Statement by Marian Finnegan, Chief Economist, Cushman & Wakefield, Wednesday 22nd February, 2017
The latest report by Cushman & Wakefield Research on the Irish Nursing Home market reveals a challenged market place, where demand is exceeding supply yet transaction and construction activity remains very moderate.
Commenting on the market Marian Finnegan, Chief Economist, Cushman & Wakefield noted; “Ireland’s elderly population is forecasted to significantly increase in both absolute terms and as a proportion of the overall population. The latest CSO forecasts suggest that the proportion of the population aged 80 or over will increase from approximately 128,000 in 2011 to reach 344,900 by 2036. As such demand for nursing home accommodation is about to increase significantly in a market which is suffering from significant supply challenges.”
An analysis of the current stock of private and voluntary nursing home beds in Ireland, reveals that approximately 23,000 beds were provided across 433 nursing homes in 2016. Dublin alone provides 5,867 beds across 89 homes, representing 25% of the national supply.
According to Ms Finnegan; “The current demand for long-term residential care is demonstrated by high occupancy rates in private and voluntary nursing homes across the country, as such demand is exceeding supply. The median average occupancy rate nationally stood at 94%, which in practical terms, signifies full capacity. It is worth noting that beds in private and voluntary homes account for over 80% of total long-term nursing home beds in Ireland.”
Private and voluntary nursing homes in Ireland have traditionally been characterised by small, owner operated homes. The new generation of larger, 100+ bed homes still play only a minor role in the sector. An analysis by Cushman & Wakefield of the current stock demonstrates that 63% of long-term beds are currently provided in homes by single owners, while the remaining 37% are in group owned homes. Providers in both cohorts are all domestic. Furthermore, nursing home groups remain moderate in size with six or fewer homes owned by one group.
The current stock varies between 10 to 170 beds per home, with the average private and voluntary nursing home providing 53 beds. Smaller homes with less than 30 beds account for 15% of all homes. The vast majority of homes, 67%, provide between 30 and 69 beds. Homes providing in excess of 70 beds per home account for only 18% of all homes.
The new generation of larger, 100+ bed homes play only a minor role in the Irish nursing home sector, 7% of the total. In terms of location, 100+ bed homes are predominantly located in the Greater Dublin Area, accounting for 20 out of the total of 29 homes of this size in Ireland.
Sales activity in the Irish nursing home market remained almost entirely driven by off-market transactions during 2016. Overall, a relatively small number of transactions occurred in the period, with most of the sales taking place outside Dublin. There remains a notable disconnect between the weight of investor interest in the sector and the number of transactions taking place.
The most significant transaction in 2016 was the sale of Laurel Lodge Nursing Home, Templemichael Glebe, Co. Longford. The home accommodating 106 beds, was sold to an Irish company, ACR Healthcare, for approximately €12 million in quarter three of 2016.
Private and voluntary nursing home operators rely significantly on the Nursing Homes Support Scheme, often referred to as Fair Deal. At the end of 2016, the average weekly Fair Deal rate nationwide came to €884 per bed. The Fair Deal rate scheme faces several uncertainties and challenges, notably from an operator and investor perspective.
Perhaps most notably, the low level of the Fair Deal rates, specifically outside Dublin, and the fact that the operators are highly reliant on the income they provide, have a combined effect in discouraging investors entering the sector. The rates are set to only cover the cost of care, with costs associated with capital investments not included.
Full report available on request. Marian Finnegan shares her views on the report here