Despite pressure from local authorities to reduce the number of people in care homes, occupancy rates in the West Midlands have remained stable, mirroring the national figure at around 90 per cent, as reported by specialist healthcare advisors Colliers International’s 19th biannual Care Homes Review.
The West Midlands, similar to the rest of the UK, is experiencing signs of growth, however, care home occupancy rates and profitability differ dramatically across the region.
Vikki Thomas, Surveyor, Colliers International said: “We are currently in a period when local authority fees are not increasing with inflation; this is having a negative effect on care home businesses, especially those in less affluent pockets within the West Midlands.
“With the national minimum wage set to increase by three per cent in October 2014 to £6.50, businesses’ profit levels will be put under additional pressure; this rise will affect operators, particularly in less affluent areas of the West Midlands, which are unable to pass on the costs by increasing fees.”
Despite mounting fiscal pressures, profitability is up slightly from the first half of 2013 in both the personal care and nursing sectors, at 31.7 per cent and 28.7 per cent respectively.
“Many businesses located in affluent areas of the West Midlands are managing to maintain levels of EBITDAR despite rising non-payroll costs, including heating and lighting, which are up 10 per cent from 2012 to £16 per person per week, on average,” continued Vikki Thomas.
Debbie Le Quesne, CEO, The West Midlands Care Association said: “Green shoots of a recovery in the West Midlands’ care home sector are scarce, compared to the national figures reported by Colliers initially suggested. The region’s average residential care home fees are around £430 and £520 for nursing home fees, compared to the national averages of £488 and £568, respectively. In fact, many West Midlands based residential care homes manage on as little as £360 per person per week, and nursing homes fees can be as low as £480 per person per week. These figures, coupled with ever increasing outgoings, mean many businesses are struggling to have an investment sleeve for the future.”
Vikki Thomas, Surveyor, Colliers International continued: “Despite fierce financial pressures, occupancy levels are continuing to bear up across the region. These results have led to increased confidence as care home operators and investors anticipate that the West Midlands will follow the national trend for growth; a number of key operators in the Midlands, are looking to expand during 2014, signalling early signs of the national growth trend proliferating out of London and the South East.”
Walter Boettcher, Director of Research and Forecasting, Colliers International said: “Colliers’ report also reveals that the care home investment market is heating up, reminiscent of pre-recession levels in the mid 2000s. The care home investment market is being targeted increasingly by a wide range of domestic and international investors, attracted by the higher yields on offer for individual assets, as well as portfolios, compared to other commercial property asset classes.
“Care home assets in the West Midlands are also on the radar, especially when operated by strong covenants or when part of larger lot sized portfolios. Significant yield compression of up to 100 basis points is anticipated by year end, suggesting that total returns to care home assets will be well into double digits.”