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UK's residential elderly care sector shows signs of recovery

A new report by leading business and financial adviser Grant Thornton UK LLP suggests the UK's private residential elderly care sector is showing signs of renewed financial health, following a prolonged period of instability.

The review of the sector identifies a number of factors signalling both stability, and cautious optimism for care home operators. These include an overall net increase in residential demand, coupled with a recent improvement in occupancy rates; stabilisation of operating costs – namely with regard to employment costs – and improvements in Debt / EBITDA lending parameters to more normalised levels of x4-6, versus the 'pre-credit crunch' period when leverage reached x14.

Grant Thornton's report predicts an overall improvement in the sector's longer-term prospects, underpinned by an increasingly elderly demographic, the long-term transfer of residents from local authority homes to independent care homes and earlier credit pressures having restricted new builds, thereby assisting current occupancy levels.

The report, however, expresses a degree of caution over the sector's near term outlook. It notes that highly leveraged operators, and particularly those with compliance issues operating from older properties, are still likely to face challenges potentially leading to further business failures.

Regionally, the report also identifies a growing disparity in business conditions around the UK, with London and the South East remaining the most buoyant markets on account of localised affluence and resident's ability to self-pay. The North East, Yorkshire and Humberside are noted as some of the most challenging regions, on account of local economic factors, over capacity and lower fees, coupled with lower occupancy rates and aging properties in these regions.

Daniel Smith, Partner and Head of Private Sector Healthcare at Grant Thornton UK LLP, commented: "The UK's private residential elderly care sector faced a challenging period since 2008, but we're now starting to see a rebalancing of fortunes in the sector and renewed optimism from both the businesses and their financial backers. Over the past few years, operators have had to adopt more efficient operating models whilst maintaining – and in many cases improving – the quality of services they provide, in order to stay afloat. These businesses are now poised to capitalise on the demographic and economic factors which point toward favourable conditions for the sector."