Optimism remains in the 2022 Care market, says latest report

MARKET ACTIVITY & BUYER APPETITE 

Christie & Co reports great resilience in the care market in 2021, both through care providers and their staff, and in the transactional market which experienced a resurgence of M&A activity at all levels.

A relative shortage of available stock and strong buyer demand resulted in highly competitive sale processes with the average number of offers Christie & Co received on care businesses increasing by 11 per cent compared with 2020. The company saw a rise in the number of transactions for 2021, which increased by 14 per cent, and deals were agreed at around 95 per cent of the quoted asking price. Christie & Co also reports a 56 per cent increase in the average number of offerees per sale between 2017 to 2021.

There is also evidence of decreased distress in the market. Of the deals Christie & Co managed over recent years, 18 per cent included distressed businesses in 2019, 13 per cent in 2020 and just 8 per cent in 2021.

DEVELOPMENT AND INVESTMENT

Many operators continued with development site acquisitions in 2021, fulfilling strategic long-term objectives to futureproof the quality of their asset base. Investor appetite is undoubtedly increasing, notes Christie & Co, with the arrival of large European investors and a broadening array of institutional investors attracted by the long-term fundamentals that the sector offers.

However, labour shortages and global supply chain issues, compounded by COVID-19, led to rising labour costs and construction material shortages. Christie & Co expects this to continue as a short-term challenge but says there is hope in the industry that construction material pricing will become less volatile as the country adjusts to a new normal.

Land availability in locations with compelling underlying demographics remains scarce and securing planning permission continues to be a highly protracted, costly, and uncertain process. Consequently, land values for sites with planning permission have continued to increase at a steady rate and demand is likely to remain robust for the foreseeable future.

MARKET TRENDS

Christie & Co reports steady yield compression fuelled by strong demand from capital and limited stock availability, which is particularly notable for third sector covenants which are favoured by a number of institutional funds. There is also significant activity from UK and international sector specialist investors which is driving the upper secondary market.

An increasing number of operators are now considering lease agreements, often within the context of new build development assets. Rents for such assets are linked to mature trading potential and the covenant strength of the operator with a typical range, based on Christie & Co activity, being in the order of £10k to £14k per bed.

THE FUNDING LANSCAPE

The report also includes commentary from Christie Finance, which mentions a complete change in care sector funding over the last two years, with alternative, less mainstream lenders entering the market to pick up where the high street perhaps retrenched. In 2021, Christie Finance saw a 32 per cent increase on the number of funding offers secured in 2020, this is a 37 per cent increase on 2019.

WHAT’S NEXT FOR THE UK CARE MARKET?

Looking ahead at the UK care market in 2022, Christie & Co predicts;

• Significant investor interest will remain as UK and international capital continues to be attracted by the strong fundamentals underpinning UK healthcare.
• Workforce related challenges and increased cost pressures are likely to occur but with mitigation provided by increased occupancy rates and fee levels.
• Providing the COVID-19 vaccinations remain robust, the trend of post lockdown occupancy recovery will continue.
• Funding reform will remain a ‘hot topic’ on the political agenda.
• The strong healthcare development market seen in 2021 will continue.
• Further activity from European consolidators which may potentially lead to one or more OpCo transaction occurring.

Richard Lunn, Managing Director – Care at Christie & Co, comments, “Despite pandemic related challenges, 2021 saw a resurgence in market activity with strong demand and limited supply underpinning pricing across most segments of the market. Whilst there are current operational challenges, particularly around staffing, we believe that the outlook for the sector is very good and anticipate that 2022 will be a busy year.”

To read the full report, ‘Business Outlook 2021: Business Outlook 2022: Adjust, Adapt, Advance’, please visit: https://www.christie.com/news-resources/business-outlook/2022/ 

For further information on this press release, contact:
Phoebe Burrows, Corporate Communications Executive
P: 020 7448 8849 or E: phoebe.burrows@christie.com