Occupancy levels in the long-term elderly care sector reached their lowest levels in eight years at the beginning of 2013, according to the latest Care Homes Review from Colliers International. Occupancy rates in personal care homes and specialist care homes fell to 88.3% and 89.9% respectively, whilst nursing care home occupancy remained at 90.01% for the second half of 2012.

Adam Lenton, Head of Healthcare at Colliers International, said, “Overall occupancy levels in the long-term elderly sector have been consistently edging downward since the middle of 2005 and have been hovering around 90% since the beginning of 2011. They have now reached their lowest levels since we began collecting our data.”

A chief factor that dominated occupancy levels in the market last year and into 2013; Government policy. “The Government and local authorities continue to favour the provision of care at home for the elderly for as long as possible, with the decision to refer into a registered care environment often a financial or budget consideration rather than relating solely to care needs.” Adam Lenton said.

“However, demographic pressures mean we are likely to see an increasing demand for more care home places over the next two decades and depending on the rate of new developments, this demand could result in improved occupancy. However, this is more likely to benefit the well-located and quality homes in premium areas or those offering high quality but cost effective care.”

The report also reveals a fall in profitability for the nursing home sector, owing to static income levels against increasing costs. Profit margins stand at 28.6% in H2 2012. Adam Lenton said, “In the personal care sector, operators have been able to counter increasing costs with staff savings, but nursing homes have a more constrained staffing environment, combined with inflationary pressure on pay which is limiting their ability to drive profit. We expect this to be a continuing theme for the sector in 2013.”

The market also awaits the results from the recent Government consultation in 2013 on new protections that will be instilled for residents of failing care providers – in order to prevent another Southern Cross-type collapse.

“At the time, the Government was largely powerless to intervene through legislation and was not fully aware of the financial pressures affecting Southern Cross leading up to its failure. Coupled with the level of debt and the complex corporate structures of some of the largest care groups, this led to increasing pressure for financial transparency in the industry,” said Lenton.

“Private equity continued to circle the sector in H2 as operators saw finance restructurings and debt maturities. Care home developers are finding some finance through JV deals with private equity and council referral forward commitments, but direct bank development finance remains thin, at best,” said Lenton. “The Moor Park acquisition of 12 Spire units for more than £700m also suggests sale and leaseback opportunities are of interest again, as is the increase in more complex and structured finance solutions,” said Lenton.