The Healthcare Property Market: Trends, Challenges, and Opportunities
The UK’s ageing population continues to drive demand for healthcare services, particularly in primary care and care for individuals in later life. Alongside this, increasing NHS waiting times are creating additional pressures on primary care providers. Given the broad scope of the healthcare sector, this article will focus on two key areas: care homes and primary care.
Care Homes in the South West
The South West is home to approximately 1,828 care homes, which provide a range of services, including:
Residential Care – Offering personal care and support for daily activities.
Nursing Homes – Providing 24/7 medical assistance from specially trained staff.
Specialist Care Homes – Catering to individuals with specific needs such as dementia or severe disabilities.
Cost of Care
The average cost of care in the South West is £1,419 per week for residential care and £1,618 per week for nursing care. Annually, this equates to around £74,000 for residential care and £84,000 for nursing care, which is slightly higher than the national average of £72,000 to £80,000 per year. Notably, local authority-funded care is generally 20-30% cheaper than privately funded care.
Occupancy and Market Trends
Recent occupancy levels have been just under 90%, with the South West averaging around 85%. Following the pandemic, these figures dipped but are gradually recovering to pre-COVID levels.
Care Home Outlook
The care home industry is likely to see an increase in turnover as operators seek to offset rising staffing costs. To address staff shortages, more homes are sponsoring workers from overseas and providing nearby accommodation. However, recent legislative changes will impact staff sponsorship within the care sector. From April 2025, the minimum salary requirement for care workers with new Certificates of Sponsorship will increase from £23,200 per annum (£11.90 per hour) to £25,000 per annum (£12.82 per hour).
Utility Costs & Investment Demand
While utility costs surged due to the conflicts in Ukraine and Russia, they are now stabilising. Demand for investment in the sector remains strong, with valuation multipliers ranging from 1.5 to 2 times Fair Maintainable Turnover, equating to approximately £50,000 to £110,000 per room.
Primary Care in the South West
The primary healthcare market remains resilient, supported by government-backed income and an ageing population. Modern, purpose-built care centres are in high demand to meet evolving healthcare needs. Devon, for example, has 31 Primary Care Networks encompassing approximately 127 GP practices.
Market Trends in Primary Care
Rents – Owner-occupied GP premises receive Notional Rent payments from the NHS, determined by the District Valuer. Rents have increased locally from around £110 per square metre to highs of £180 per square metre.
Yields – The primary healthcare sector has consistently outperformed mainstream commercial property in terms of rental value growth and total returns. Before the rise in interest rates, yields were between 5-6%, which increased to 7-8% in 2022. Investor confidence is now improving, with yields stabilising at 6-7%.
Investor Appetite – There is a growing interest in acquiring purpose-built healthcare premises. However, rising capital values have made it more difficult for younger GPs to buy into partnerships, leading to an increase in sale-and-leaseback investments.
Leases – Where GP practices have been sold and retained as investments, leases are typically for 10-15 years with 3-yearly reviews of the Notional Rent or index-linked adjustments.
Future Outlook for Healthcare Property Market
Primary Care
As more purpose-built healthcare facilities become available, older surgeries may not renew their leases and could be repurposed for alternative uses. The demand for modern facilities remains strong, with continued investor interest and stable yields.
Care Homes
Smaller care homes are increasingly becoming unviable, leading to closures and the redevelopment of these sites. However, the demand for care beds remains high, driving the construction of larger, purpose-built care homes.
How Vickery Holman Can Help
Vickery Holman offers a comprehensive range of services for the healthcare property sector, including:
Valuations – Providing accurate assessments for care homes and GP premises, considering factors such as Fair Maintainable Turnover and Notional Rent.
Business Rates – Offering expertise in reducing costs through effective business rates advice.
Leases & Rent Reviews – Assisting care home and primary care property owners with lease negotiations and rent review processes.
Building Surveying – Conducting surveys to assess the condition and compliance of healthcare properties.
Agency – buying, selling or leasing suitable premises
As the healthcare property market continues to evolve, expert guidance is essential for property owners, investors, and healthcare operators. Vickery Holman’s team is well-positioned to navigate the challenges and opportunities within this critical sector.
