2020 UK Care Homes - Knight Frank · 2020. 11. 18. · 2020 UK Care Homes Trading Performance Review Additional government funding until March 2021 Operators adapt quickly and show

2020 UK Care Homes Trading Performance Review

Additional government funding until March 2021

Operators adapt quickly and show resilience

Occupancy down 8.5% by mid-year 2020

knig

htfra

nk.c

o.uk

/res

earc

h

67Counties

and island dependencies

819UK towns and cities

112kCare beds

1/4of UK care

home market

71%of the corporate

group market

FIG 3

2 0 2 0 R E S U L T S A T A G L A N C E

OCCUPANCY AVERAGE WEEKLYFEES

STAFF COSTS(% OF INCOME)

EBITDARM(% OF INCOME)

87.9% 89.2% 87.4%

NursingPersonal All Care

£889 £766 £953


58.0% 55.1% 59.0%


26.8% 28.5% 26.3%

NursingPersonal All CareFIN

ANC

IAL

YEAR

2019

/20

Q2

2020

79.4% £938 61.3% 26.2%

OCCUPANCY AVERAGE WEEKLYFEES

STAFF COSTS(% OF INCOME)

EBITDARM(% OF INCOME)

87.9% 89.2% 87.4% 889 766 953 58.0% 55.1% 59.0% 26.8% 28.5% 26.3%

NursingPersonal All Care NursingPersonal All Care NursingPersonal All Care NursingPersonal All Care

FIN

ANC

IAL

YEAR

2019

/20

Q2

2020

79.4% £938 61.3% 26.2%

T H E S U R V E Y I N

N U M B E R S

I N T R O D U C T I O N

his year, we have adapted our annual Care Home

Trading Performance Index to incorporate the usual

industry-leading benchmarks for the 2019/20 financial year,

but also any changes in performance that occurred from April

onwards when the pandemic emerged. This has allowed us to

measure the impact of Covid-19 across the sector. A special

thank you this year to all the operators that have helped to

keep the survey sample as robust as ever.

As you can see from Figure 1, our survey includes care

homes spread far and wide across the UK. Nursing care homes

T account for two-thirds of the sample, versus one-third for

personal (residential) care homes. This reflects the survey’s

weighting towards the corporate market, with most group-

owned homes registered to deliver full-time nursing care,

including dementia care. Figure 2 also shows how the

regional split of this year's sample mostly mirrors the total

UK market. The only clear exception being Wales, where our

sample is slightly underweight.

2020 has been a year like no other, and especially so for the UK care home sector which has adapted immensely well to a

challenging operating environment

Occupancy declines by 8.5% between March and June, but

recovers 1.2% by October 2020 (more on pages 4 and 5)

Fees increase for the 10th consecutive year and a

further 5.6% is showing in the 2020/21 financial year.

(more on pages 6 and 7)

COVID-19 adds to staffing challenges, but the Adult

Social Care Infection Control

Fund provides a buffer. (more on pages 8 and 9)

Limited impact on profitability thus far in the pandemic, but a challenging period ahead. (more on pages 10 and 11)

C A R E H O M E S T R A D I N G P E R F O R M A N C E 2 0 2 0 C A R E H O M E S T R A D I N G P E R F O R M A N C E 2 0 2 0

2 3

Source: Knight Frank Source: Knight Frank, Tomorrow's Guides

FIG 2 | Regional share – Knight Frank survey vs Total UK stock

FIG 1 | Regional spread of 2020 survey

Source: Knight Frank

5%

0%

10%

15%

20%

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Knight Frank survey Total UK market

EASTMIDLANDS

EAST OFENGLAND

LONDON

WESTMIDLANDS

NORTH WEST

NORTH EAST

YORKS & THE HUMBER

WALES

SOUTH WEST

SOUTH EAST

NORTHERN IRELAND

SCOTLAND

Nursing care home

Personal care home

ajor operators are equipped to

deal with outbreaks of seasonal

flu and diseases such as dementia and

Alzheimer’s, but Covid-19 has been an

unprecedented challenge.

Fears of substantial occupancy

loss seemed justified in March, when

academic studies were suggesting case

fatality rates of 15-20% for those over

the age of 80, and higher for those with

multiple health conditions. The rapid

discharge of vulnerable elderly people

from NHS hospitals and into care homes

also posed an additional challenge.

Over six months on, we can

retrospectively assess the impact

of the outbreak on the care home

sector. ONS data, compiled from the

General Register Office, shows that

from 1st March to 7th June there were

approximately 29,178 excess deaths

(over and above 2019 levels) across care

homes in England and Wales (Figure 5).

Close to 2,000 Covid-19 deaths were also

All other deaths in 2020 Covid-19 deaths All deaths 2019

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

07Jun

31May

24May

17May

10May

03May

26Apr

19Apr

12Apr

05Apr

29Mar

22Mar

15Mar

08Mar

01Mar

23Feb

16Feb

09Feb

02Feb

26Jan

19Jan

12Jan

05Jan

recorded in Scottish care homes in this

period ¹, suggesting that Covid-19 has

directly and indirectly resulted in over

30,000 excess deaths across the UK care

home sector.

What has this meant for occupancy rates?

As shown in Figure 4, the uptick

in mortality produced an 8.5%

decline in occupancy across the

UK. Encouragingly, mortality rates

normalised by early June and we

have since seen a steady rise in new

admissions, helping to stabilise

occupancy levels. Pent up demand

is expected to support a recovery

in occupancy, but stringent testing

procedures for new residents and some

hesitancy among enquiring relatives

may soften the pace of recovery.

There are varying stories across

providers and individual homes. As

shown in Figure 6, 28% of homes

surveyed have experienced either no

change in occupancy or even made

gains over the summer. This section

of the survey has excluded homes that

received block bookings from the NHS,

and therefore any gains reflect usual

business. Figure 6 also shows that of the

homes that lost occupancy in Q2 2020,

most lost between 0% and 10%. In many

cases, declines were less than 5%.

Regional comparison

No region of the UK has been sheltered

from the virus, although occupancy

has generally dropped lower in

more densely populated and urban

regions. This has been the case in

London and the East Midlands where

occupancy has slipped to 75-76%.

Densely populated regions have seen

more severe outbreaks, but greater

demand for care beds could facilitate a

swifter recovery in occupancy as new

admissions return.

Despite the challenges, the data shows how resilient major care providers have been over the summer period

O C C U P A N C Y


60%

70%

80%

90%

100%

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2019/20 FY Q2 2020 UK: Q2 2020UK: 2019/20 FY

So

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0% 5% 10% 15% 20% 25% 30% 35%

GAIN

LOSS30%+

20% to 30%

10% to 20%

0% to 10%

No change

0% to 10%

10% to 20%

20%+

Percentage of surveyed care homes

M


4 5

Following the outbreak of Covid-19 in

March there was a clear concern for care

operators regarding the direct threat of

the virus to residents and staff, but also

concern surrounding the tracking and

monitoring of the situation. Since then,

we have been working with many major

operators to provide an objective weekly

measure of occupancy levels. While this

is separate from the annual Care Home

Trading Performance Survey, the data

collected provides a timely indication of

occupancy levels across the market and

will serve to track the pace of recovery in

months to come.

Figure 4 shows how occupancy

fell by 8.5% across our main survey

respondents during the second quarter

of 2020. However, our additional weekly

Tracking the pandemic

tracking shows an estimated recovery of 1.2%

in the third quarter as death rates normalised

and operators have begun to confidently admit

new residents. There remain concerns over a

second wave, but rigid testing procedures are

now in place among large group operators,

who report being in a much stronger

position than in March. As of the end of

October, we had not seen a meaningful

increase in care home fatalities.

FIG 5 | Care home deaths registered in England & Wales

Source: ONS, General Register Office

FIG 7 | Average occupancy by region, 2019/20 financial year vs Q2 2020

FIG 6 | Occupancy changes during Q2 2020

Source: Knight Frank Source: Knight Frank

89.3

%

88.8

%

88.9

%

87.7

%

87.2

%

87.8

%

87.2

%

87.6

%

88.3

%

88.4

%

89.2

%

89.4

%

88.9

%

87.9

%

79.4

%

80.6

%

Q32020

Q22020

2019/20

2018/19

2017/18

2016/17

2015/16

2014/15

2013/14

2012/13

2011/12

2010/11

Covid-19OUTBREAK

2009/10

2008/09

2007/08

2006/07

FIG 4 | UK care home occupancy rate


F E E S A N D F U N D I N G O F C A R E

teeper rises in recent years look

less dramatic in real terms when

adjusted for inflation. As shown in

Figure 8, care home fees have increased

50% in nominal terms since 2008/09,

but inflation-adjusted growth amounts

to only 8% over the same period.

Operators continue to adjust

fees to counterbalance a number

of increasing costs, in particular

staffing costs. Furthermore, with

much of the care home real estate

market older than twenty years, extra

revenue is increasingly needed to fund

refurbishments and upgrades. We expect

this trend to continue going forward as

many existing homes will need to adapt

the design and layout of their facilities

as a legacy of the pandemic.

What determines fee levels?

Care type: The average weekly fee for

a nursing home in the UK in this year's

index was £953, compared to £766 per

week for personal care homes. The

premium is due to the level of care

provided, with nursing homes typically

designed for higher-dependency

residents requiring full-time medical

care delivered by qualified nurses.

Region: As shown in Figure 9, there is

significant variation in fee levels across

regions and more granular localities

within the UK. Fee levels in Southern

England tend to be higher than the

North of England, matching the higher

staff costs seen in the South. In the

2019/20 financial year, fee increases

were seen across all regions of the UK,

except Wales, where average fees for the

personal care segment held flat at £650

per week.

Funding type: The majority of care

homes derive their funding from a

combination of local authorities and

private-paying residents (self-funded).

As you can see from Figure 10, the split

varies significantly across regions. In

the North East and London, a significant

amount of residents qualify for full

local authority support, or at least part-

funding. In contrast, more affluent areas

like the South East and South West of

England derive more of their income

from private-paying residents. Average

weekly fee rates in the UK private-pay

market measured £1,086 in 2019/20,

compared to £746 a week for local

authority funded fees.

Further fee uplifts have occurred in the new

financial year, recorded from April to June 2020

2019/20 saw care home fees increase across our index by a further 6% year-on-year, averaging £889 per week across all care types.

FIG 8 | UK Average weekly fee growth


£400

£600

£800

£1,000

20

19/2

02

018

/19

20

17/1

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/15

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13/1

42

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/13

20

11/1

22

010

/11

20

09

/10

20

08

/09

NominalReal Terms (less RPI inflation)


£300

£400

£500

£600

£700

£800

£900

£1,000

£1,100

£1,200

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Nurising UK Avg PersonalUK Avg NursingPersonal

0%

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40%

60%

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100%

Private-pay (self-funded) LA funded

NHS funded Other funding

S


6 7

FIG 9 | Average weekly fees, by region and care type 2019/20

FIG 10 | Funding split by region


This year we are also able to report

preliminary data on changes in fee levels

in the new financial year. As shown in

Figure 11, further fee uplifts have been

unanimous across both care types and

Fee uplifts in the 2020/21 financial year (preliminary)

funding types. Homes in our sample that are

primarily funded by local authorities have seen

a 5.5% rise in fees in Q2 2020, suggesting

that some of the additional £3.2 billion funding

supplied to local authorities by the government

is making its way into the residential care

sector. It is not yet clear if these rises

will be permanent or temporary, with the

government yet to finalise a long-term

solution to the care funding crisis.

ALL CARE NURSING CARE PERSONAL CARE

FUNDING TYPE

PRIVATE-PAY LA

CARE TYPE

4.9%5.5% 5.9% 3.9% 5.5%

ALL CARE PERSONAL CARE NURSING CARE

FUNDING TYPE

PRIVATE-PAY LA

CARE TYPE

4.9%5.6% 5.9% 4.0% 5.5%

FIG 11 | Average weekly fee uplifts for 2020/21 financial year (Q2 2020)


C O S T S

Staffing

Following the trend in recent years, staff

costs across the index increased 3.7%

to an average of £26,956 per resident

per annum for the 2019/20 financial

year. Further increases to the National

Living Wage (NLW) have contributed to

this, especially for personal care homes.

For those over the age of 25, the NLW

increased by 4.9% in April 2019 followed

by a further increase of 6.2% in April

2020, to reach £8.72 per hour.

As a percentage of income, staff

costs represented 58.0% of income

in the 2019/20 financial year and are

especially high in the nursing care

sector. There are a number of reasons for

this. Pay scales are significantly higher

for skilled nurses, with the hourly rate

almost double that of a carer (Figure 12);

Workforces are larger – our index shows

that for every nursing home resident,

there are approximately 0.85 full-time

nurses or carers employed to ensure

the appropriate level of care (Table 1);

Finally, nursing homes are more heavily

reliant on agency staff, whose use always

costs a premium (Table 1).

Property and food costs

Property costs (which we define

as utilities, council tax, insurance,

repairs and day to day maintenance)

increased by 3.7% across the UK in

2019/20, reaching on average £2,399

As operators look to support their workforces during the pandemic, increasing staff costs remain

a significant challenge

FIG 12 | Average wage rates, per hour

TABLE 1 | Staff costs, agency costs and resident to staff ratios 2019/20

per registered bed per annum. We

suspect certain property costs to jump

in the new financial year as a result of

Covid-19. Soaring indemnity insurance

premiums have been reported since the

outbreak and this could turn a relatively

small outlay into a larger one unless

more support is given to operators. Food

costs also increased by 3.1%, measuring

on average £1,629 per occupied bed

across the UK. Our index shows some

noteworthy variation across countries

in the UK with food costs in Scotland

(£1,489 per bed) close to 10% lower than

food costs in England (£1,646 per bed).

STAFF C OSTS, PER RESIDENT P. A .

YEAR- ON-YEAR CHANGE

STAFF C OSTS, % OF INC OME

AGENCY C OSTS, % OF STAFF C OSTS

RESIDENT: STAFF (RATIO*)

Nursing Care £29,322 4.0% 59.0% 9.9% 0.85

Personal Care £21,351 4.1% 55.1% 6.2% 0.58

All care £26,956 3.9% 58.0% 9.0% 0.76

Source: Knight Frank *Includes all nurses and carers. Part-time staff calculated as half a staff member


8 9

The most obvious additional cost

resulting from the pandemic is that of

personal protective equipment (PPE)2.

To gauge the extent of these costs we

asked operators to detail spending on

PPE before and during the pandemic.

While noting significant variation across

operators, our analysis shows that

operators spent an average of £160

per bed per annum on PPE during the

2019/20 financial year, compared to

£260 per bed during the second quarter

of 2020 alone. While these numbers

may seem small, PPE will represent a

significant extra cost to operators

over the course of the pandemic and

even beyond.

As well as PPE, irregular spending

on staffing will have added to existing

high staff costs. Many care homes have

had to remunerate and support existing

staff during periods of isolation, while at

the same time recruiting new staff to fill

gaps in the workforce. Our survey shows

Additional costs prompt Adult Social Care Infection Control Fund

that operators spent as much as 61.3% of

income on staffing in the second quarter

of 2020 (Figure 13). This partly reflects a

reduction in income, but is also down to

increasing staffing costs.

Any further escalation of staff costs

may be contained by the Adult Social Care

Infection Control Fund. Introduced on the 13th

May, the fund will inject a much needed

£1.15 billion to support infection control

and related staffing and recruitment costs.

Local authorities must ensure that 80%

of the grant goes directly towards care

homes within their geography, including

private homes. This will certainly provide a

lifeline for many homes.

53%

54%

55%

56%

57%

58%

59%

60%

61%

62%

2020Q2

2019/20

2018/19

2017/18

2016/17

2015/16

2014/15

2013/14

2012/13

2011/12

2010/11

2009/10

2008/09

FIG 13 | Staff costs as % of income, since 2009/09



2018/19 2019/20

£16.04

£16.90

£8.33

£8.75

CARER

NURSE

additional funds provided via the Adult

Social Care Infection Control Fund may

only partially show up in our mid-year

numbers, but will be a vital cushion

against the additional cost of the

pandemic for many care homes.

The challenge of Covid-19 is by

no means over, but operators have

demonstrated an ability to limit the

human and financial impact of the

virus so far and are in a strong position

as we approach winter. Going under

the radar are the broader long-term

issues of the funding crisis in care

and Brexit, the latter of which serves

to reduce the pool of migrant carers

and nurses at a time when they are

desperately needed. Hopefully a legacy

of the pandemic will be to raise the

profile of these issues.


5%

0%

10%

15%

20%

25%

30%

35%

Nursing UK Avg: PersonalUK Avg: NursingPersonal

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26.8% 26.3% 28.5% 37.3% 20.6%26.2% 25.9% 27.3% 37.1% 20.4%

ALL CARE NURSING CARE PERSONAL CARE

CARE TYPE FUNDING TYPE

PRIVATE-PAY LA

2019/20 FY Q2 2020

25%

26%

27%

28%

29%

30%

31%

32%

33%

20

19/2

02

018

/19

20

17/1

82

016

/17

20

15/1

62

014

/15

20

13/1

42

012

/13

20

11/1

22

010

/11

20

09

/10

20

08

/09

40% or more 30%-40%

20%-30% 10%-20% 0%-10% Loss making

11%

21%

30%

22%

11%5%

FIG 16 | EBITDARM as % of income, by region and care type 2019/20

FIG 17 | EBITDARM margins, 2019/20 financial year vs Q2 2020

FIG 14 | EBITDARM as % of income, since 2008/09

FIG 15 | Distribution of EBITDARM margins, 2019/20

P R O F I T A B I L I T Y

s shown in Figure 14, profitability

has been on a downward trajectory

over the last decade. The 2019/20

financial year was no different with

average EBITDARM margins declining

to 26.8%. Despite the broad story, there

is a huge amount of variation within the

market. As illustrated by Figure 15, a

third of group-owned care homes traded

at EBITDARM margins in excess of 30%

in 2019/20, while only 5% made a loss.

In most regions, profit margins are

higher across the personal care sector,

as shown in Figure 16. High staff costs

are weighing on margins in the nursing

care segment of the market, which is

challenged to deliver 24/7 nursing care

to residents. The South East, London,

Wales and Scotland are the only

exceptions to this trend. A larger

private-pay market, supported by

higher fees, has helped to raise

profitability in the South East, while

occupancy rates well in excess of 90%

are supporting earnings in the Scottish

and Welsh nursing segments.

Summarising the financial impact of Covid-19

As shown in Figure 17, EBITDARM

margins have seen little decline so

far, falling by only 0.6% in the second

quarter of 2020. Limited declines are

also consistent across care types and

funding models. A lot of this must

be credited to care operators and the

social care workforce who have rallied

to protect residents, support the

wider healthcare system, and made

significant personal sacrifices in

the process.

Fee uplifts in the new financial year

and additional government support

have also helped to support trading

performance across the sector. The

Care operators have demonstrated an ability to limit the human and financial impact of the virus so far


A


1 0 1 1



Knight Frank Research provides strategic advice, consultancy services and forecasting to a wide range of clients worldwide including developers, investors, funding organisations, corporate institutions and the public sector. All our clients recognise the need for expert independent advice customised to their specific needs. Important Notice: © Knight Frank LLP 2020 This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank LLP for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank LLP in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank LLP to the form and content within which it appears. Knight Frank LLP is a limited liability partnership registered in England with registered number OC305934. Our registered office is 55 Baker Street, London, W1U 8AN, where you may look at a list of members’ names.

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Healthcare

Julian Evans FRICS

Head of Healthcare

+44 20 7861 1147

[email protected]

Patrick Evans MRICS

Head of Corporate Valuations

+44 20 7861 1757

[email protected]

Kieren Cole MRICS

Head of Commercial Valuations

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Footnotes:(1) 1,973 Covid-19 deaths were registered with the National Records of Scotland (NRC) between 22nd March and 27th September 2020.

(2) Our survey is based on PHE definition of PPE, including disposable gloves, fluid-repellent masks, and eye protection. Please note additional costs may have been incurred through the purchase of cleaning products, hand sanitiser and tempera-ture checking instruments.

F O R W A R D V I E W

This year’s trading performance

survey has made two things even

clearer to me. Firstly, this crisis has

demonstrated the resilience and

capability of our residential care

sector. Undoubtedly, the pandemic

has tested and will continue to

test operators financially well into

next year, but it’s critical that we

continue to champion the incredible

performance of care home operators

and their workforces during the

pandemic. While the British media

has at times conveyed a hysterical

image of care homes, an occupancy

loss of only 8.5% across a sector that

deals in caring for the most vulnerable

demographic in society is an incredible

feat, and testament to operators.

Looking forward, group operators are

now in a much stronger position, and

for a whole host of reasons.

Secondly, the crisis has demonstrated

the huge importance of reliable, real-

time data across the broader healthcare

sector and within residential care. This

is something we certainly recognise

as advisors, but the willingness of

many providers to contribute in our

surveys confirms that you do too. I’d

like to thank all the operators that

have once again submitted their

data for the purposes of our annual

Trading Performance Review. In

particular, I would like to thank those

operators that have participated in

our weekly occupancy and mortality

tracking since March 2020. Thanks

to you, our datasets have provided

valuable intelligence to the market

in 2020 and creating better and more

usable healthcare data will form a key

part of our strategy for 2021.

Julian Evans FRICS

Head of Healthcare

Documents

2020 UK Care Homes - Knight Frank · 2020. 11. 18. · 2020 UK Care Homes Trading Performance Review Additional government funding until March 2021 Operators adapt quickly and show