Despite the pandemic, the elderly care and retirement living sector is ripe for growth: here’s why

By: Ben Barbanel, Head of Debt Finance at OakNorth Bank

COVID-19 has presented numerous challenges for the care home and retirement living sector, yet in some ways, the pandemic has made these businesses even more attractive to lend to.

At the beginning of 2020, care homes and retirement villages were seen as going from strength to strength as an asset class. As the pandemic came to the UK, care home and retirement living operators and owners switched from focusing on growth to implementing new safety measures to ensure their residents and staff were safe, while halting any potential outbreaks.

As the UK went into lockdown, many other high-street lenders initially pulled back from the commercial lending market to focus on their existing loan books. This presented an opportunity for OakNorth Bank to step up and continue supporting as many experienced management teams as possible.

There are a few reasons why I predict care homes and retirement villages will be medium to long-term winners:

Demand continues to outstrip supply:

A recent ONS report, projects that there will be an additional 7.5m people aged 65 years and over in the UK in 50 years’ time.

So, demand for care homes (including specialised care homes) and retirement villages will continue to rise over the next decade, and supply is unable to keep up – something that has only been exacerbated by COVID-19 with delays in the development of new homes and retirement villages, and some homes no longer being fit for purpose.

The pandemic has shifted the priorities of many:

An unexpected upside of COVID-19 is that it’s made more elderly people think about their quality of life, their surroundings, and the importance of having a strong support bubble.

COVID has also raised awareness of the sector in general and it has differentiated retirement living from care homes. It has highlighted the benefits of containment in a village setting; you might not be mixing inside, but you have large grounds which you can walk around, giving it a proper community experience while you’re locked down. So, there’s a big opportunity for more rural care homes with outdoor space and retirement villages.

The idea of moving from your home to somewhere that is likely to be smaller than where you currently live and which may not have a garden – has become a less attractive proposition. So I think smaller places for suburbanites are going to be a harder sell than they were before.

The UK’s elderly population is also one of the wealthiest:

According to research from Cushman & Wakefield, the combined housing wealth of the UK’s elderly population is projected to reach £2.4trn by 2040. This is why it’s so important that operators get across the hospitality-focused elements of their offering – that their care home or retirement village is an aspirational product and a place you can get care when you need it, not somewhere you just move for the end of your life.

We’ve done a number of loans recently to businesses in this space offering these kinds of services:

  • A recent loan to Macc Care, the Birmingham-based care home group, to support the development of a major mixed-use business and leisure development in Solihull.
  • A £42m debt facility with CBRE for the development of a new retirement village in the South East.

Funding your growth:

Sadly, the pandemic has made a number of care homes no longer fit for purpose, which gives more experienced management teams and real estate developers a chance to purchase the site and either repurpose it into another care home or build new property in its place.

As opportunities like this arise throughout the year, a care home operator or real estate developer will need to act fast in order to purchase the site and repurpose the land. This is where having a fast and flexible lender, like OakNorth Bank, can make a world of difference.

For all the above reasons, I believe this is a sector that is ripe for growth, and if it is a strong business being led by an experienced management team, we’re keen to help.

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