Business Outlook 2025 | Care - UK

In many ways, 2024 was a year of growth in the UK care market, with the majority of operators reporting an improvement in occupancy levels and a reduction in agency usage. We saw a return in buyer confidence which resulted in an increase in transactional activity across the market, especially from the first-time buyer and independent segments. However, deal times were delayed as issues with the Care Quality Commission (CQC) persisted.

There was a clear re-emergence of real estate investment activity following a relatively benign market environment in 2023 whereby investors adjusted to a range of factors including higher interest rates, inflationary pressures, and an upward movement in government gilts. In 2024, we saw yields stabilise, with market activity seeing a notable pick up.

​​The land and development market faced stronger headwinds due to construction cost inflation, ongoing challenges in the planning system, and the availability of debt. However, the need for future-proof care beds remains undiminished, and the underlying ESG credentials, together with future bed demand, remain compelling for investors. We expect the combination of improved operational trading performance and stabilisation of construction costs, to provide increasing confidence to return the development markets, resulting in an uptick in demand for consented sites and transactional activity forecast for 2025. A greater number of developments are coming forward in untapped regions, including the southwest of England, Wales, and London, and we anticipate that this will continue into 2025.

Policy & Sector Funding

It was disappointing that the social care sector was overlooked in the Autumn Budget 2024. It is, however, positive to see the Government delivering on an increase in NHS funding (before reform) which is a necessary start, with more details on future funding expected in the NHS 10-year plan in Spring. The ongoing issue of local governance financing was also acknowledged with an increase in funding of £1.3 billion for councils, £600,000 of which is earmarked for social care (adult and children’s), though a fraction of this is likely to reach the elderly care sector. The additional increase in the National Living Wage (NLW) and employer National Insurance contributions (NICs) creates further stress on employers where staffing costs are already at circa 60%.

Whilst the increase in Capital Gains Tax (CGT) was not as great as we had anticipated, the overall tax burden is now at a historic high. What we have now, though, is certainty, which is key for our markets to operate effectively. Business owners can now plan their exit strategies with the knowledge of their tax burden, and we expect to see some much-needed stability in the market.

Movement in the average price of assets sold, year-on-year.

Higher interest rates hampered new deal activity early in 2024, and the calling of a general election created uncertainty in the market. This led to buyer hesitancy and a decline in the number of care homes coming to the market. Positively, activity levels increased in Q3 following a reduction in interest rates and the general election result. The impact of the changes in employer National Insurance contributions (NICs) in the Autumn Budget is yet to be fully understood, but the momentum of the transactional market was undiminished in Q4. Given the wider turbulence, underlying demand from investors remained strong with good prices achieved. Our price index reflects this with a 1% overall increase.

We anonymously surveyed care providers across the country to gather their views on the year ahead.

• Increased activity with interest rates easing
• Increased deals funded by REITS
• Continued first-time buyer activity
• Margins squeezed on those dependent on local authority fees
• ESG credentials will become increasingly important for both owners and funders
• Existing operators will continue to expand with a preference for businesses with upside
• Concern around staffing cost increases versus local authority fees
• We remain positive that healthcare will continue to be a key target sector for investors