Are we talking about the same sector?
Those of us with memories will recall the nursing home crisis of the recession. And, indeed, earlier this year, the Guardian, at https://www.theguardian.com/society/2017/jan/11/care-home-closures-funding-crisis was reporting on a continuing malaise in the sector. So why the report in EG today, on a Savills index that seems to show something different?
Actually, no. Look deeper at the Savills statement, and you will see that we are looking at care homes as prime alternative assets, with financially secure tenants with long term leases, in a market starved of supply, and, dare one say it, probably occupied by the reasonably well heeled. The key word is "annuity" - a well researched financial bet. Would it be right to think that few of those to whom this sector is home will be financed by a dwindling local authority budget, and in general, we should look to the Guardian article for a view of the wider market?
Strong fundamentals combined with an ageing demographic in the UK have made healthcare – and, in particular, care homes – increasingly attractive to investors, according to Savills.
The long-indexed income, with either RPI-linked or fixed uplifts, have made an appealing proposition for investors struggling to find similar opportunities in the mainstream markets.
In addition, care home yields have moved in significantly over the past five years and now fall in line with many other traditional commercial asset classes. Savills Prime Care Home Yield Index currently stands at 4.25%, down from 4.75% in 2016.
These fundamentals are supported by strong demand for good-quality care homes, fuelled by a growing over-75 population and an imbalance between the number of care homes opened and those closed since 2011. .....9,000 beds were lost in 2016, compared with only 6,000 beds that were built.”