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Residential buy-to-Let

Colliers: Care home occupancy rates rising

Author: Gemma

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Demand is a key performance indicator when it comes to the success of any investment, regardless of asset class. If demand is high, then returns should follow suit, and this is something that is now being seen in the increasingly popular care homes sector.

Investment in modern style care homes, where people live in apartment style blocks with the freedom to live independently while still receiving the care they need, has been growing in recent years as traditional-style care homes start to fall out of favour.

Demand is important to investors, though, and according to a new bi-annual report from Colliers, this metric is currently proving positive for those looking to put their money into care homes, with occupancy on the rise across all care sectors – nursing, personal care and specialist care.

Colliers says that the good news is that the downward trend for occupancy rates that was experienced between 2006 and 2012 seems to have largely reversed now as more and more spaces are taken up in care homes.

In the space of just a year, the occupancy rates in all three sectors have climbed above 90 per cent (nursing 90.2 per cent, personal care 90.3 per cent, specialist care 91.1 per cent) from levels below 90 per cent in the first half of 2013 (nursing 89.9 per cent, personal care 88.7 per cent, specialist care 89.9 per cent).

As an average across all three sectors, occupancy rates have now hit a level of 90.3 per cent in the first half of 2014, up by two percentage points from the historic low that was reached in the second half of 2012. This is an encouraging recovery for investors, given that the period between the second half of 2007 and the same time in 2012 saw a fall of seven per cent in occupancy rates.

In order to maintain these occupancy levels at the moment, there has been a bit of downward pressure on fees, with these falling in order to make care homes in all sectors seem attractive.

However, this has not meant that investors have had to face falling profit levels. While the prices charged are lowering, each sector is managing to generally absorb this by keeping costs (both payroll and non-payroll) stable. This has meant that in all three sectors, the profit levels have managed to stabilise throughout the last two years.

Colliers says that at the earnings before interest tax depreciation, amortisation and rent (EBITDAR) level, profit margins have seen little change since the end of 2012. Profitability in personal care homes edged down to 31.1 per cent – a slight decrease, while the nursing sector hit a level of 28.7 per cent in the first six months of the year, which meant there was no change.

Nick White, senior surveyor of healthcare at Colliers said that “level of EBITDAR for both nursing and residential care has remained relatively stable for the last two years”, adding that the key to making sure profits remain high is ensuring that quality is the focus, not cost cutting.

Increased investment in newer style care homes can be a fantastic way to make sure that quality of healthcare increases, with these modern alternatives providing older people the chance to live the life they want when they move out of their own home.

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