessments.
Mandip Bhogal Nick Broadbent
Head of Development Consultancy Development Director
Knight Frank LNT Group
Q1. The data shows that new current financial year, while future
uu
build activity has declined only demand pressures give us significant
moderately in the last year, confidence to continue our growth
There needs to be investment
despite the pandemic – Why do and commitment from all ambitions in the next few years. The
you think this was? levels of government that will general confidence of developers has in
ensure timely and consistent our experience been matched by that
Mandip: Care home development decision making through the of the global investment community in
activity has remained buoyant during planning process the sector which ought to continue to
the pandemic, underpinned by an underpin developer confidence.
ageing population and shortfall uu
of future-proof assets. Despite the Q2. At the current rate of building,
disruptions caused to the construction we are at risk of a bed shortage
sites in Q2 2020, development activity by 2030. How do we build more
continued, once appropriate measures Nick: The events of the last 12-18 care homes?
were put in place. Operators and months has further reinforced the
developers have taken the medium overwhelming need to improve Mandip: In the next 18 months, we
to long-term view with regards to care home stock in the UK. LNT expect to see the repositioning of
developments when compared to the have built 14 state of the art care existing care homes as they look to
short-term impact of Covid-19. New homes throughout the last year, adapt to a post-Covid-19 environment.
build activity will remain robust for the notwithstanding the wider challenges As part of a broader high street
next 12-18 months, with an even larger in the economy. We will commence revitalisation, we also expect to see the
focus on design, post Covid-19. over 20 new developments in the re-purposing of well-located alternativeFront cover photo: : Abbotswood Court, Romsey, Please get in touch with us
Hampshire, Cinnamon Care
Healthcare Commercial Research
Page 7: Julian Evans FRICS William Matthews
Lambwood Heights, Chigwell, Essex, Oakland Care
Head of Healthcare Head of Commercial Research
Page 11: +44 20 7861 1147 +44 20 3909 6842
Emmerson Grange, Hextable, Kent, Cinnamon Care julian.evans@knightfrank.com william.matthews@knightfrank.com
Patrick Evans MRICS Ryan Richards
Head of Corporate Valuations Senior Analyst (Healthcare)
Recent Publications
+44 20 7861 1757 +44 20 3869 4575
RESEARCH
Transactions hit Domestic and overseas Returns hold strong
patrick.evans@knightfrank.com ryan.richards@knightfrank.com
Trading Performance Review
£1.76 billion in 2019 capital targets healthcare relative to core sectors
Healthcare Capital Markets
2019
CARE HOMES Healthcare
knightfrank.com/research
TRADING PERFORMANCE REVIEW
Capital Markets Kieren Cole MRICS
Senior Living
Research 2020
Head of Commercial Valuations
+44 20 7861 1563 Tom Scaife MRICS
kieren.cole@knightfrank.com Head of Senior Living
HIGHLIGHTS
Average weekly fees up for
Staff costs continue to grow Profit margins remain squeezed
+44 20 7861 5429
Mandip Bhogal, BSc (Hons)
with operators increasingly but the private pay market is
the eighth year in a row
dependent on agency workers performing well
tom.scaife@knightfrank.com
Why is investment 6 key trends Case studies: Germany,
Head of Development Consultancy
European Healthcare Report
interest growing? driving the market France & Spain
European +44 203 869 4702 Lauren Harwood
knightfrank.com/research
knightfrank.com/research
UK Healthcare Overview
Healthcare
Elderly Care Market, Research 2020
mandip.bhogal@knightfrank.com Head of Senior Housing Consultancy
UK
E
AR +44 20 7268 2599
LT HC RTY
A E
HE PROP RKET
MA VIEW
ER
20
20
lauren.harwood@knightfrank.com
OV
ER
MM
/ SU
RING
SP
Knight Frank Research Knight Frank Research provides strategic advice, consultancy services and forecasting to a wide range of clients
worldwide including developers, investors, funding organisations, corporate institutions and the public sector. All
Reports are available at our clients recognise the need for expert independent advice customised to their specific needs. © Knight Frank
knightfrank.com/research LLP 2021. Terms of use: This report is published for general information only and not to be relied upon in any way. All
information is for personal use only and should not be used in any part for commercial third party use. By continuing to
access the report, it is recognised that a licence is granted only to use the reports and all content therein in this way.
Although high standards have been used in the preparation of the information, analysis, views and projections presented
in this report, no responsibility or liability whatsoever can be accepted by Knight Frank LLP for any loss or damage
resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material
does not necessarily represent the view of Knight Frank LLP in relation to particular properties or projects. The content
is strictly copyright and reproduction of the whole or part of it in any form is prohibited without prior written approval
from Knight Frank LLP. Knight Frank LLP is a limited liability partnership registered in England with registered number
OC305934. Our registered office is 55 Baker Street, London, W1U 8AN, where you may look at a list of members’ names.You can also read
