Dublin, 8th July 2020 – The Covid-19 pandemic has focussed a lot of attention on Ireland’s nursing home sector. It has highlighted the challenges faced by both public and private nursing homes not alone in how they dealt with the pandemic, but more importantly, how the sector is expected to perform in the future. In an effort to understand the private sector, it is necessary to review the volume and quality of our existing nursing home stock and then consider the realistic likelihood of increasing its quality and capacity into the future. CBRE Healthcare have undertaken a comprehensive analysis of Ireland’s existing nursing home stock as well as looking to the supply line of new nursing homes that are currently at various stages of the planning process. Our overriding conclusion is that Ireland is currently severely undersupplied in terms of good quality nursing homes - a situation that is likely to worsen post Covid 19. To keep pace with our ageing population, we need 7,500 new nursing home beds to come into the system by 2026, but the reality is that only 935 new beds have been delivered in recent years and there is very little expected to be built in the next few years other than the 1,144 beds which are on site.
To add to this, post Covid 19, some nursing home beds may be lost to the system as smaller homes struggle to survive. A combination of rising building costs and the 2016 Standards being enforced by HIQA may severely impact the viability of some new developments. Supply and demand equilibrium is likely to be out of kilter for some time, and this is not good news for elderly care.
Ireland’s population is ageing at a fast rate with older people now accounting for 13% of the population, up from 11% in 2006. By 2026, Future Analytics have projected that the number of over 65s in the State will have grown to 860,600 or 16% of the population with a further 33% increase to 1,146,200 expected by 2036. It is estimated that 7,500 additional nursing home beds are required to be delivered by 2026, just to keep pace with this projected population growth and to keep in line with a EU average of 4.5% of the over 65 group needing nursing home care.
There are currently more than 25,000 nursing home beds provided in the 436 private nursing homes in the State while more than 6,000 additional nursing home beds are provided in 115 publicly owned nursing home facilities throughout the country. In total, therefore, there are currently 31,000 nursing home beds in the State, 80% of which are in private hands.
More than a quarter (26.6%) of Ireland’s private nursing home beds are located in Dublin with a further 10.3% (2,509) located in Cork. While it could be argued that this distribution is explained by Ireland’s unique demographic profile and population density, in actual fact, these counties generate the highest Fair Deal Rates in the country and are therefore more profitable for nursing home operators and developers.
The average Fair Deal rate in Dublin is currently €1,196 per week, while the lowest Fair Deal rate in the country is in Donegal at €894 per week.
Therefore, there is greater incidence of development of new nursing home facilities in counties where there is greater income generation potential, i.e. higher Fair Deal rates as well as the ability to attract private paying residents. This is despite the fact that operational costs of running nursing homes are arguably the same regardless of what part of the country the facility is located.
The vast majority of new supply of nursing homes is heavily concentrated in one particular part of the country (Dublin and the surrounding counties) while many counties are severely undersupplied in terms of modern, purpose-built nursing home accommodation that is future-proofed. There is therefore a legitimate concern that supply imbalances will become even more acute in parts of the country unless Fair Deal rates are equalised.
Nursing Home Ownership
There has been significant consolidation in nursing home ownership in Ireland over recent years with several specialist operators having acquired existing nursing homes & groups and with entities having developed new nursing home facilities in some instances.
According to our research, 34% of private nursing home beds in Ireland are operated by groups. 28% are operated by the leading 15 groups with the majority of these facilities (in terms of beds) located in and around Dublin.
CBRE estimate that around €150 million has been invested in the delivery of new nursing homes since 2018. 935 beds have been completed and are now fully operational (Figure 2). 605 (65%) of these nursing homes are located in Dublin.
There are currently only 12 nursing homes under construction nationally (Figure 3) which on completion will deliver 1,144 new beds into the market. Five of these schemes are being built in Dublin and delivering 55% of all new beds. The size of homes being built is dominated by large homes in Dublin where an average home under construction is 113 beds.
Approximately 2,000 new beds have been delivered over the last few years, but we need to deliver 7,500 by 2026 - a shortfall of 5,500. This shortfall, as well as new HIQA regulatory requirements and learnings from Covid-19 together, is going to put significant additional pressure on this sector in the coming years unless more development commences.
Planning permission has been granted within the last 24 months for 3,560 beds while a further 1,808 beds are still within the planning system meaning there is a total of 5,368 undeveloped beds countrywide.
In addition to the 5,368 beds with full planning granted in the last two years, there are 2,183 beds in older planning permissions, so a total of 7,551 over 137 nursing home schemes (including new developments and extensions) that have full planning permission, and that need to be built. This alone, if delivered, would keep up with the demands of our population growth.
Despite the volume of stock in various stages of planning, with Fair Deal rates currently rendering new nursing home development unviable in most locations outside of Dublin, it is difficult to see significant new development commencing where homes are needed.
In CBRE’s view, there is likely to be a decline in existing nursing home capacity over the coming years as the 2016 standards (National Standards for Residential Care Settings for Older People in Ireland, 2016) are enforced by December 2021. We expect these to render some existing facilities unusable. This will particularly impact smaller nursing homes around the country. To this end, there are 132 small (under 40 bed) private homes countrywide, with 4,099 beds or 30% of national stock. It is these type of homes that may be compromised by the 2016 standards come December 2021, and may have no option but to close, putting additional pressures on an already undersupplied sector.
Only 45 private and 13 public nursing homes in the whole country have capacity of more than 100 beds and these can better weather changes to the market. We would caution however that some of the larger public homes’ 100+ capacity is due to many multiple occupancy rooms which will become unviable into the future.
In addition, and to compound issues, HIQA may well insist that ‘social distancing for infection control’ should be kept in nursing homes. The logical outcome of this is that pressure will be on every home to reduce the number of double bedrooms, in both old and new designs; while shared bathrooms are likely to no longer be tolerated. Around 70% of current private sector bed stock comprises single rooms, and only around 50% comprise single rooms with ensuite bathrooms. With 30% of beds in double (and some triple) rooms, if infection control measures are introduced permanently to prevent the spread of future viruses, 3,771 beds could be at risk.
Instead of gaining vital nursing home bed stock to satisfy our growing population, we could potentially lose in the order of 7,870 beds or thereabouts, (more than 30% of the national stock) as a result of a combined introduction of new standards as well as infection control measures.
The key drivers for any sort of increased delivery to match the progressive growth of our ageing population include the following:
On a positive note, and despite Covid-19, we are seeing increased appetite from developers and operators to invest in the nursing home sector, encouraged by Ireland’s unique demographics and the potential to generate defensive income. There is still strong demand from existing owners to consolidate their position in the Irish market. However, a shortage of supply is likely to prove a barrier to investment in this particular sector. With increased regulation and huge variance in Fair Deal rates payable across the country, we are likely to see the shortage of nursing home beds become more acute over the coming years and this should be of major concern to any new Government.
- Construction costs for new homes need to become more affordable. This may be design driven and in turn, legislation driven.
- Fair Deal rates nationwide need to increase across the board and need to be more equitable across the country.
- HIQA standards around future proofing as well as virus proofing need to be realistic and sympathetic to both new and existing nursing home owners and operators, while respecting the privacy, safety and dignity of residents.
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CBRE U.C., (CBRE Ireland) registered in Ireland, no. 316570. PSRA Licence No. 001528 is the country’s largest commercial real estate services company with offices in Dublin and Cork. Currently employing over 150 employees, we work with occupiers, investors and developers of office, industrial and logistics, retail, hotel and healthcare property, providing strategic advice and execution for property sales and leasing; tenant representation, corporate services; property and project management; appraisal and valuation; development services; investment management and debt advisory; business rates and compulsory purchase and research and consulting. Please visit our website at www.cbre.ie