2025 a ‘year of growth’ for UK care homes market
The UK care home market experienced a year of growth in 2024 and this trajectory looks set to continue, with a predicted increase in expansions, first-time buyer activity, and more deals funded by REITS.
Specialist business property adviser, Christie & Co, has launched its Business Outlook 2025 report which reflects on the themes, activity, and challenges of 2024 and forecasts what 2025 might bring across the sectors in which Christie & Co operates, including in the care sector
Market overview
Christie & Co labels 2024 as a year of growth in the UK care market, with the majority of operators having reported improved occupancy levels, a reduction in agency usage, and a return in buyer confidence which resulted in an increase in transactional activity across the market.
Small-to-medium-sized groups (groups of three to 19 care homes) were the most-active buyer group in 2024, thanks largely to the return of occupancy.
This is a notable shift from the most active in 2023, which was first-time buyers and independent purchasers.
However, deal times continued to be delayed as issues with the Care Quality Commission (CQC) persisted.
Christie & Co also notes a reduction in the number of closed, vacant care homes in 2024 – this asset class made up 12% of the company’s healthcare sales in 2024 compared with 16% in 2023.
Following a prolonged period of headwinds in the land and development market, momentum is building in the new-build sector and this has been largely driven by stabilisation of costs and improved underlying trade performance in the private pay arena
This is largely due to a material reduction in closed care home instructions and is not a reflection in declining investor appetite for repurposing this stock.
There was a clear re-emergence of real estate investment activity following a relatively-benign market environment in 2023 whereby investors adjusted to a range of factors including higher interest rates, inflationary pressures, and an upward movement in government gilts.
Christie & Co witnessed yields stabilise in 2024, with market activity seeing a notable pick-up.
The land and development market faced stronger headwinds due to construction cost inflation, ongoing challenges in the planning system, and the availability of debt.
However, the need for futureproofed care beds remains undiminished and the underlying ESG credentials, together with future bed demand, remain compelling for investors.
Christie & Co expects the combination of improved operational trading performance and stabilisation of construction costs, to provide increasing confidence to return to the development markets, resulting in an uptick in demand for consented sites and transactional activity forecast for 2025.
A greater number of developments are coming forward in untapped regions including the South West of England, Wales, and London and it is expected that this will continue into 2025.
Price movement
Christie & Co notes that higher interest rates hampered new deal activity early in 2024 and the calling of a general election created uncertainty in the market. This led to buyer hesitancy and a decline in the number of care homes coming to the market.
Positively, activity levels increased in Q3 following a reduction in interest rates and the general election result.
Strong operators are alive to all the challenges and we are sure that appetite for the whole spectrum of care businesses will continue and, therefore, 2025 will see an increase in activity from a range of buyers and REITS
The impact of the changes in employer National Insurance contributions (NICs) in the Autumn Budget is yet to be fully understood, but the momentum of the transactional market was undiminished in Q4.
Given the wider turbulence, underlying demand from investors remained strong with good prices achieved.
Christie & Co’s price index reflects this with a 1% overall increase.
Market sentiment
As part of its annual sentiment survey, the company surveyed care providers across the country to gather their views on the year ahead.
When asked about their sentiment in 2025, 31% said they feel positive, while 39% said they feel negative about the year ahead.
When asked about their sale and acquisition plans, 59& stated that they are looking to buy and/or sell this year.
Market predictions
In the care market in 2025, Christie & Co expects:
- Increased activity with interest rates easing
- Increased deals funded by REITS
- Continued first-time buyer activity
- Margins squeezed on those dependent on local authority fees
- ESG credentials will become increasingly important for both owners and funders
- Existing operators will continue to expand with a preference for businesses with upside
- Concern around staffing cost increases versus local authority fees
- Healthcare will continue to be a key target sector for investors
Richard Lunn, managing director of care at Christie & Co, said: “2024 was another challenging year and the care sector which, like many, employs a significant workforce is notably impacted by the increase in employers’ National Insurance contributions, with little certainty that local authority fee increases will be sufficient to cover the differential.
As confidence returns, we are already seeing a noticeable uptick in demand from operators for good-quality, consented care home sites and anticipate greater land deal volumes over the next 12 months
“However, strong operators are alive to all the challenges and we are sure that appetite for the whole spectrum of care businesses will continue and, therefore, 2025 will see an increase in activity from a range of buyers and REITS.”
Jordan Rundle, director and head of healthcare development and investment, adds: “Following a prolonged period of headwinds in the land and development market, momentum is building in the new-build sector and this has been largely driven by stabilisation of costs and improved underlying trade performance in the private pay arena.
“As confidence returns, we are already seeing a noticeable uptick in demand from operators for good-quality, consented care home sites and anticipate greater land deal volumes over the next 12 months.”