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Octopus Real Estate: putting care into care homes

10 Jun 2021 Reading time: 5 mins

At Octopus Real Estate, we’ve been investing in UK care homes since 2010. We’re committed to meeting demand and improving standards in this crucial needs based sector – and we’re doing it with energy, expertise and care.

A demographic challenge

Our world is rapidly ageing – and the UK is no exception.  According to the Office for National Statistics, one in four British people is expected to be 65 or over by 2050.¹ Inevitably, a large proportion of this ageing population will require specialist care. Between 2015 and 2035, for example, the number of people aged over 65 who require 24-hour care is expected to have risen by more than a third. Over the same period, the number of over-85s who require 24-hour care is likely to have doubled.²

But the supply of care-home places is not keeping pace with this growing demand. Carterwood forecast a shortage of 222,000 ensuite wet room care beds by 2024.

Already, the lack of long-term care facilities is putting pressure on an overstretched NHS, as patients ready to be discharged often have no suitable accommodation to go to. This alarming state of affairs has been cruelly underscored by the Covid-19 pandemic and is set to worsen in the years ahead.

The question of quality

Care requirements are evolving too. With the affluent ‘baby boomer’ generation driving the demand for care homes, expectations for the quality of care have risen sharply.

This means that many of the UK’s care homes are no longer fit for purpose. Some 50% of UK care homes were first registered over 20 years ago, and some are facing closure because of staffing issues, the challenging regulatory environment and the pressures of the pandemic. Meanwhile, the development of new care homes is often hindered by the complexity of planning regulations.

Given the shortage of high-quality facilities that can enrich residents’ lives, there is a pressing need for more construction in the care-home sector.

Our approach to care-home investment

At Octopus Real Estate, we have been investing in UK care homes since 2010. We fund care homes as a real estate investment, then lease the completed facilities to leading operators who are responsible for running them. Our focus is on building long-term, low-risk and scalable investments by offering long-term financing to experienced healthcare operators.

We take care to only select partners who share our vision of developing market-leading properties that deliver better care. We support these partners with our extensive experience in negotiating all aspects of building, starting with planning applications.

Once construction is complete, we remain deeply involved with the ongoing operational performance and maintenance of the properties as engaged landlords.

Throughout, we put particular emphasis on quality. Our care homes are specialist buildings with an emphasis on style, luxury and practicality. After a decade in this sector, we have a wealth of experience in creating appropriate environments for residents and staff alike.

At present, our portfolio encompasses more than 60 trading care homes across the UK, with more under construction.  These are typically designed for between 60 and 80 residents and are within the top 10–20% quality band. Each home has been built around residents’ needs, facilitating high-quality, accessible and safe healthcare services and making efficient use of space and resources.

Engaged landlords with clinical expertise

We recognise the benefits of specialist knowledge in our core markets. Unusually for a real estate investor, we have a clinical assurance team whose role is to interact with tenant care-home operators.  This team includes two registered nurses with a combined experience of over 50 years.   

The clinical team assist with care quality and compliance issues, as well as trouble-shooting and sharing best practice from across the sector. Regular site visits are a key part of our commitment to maintaining the quality of the care homes we own. Team members visit each care home in our portfolio at least twice a year. They use these visits to build solid relationships with care-home operators and to make sure the homes have everything they need to offer high-quality care. 

Since the onset of the Covid-19 pandemic, site visits have had to be conducted online. But Octopus’s continued communication with its care homes has provided a vital channel for support and coordination – allowing us to ensure that our investments provide the best possible quality of care, even in a time of crisis.

Ongoing education

Our clinical team  runs a Quality Care Forum (QCF), which invites all operators of invested care homes to regular free training and education sessions. These events provide useful knowledge for attendees and allow the registered managers (who are responsible for the care homes) to share best practices with their peers. The QCF sessions also help operators to stay up to date with the latest policy developments and standards set out by England’s Care Quality Commission – essential for anyone operating in this heavily regulated sector.

Attractive returns and a positive impact

At Octopus Real Estate, we believe the investment community can play a crucial part in helping to ensure that the UK’s ageing population receives the high-quality care it deserves. The care-home sector needs access to finance to build modern, purpose-built properties to meet urgent and growing demand. Through the provision of private capital, institutional investors can champion state-of-the-art approaches to care across the UK.   

And in meeting the care sector’s capital requirements, investors have access to attractive opportunities. Care-home developments can offer stable and diversified return streams over the long term, supported by the powerful demographics driving demand.

These developments offer leases of between 30 and 35 years, with inflation-linked rent increases. These terms are attractive in comparison with both broader commercial real estate and conventional fixed-income investments.

Strong ESG credentials

There are also clear ethical and environmental, social and governance (ESG) dimensions to care-home investment. It drives much-needed capital into modern, efficient infrastructure that transforms the lives and improves the wellbeing of the elderly. It also provides a catalyst for positive change in the surrounding communities. At a time when ethical investment is of increasing importance to both end-investors and regulators, the ESG benefits of care-home developments are an important consideration.

Institutional capital has a crucial role to play in the UK care-home sector. This is a compelling opportunity to combine financial reward with significant societal impact. So we invite institutional investors to join us in helping to meet this pressing social need.

Useful insights

Discover our Future Generations Report

Our Future Generations Report is our inaugural ‘impact’ report, tying together everything we do across the Octopus Group.

Unlocking the retirement opportunity in a post-pandemic world report

Read the latest report on highlighting the gap between supply and demand for retirement real estate.  

The Importance of Institutional Impact Investing: care homes as an illustration

Watch Michael Toft, Benjamin Davies and Tom Morgan discuss the Importance of Institutional Investing.


Care homes

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