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Spotlight on the care home sector
Jon Hodgkins, Director, Care & Education Valuations at Christie & Co, considers the state of play for the UK care home sector in 2025.
Read time: 8 mins Added: 09/05/25
The care home sector has turned a significant corner since the pandemic, however, it still faces challenges. These include the recent 6.7% increase in the National Living Wage; another is the negative effects of the changes in Employers' National Insurance contributions. On the positive side, most local authorities appear to have gone some way towards recognising these additional costs by increasing fees for social care by around 6-7%.
Occupancy levels have recovered and currently average around 89%, but there is a minority of homes with depressed occupancy. This is usually for a deep-seated reason like oversupply and in some areas, problems with staff recruitment. For example, care homes in the more remote areas are struggling to recruit the number of staff they need to improve their occupancy levels.
Management churn can also be very disruptive. The manager is often the key ingredient for a successful business as they are key to maintaining a home’s reputation and motivating and retaining staff, which has a direct impact on occupancy and staffing levels.
Another challenge is increasing competition. The increase in build costs has slowed the development of new care homes, but Christie & Co’s Care Development team is actively selling development sites and new homes are being built in areas where there are few modern, future-proof care homes. The downside for older, underinvested care homes is the increased competition for self-funded residents.
Funding and fees
Around 40% of residents are now self-funded, with a further circa 20% who are local authority funded but paying a top-up because fees are more than the local council is prepared to pay.
Research undertaken by National Institute for Health and Care Research (NIHR) confirms there is a link between a care home’s Care Quality Commission (CQC) rating and residents’ quality of life. Care home’s with CQC ratings of Good or Outstanding typically have a higher proportion of self-funded residents which frequently translates into higher fees and better operating margins.
There has been quite an increase of almost 20% in weekly fees since the pandemic, although fees can vary significantly, depending on location and the quality of the facilities.
Fee growth has been driven by rising costs, including wages, utilities, insurance, and food price inflation. As a result, self-funded fees have increased disproportionately. As local authority fees in most areas haven't risen by the same rate, the higher fees charged to self-funded residents are used to subsidise social services funded residents.
Staffing and shortages
The April 2025 increase to Employers’ National Insurance contributions is having a big impact on wage costs and therefore profitability, particularly for those care homes that are very reliant on part-time employees who previously earned less than the lower earnings threshold of £9,100 which has been reduced to £5,000.
After the pandemic there was a major shortage of staff which forced many homes to use expensive agency staff. More recently, expenditure on agency staff as a proportion of total wage costs has fallen as care providers have taken a more proactive approach to staff utilisation and recruitment, including sponsoring staff from overseas.
Energy and operating costs
Although the US administration has changed its stance on reducing energy costs, in the UK the aim to achieve ‘Net Zero’ by 2050 remains a government objective and a challenge for the property industry.
For care homes that are leased, the need to achieve a minimum Energy Performance Certificate (EPC) rating of C by 2027 and B by 2030 will require investment. However, if these upgrades are undertaken proactively as part of a broader improvement plan—such as converting en suite WCs to wet rooms or installing photovoltaic panels during roof repairs or window replacements—they can help reduce costs, increase income and profitability, and ultimately enhance property value.
Christie & Co have recently undertaken research on EPC ratings and heat and light costs. The research suggests that a care home with an EPC rating of C has, on average, an 18% saving in utility costs when compared with a care home with a D or E rating.
This is despite care homes getting bigger. New care homes usually have a Gross Internal Area (GIA) of between 58 to 65 square metres per bed space, with hotel-standard facilities including cinemas and cafes. Older purpose-built, converted care homes usually have GIAs of below 50 square metres.
Not only can retrofitting help reduce operating costs and increase profitability, but it can also help to increase a care home’s value and the number of potential buyers or value when refinancing.
Commercial investor backed corporate care providers expanding by sale and leaseback won't consider a care home with an EPC rating of C or below, but if retrofitting can lift a care home’s EPC rating to B, the number of potential buyers who are prepared to pay a premium for the right asset will be widened.
Market, buyer trends and pricing
2024 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 registration process persisted. There was a clear re-emergence of real estate investment activity following a relatively quiet market 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, yields stabilised and market activity saw a notable pickup.
Overall, care home prices in 2024 were up 1.0% on the previous year and multiples of EBITDA remain steady although, for the aforementioned reasons, operating margins are under increasing pressure. There continue to be many regional and national corporates with funds to buy care homes. Although some prefer the sale and leaseback route to funding an acquisition, many still want to own and operate their homes.
Acquisitive care home operators are primarily seeking care homes that are 'future-proof.' This means a care home with bedrooms that are at least 12 square metres (ideally 14 square metres plus), all with en suite facilities (preferably wet rooms) on level floor plates and off wide corridors. For every bedroom there should be a minimum of 4.1 square metres of communal day space which should be spread over several day rooms.
To be economically efficient, unless a care home is operating as a ‘boutique care home’ it needs at least 25 bedrooms if it is owner operated. A care home with a salaried manager will need to have at least 40 or more bedrooms to cover the extra overhead cost of a manager.
In valuation terms, there is an increasing differentiation between care homes operating from converted buildings and purpose-built care facilities. Nevertheless, there is also a great deal of variation between older care homes and modern care homes with some of the former often offering a higher level of service and operating as hotels with care. There are some very good operators in the market for converted and older purpose-built care homes, recognising that refurbishing and investing in older property can cost a lot less than building and fitting out a brand-new care home.
The future
It’s well known that the UK has a growing older population, so there continues to be a strong demand for more good quality care home places.
Similarly, better healthcare outcomes means there are more younger adults who are living with physical and learning disabilities, who also need care. In England alone, there are approximately 2,000 people with learning disabilities living in NHS long-stay beds. This all adds up to a situation where operators should have significant opportunities for growth as demand is set to outstrip supply.
As such, perhaps the key challenge is how the care sector will deliver the number of new care homes that will be needed in years to come.