A new report from JLL highlights the need for a shake-up of the UK care homes industry as it continues to face demographic pressures, including growing numbers of residents requiring long-term care.
As well as hitting the headlines for its role in managing the health impacts of Covid-19, the sector is seeing record demand for long-term day care, which is likely to call for 110,000 additional beds over the next decade.
'UK Care Homes: An opportunity to build communities and invest capital' finds that the greatest challenge will come from the pace and scale of growth in over 85s, an age group that is set to increase by 27.5% per annum to 2030, with an estimated 460,000 more people in this age group in the next decade.
This is seven times the growth rate of the overall UK population and 16 times faster than the working age population.
With 465,000 care home beds in the UK currently, 5,000 fewer than in 2015 and 55,000 fewer beds than in 2000, the sector is significantly lagging in size and scale to match the demographic changes in the country.
Anthony Oldfield, director, healthcare capital markets, JLL, said: 'With the increasing life expectancy in the UK, more modern and fit-for-purpose care home developments are required to meet the large and rapidly growing market need.
'Demand for beds will continue to increase with these demographic pressures and the time for operators, developers and investors to plan and develop solutions is now.'
Despite the scale of development in the last decade, purpose-built homes less than 20 years old account for just 22% of all care home supply.
Conversions from houses, hotels and other uses still account for 51% of all beds, while 73% of all beds, both purpose-built and conversion, predate the 21st century. The lack of institutional grade care homes in the sector has also been one of the main challenges for investors in recent years.
Yet the report also finds that care homes have consistently produced high returns compared to other real estate sectors. The most recent MSCI index shows total returns of 8.4% in 2019, compared to 4.4% for Residential and 0.6% for all property.
James Kingdom, associate, living research, JLL, added: 'Institutional investor appetite for modern well-let care homes remains strong but more purpose-built care home accommodation is needed.
'We can expect investors looking for stable cash flow in the current environment to be attracted by the defensive returns that care homes offer, in addition to the long lease durations, which should generate interest among new investors looking to diversify their portfolios.'