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What's next for care home developments?

Gary Yeardley

Associate

Phone +44 161 235 7675

Contact me

Gary YeardleyAssociate, Valuation and Advisory – Healthcare 

As the market continues to seek suitable care home development opportunities, the Manchester Healthcare team at Cushman & Wakefield is increasingly active in site brokerage and consultancy, including valuation for development funding, feasibility studies and investment advice.

The growing and ageing population is well documented and with more people now living longer into older age, the need for care homes has never been greater. This is only set to grow with further population growth and medical advances elongating life spans.   

With this in mind, there is a drive to increase the number of care homes generally, however caution must be exercised as not all locations in the region are under-supplied, as in fact, some are over supplied. There is of course real consideration as to what comprises the supply of a given area and there is not only a focus from developers on increasing the number of bedrooms in the face of an under-supply, but also replenishing the existing provision over time as older, less suitable assets fall out of the market.

In the North region of late, where there are a few sites available in the most desired postcodes, we are seeing a new trend emerging of building slightly beyond the typical grade in the catchment to a higher quality, then using the quality and offering of the care home to entice people to the home, rather than simply building in the heart of where they already reside.

What makes a good care home development site?

Location! Location is paramount with the careful blend of socioeconomic makeup within a particular radius. There are limitations with regard to adult social care funding which is well known in the market. As many Local Authorities fall short of the true cost of care (itself continually escalating at a faster rate than the growth in funding), margins continue to be squeezed and developers seek only to build in areas able to attract mainly, or a fair proportion, of privately funded residents.   

Income is not the only driver, as a major component of care home management is staffing, there must be a steady supply of potential recruits within the area. Whilst developers continue to target affluent areas to enhance their revenue potential, there must also be a good mix of younger working-class demographics which will likely make up the largest base of the workforce. Too affluent an area and the business may struggle to recruit from within and reaching further afield comes at a cost. Most developers are after sites in the Goldilocks zone, this being at the meeting point of the younger, lower income zone and the older, more affluent income zone. A tough thing to pull off without doubt.

The Catchment Area

The radius typically assessed would be a 15-minute drive time of the site location. Most developers would remain focused on wealthy suburbs, with an eye for recruitment demographics within reach and where not within reach, existing transports links for commuting staff will be a major consideration which may come at a slightly higher wage cost.

Within the North of England, there is a real race for space when it comes to land suitable for development, especially within the more affluent locations. House-builders are aggressively seeking opportunities and now with the updated National Planning Policy Framework targeting Local Authorities to deliver at least 10% of new development on “smaller sites”, there is expected to be even greater competition for sites suitably sized for care home development.

The 15-minute catchment remains important from a recruitment standpoint, although in terms of the resident demand, we are seeing some developers looking slightly further. Whilst there remains a focus on affluence, we are finding that the analysis is getting deeper. If there is a wealthy suburb that might be a target location, thorough research into the existing care homes within said catchment might lead one to conclude that they are inferior when compared with a modern and contemporary care home. That being the case, building a premium asset just beyond the catchment, where land might be more readily available and affordable, the finished premium offering might encourage a privately funded resident to move that little bit further for a better standard of living.

Enticing Residents to Move Further

Although there are many excellent care homes already in the market, there is no denying that the care home has evolved significantly over the last three decades. Many of the converted properties which entered the market during the 1980s privatisation are struggling to keep up with the modern and contemporary homes, as are some of the first-generation purpose-built homes which entered the market during the 1990s and early 2000s.  

Looking at one extreme to the other – would a privately funded resident or their relative living in an affluent neighborhood, choose an older care home with limited amenities, a 10-12 sq m bedroom and potentially without an en-suite just to stay in the same neighbourhood?  Or would they opt to move slightly further afield to a state-of-the-art modern home with an 18-20 sq m bedroom with full wet room and all the trimmings, such as a cinema room, bistro or spa and in the case of some of the homes being built – a roof terrace or balcony offering a sea view for roughly the same price?

The location must still be within reach of wealthy suburbs – people will unlikely move too far and the location of relatives plays a vital role. Subsequently, we are of late seeing the 15-minute radius extend to 30-minutes for resident demand in some cases. Developers are carefully assessing the existing provisions within the desired location and only where existing homes would struggle to compare with a modern and contemporary home, might there be scope in enticing residents slightly further afield.

Have we found the answer?

So the answer is to focus on private pay, high fee - well that is only one angle to this and most importantly, as we know all too well, this is but one slice of the wider market. We are working with operators looking to take advantage of the rush to the top by targeting what they see as the neglected mid market.  Mid market in this case is certainly upper mid market, simply by necessity as fees, profit and value must be able to justify the investment in a new care home.  But this approach can also work, albeit perhaps with more of a focus on scale, efficiencies and limitation of the fluffy peripherals which are the cornerstone of prime grade assets

In our view the answer is clear; if you want to make a success of a care home development, you must know your market, know the type of asset which suits that market, build it in a location that is suitable for that market, build it well and operate it with a focus on excellence no matter the fee tone being achieved. And the best route to the answer?  It’s engaging the right project partners and the Cushman & Wakefield Healthcare team have the local and national presence needed to fill that gap in your team.  Do get in touch if you have a project you’d like to discuss.