As people are now living longer, the demand for care homes is increasing. With the promise of better returns from care home developments compared to those in more mainstream sectors, some investors sense a prime opportunity for diversification, says Ian Church.
As one of the fastest growing areas of property development across Europe, demand for care homes for the elderly is expected to grow by more than 60 per cent in some of Europe’s more mature markets in the next five years.
With ever-increasing advances in medicine enabling us to live longer, better lives, the consequential growth in demand for care homes will continue, as older people will spend more of their remaining years requiring care of some kind.
Coupled with a lack of sustained investment in public services across most European countries, or at best a diversion of such resources into primary care, the diverse income streams and relatively low barriers to entry are increasingly attractive to property investors.
The sector is not without controversy, with an increasing level of discomfort, especially in more mature markets. This includes efforts to maintain and drive long-term affordable access, the surety and sustainability of accommodation, and maintaining standards in both the quality of premises and care. For more traditional developers attempting to diversify from the commercial property sector, such requirements are far from standard, meaning that the sector tends to attract specialist developers and investors experienced in ensuring that products deliver long-term, problem-free returns.
Trends across the world
Though typically a sector with varying regulatory frameworks in different countries, legislation is nevertheless developing with a focus on both operational and physical necessities. This encompasses issues such as minimum space requirements and the necessity for ensuite facilities, as well as the provision of communal areas and appropriate demographic room mixes. While such requirements can be included easily in new developments, for existing facilities, the cost of retrofitting can mean closure in extreme cases.
The level of provision and maturity in care home provision across Europe varies hugely, but there are some interesting differences:
• Over the last ten years, there has been a substantial increase in the number of private care homes, which has doubled in Romania, Slovakia and Slovenia.
• At the same time, the number of public care homes is either decreasing or growing at a slower pace, with the exception of Malta and Spain, where the number of public homes is increasing faster than private ones.
• Less than one-quarter of the total number of care homes in Greece, Germany, the UK (Scotland), Ireland and Italy were public.
• Public provision constitutes more than half of the total in the Nordic countries and in central and eastern Europe (with the exception of Croatia, Lithuania and Romania).
Change in mentality
As the care home sector continues to evolve, there is also a second option in most mature European markets that allows older people to “age in place”, thus encouraging elderly people to live independently for as long as possible. Hence, we have the concept of “extra care”: the provision of owner-occupied, specifically designed, self-contained housing, typically with nearby support to cope with varying dependencies and requirements. This allows people to live in an environment similar to home with as few living restrictions as possible, while receiving a variety of additional services that they can pay for as their needs change over time, or even on a short-term basis, such as after surgery.
A boom in private care homes
The natural progression of development in most markets is for family-run operations in either predominantly residential or converted accommodation to develop into more bespoke new build type facilities. This is as a natural consequence of market maturity, volume and in some instances, longer term agreements with local authorities all driving confidence in the sector, and hence fuelling new investment. As a consequence, the average size of a care home is typically increasing across most markets as a way of leveraging returns, and to justify investment in better, shared facilities (to drive income), and depending on the level of medical provision or dependency.
With the continued growth of private care home provision being driven by consistent demand, the sector is being increasingly identified by both developers and investors as offering prime opportunity for diversification and improved returns that a maturing commercial or student accommodation sector may struggle to consistently offer— both in terms of yields and value appreciation.
Though far from a mainstream sector, sustainable income streams and above average yields with inherent growth are increasingly attractive, especially with knowledgeable operators and affordable rental levels that allow long-term attractiveness to all parties. With Europe’s demographic profile similarly changing across most markets, care homes are far less vulnerable to any broader fluctuations in the economy, or indeed new disruptive technologies.