OakNorth
Bank has published its inaugural Sector Pulse Report, which provides a snapshot of some of the key care sector trends over the last six months, as well as predictions for the next six months.
The key trends identified by OakNorth are:
- Government funding boosts such as the ￡500m Social Care Grant. According to OakNorth: ‘While the news was generally welcomed by the care community, they warned that a ￡4bn funding gap remains in local social care budgets, so much more support is needed.’
- Increasing cost pressures and staffing challenges. OakNorth says: ‘Operating margins continued to be under pressure over the last six months due to elevated costs (including wages, utilities, and supplies). This was amplified by the sector’s increasing reliance on costly agency staff, as a result of tightening migration policy which prevents healthcare workers from bringing dependents.’
- Growth of luxury later living in the regions. ‘An ageing population means demand for luxury later living has increased significantly in recent years. While currently most prevalent in London and the South East, over the last six months, we’ve seen an increase in demand for growth finance from providers of luxury later living offerings in places such as the Cotswolds, Bath, Edinburgh, and Cheshire, where there the grey pound is growing and affluent.’
As far as the outlook for the next six months is concerned, OakNorth identifies the following:
- Persistent staffing challenges. The report states: ‘While overseas staff sponsorship programs have helped, new immigration policies which prevent overseas care workers from bringing family members means the need for better recruitment and retention strategies will become even more important in the months and years ahead.’
- Investment focus. ‘Over the next six months, the trend towards high-quality healthcare assets is expected to persist due to the difficulties real estate investments face amid high interest rates … Investment is likely to be driven by higher yields, robust underlying cashflows, well-defined ESG characteristics, and the potential for value creation through capital expenditures.’
- Sustainability focus. According to OakNorth: ‘ESG characteristics will be a key driver of investment in the sector, with many aiming for sustainability in design and operations. Investing in energy efficiency and renewable energy is also becoming increasingly important to help drive price premiums and lower operating costs. Strategies include sustainability in design, certifications like BREEAM and Fitwel, and aiming for net zero operations.’
Ben Barbanel, head of debt finance at OakNorth, said: “There’s a tendency to believe that ‘care’ is a recession-proof industry, and that no matter where a country is in its economic cycle, care will be fine as people continue to age and become ill, and therefore demand stays constant. However, if there’s not enough supply of care workers, beds, or funding available to meet this demand – especially when 55 per cent of it comes from local authorities and the NHS – then there will be hundreds of thousands of people who simply aren’t getting the speed or quality of care they need. Over the last six months, we’ve supported many of our existing customers in this sector with additional capital to ensure they can take advantage of opportunities that may arise to expand their portfolio, improve their existing assets, or do both.”
