Care homes offer solace during crisis

Published on Saturday 1 November 2008 13:27

GROWING demand for care homes for the elderly is supporting investment returns, despite the credit crunch, according to property consultancy Colliers CRE.

Its latest Care Homes Review claims that, "in the current economic downturn, the elderly care sector is one of the few areas holding up comparatively well".

Colliers said there is continued interest in the sector from investors who have been generating yields of up to 6.15% from care homes.

Its optimistic outlook comes despite two of the biggest operators in the sector, Southern Cross Healthcare and Four Seasons Healthcare, running into financial difficulties. Last week Southern Cross finally manged to refinance its debt. Its share price rose by 48% on Friday on the back of the deal. Four Seasons is currently involved in a debt restructuring deal with creditors.

But Colliers is positive about the long-term prospects for care homes. It cites the "demographic time bomb" of the decreasing ratio of working-age people to those over 65. This trend means a larger proportion of the elderly population will require support services from the private sector as they are no longer available from the state, due to lack of funding.

The Colliers report bases its forecasts on occupancy, fee levels, payroll costs, non-payroll costs and net profit. Occupancy rates for nursing homes have increased to 90.1% this year from 89.2% in 2007 and profit margin grew to 29.6% of total revenue from 27.9%, taking the figure to its highest level in years.

However, average fees per week have fallen to 608 from 617 and payroll costs now make up 53.1% of total revenue, up from 51.7%.

As well as the continued impact of rising national wages on payroll expenditure, a sharp increase in the price of utilities has also affected care homes, according to Colliers.

However, the firm is confident that "despite the turbulence seen in the commercial markets, the elderly long term care sector remains resilient".

Max Broadbent, director of healthcare at Colliers, said: "The care home sector is fundamentally strong as the percentage of the population over 65 continues to grow."