Can the care sector attract funding beyond US REITS?

The UK’s ageing population is intensifying demand for healthcare and later living real estate, and a recent wave of high‑profile transactions is accelerating the sector’s shift toward institutionalisation.

Welltower’s acquisitive push - including its recent purchases of Barchester, HC‑One and Aria - has pushed its share of UK care‑home beds to over 10% (per latest LB figures). That scale matters. By consolidating fragmented portfolios, large capital players create clearer operating benchmarks, liquidity pathways and exit options for developers and smaller operators who have built up local portfolios. For developers, an institutional buyer can be an attractive route to exit and recycle capital; the question is whether viable alternatives exist beyond selling into large US REITs?

The sector’s move toward institutionalisation has been gradual and cautious and still has some way to go. Memories of Four Seasons and Southern Cross failures linger, but market participants increasingly view those collapses as the result of company‑specific failures involving over‑leverage, onerous rent profiles and excessive reliance on public funding,  rather than structural market issues. Thematic tailwinds are compelling: ageing demographics, regulatory focus on quality and persistent demand dynamics make care homes a natural match for investors seeking long-dated, inflation‑linked cash flows.

Questions remain over the best routes for developer / operators to exit. Most of this year’s transactions have been via opco or propco sales, according to the latest research from Cushman & Wakefield. Such structures, while logical, do not suit all capital providers and we expect to see the financial markets respond with models that help broaden the investor base.

The pensions risk‑transfer (PRT) market is booming; UK insurers are actively buying pension liabilities. L&G’s acquisition in October of a £4.6bn Ford pension book is a significant transaction in the recent trend for insurers acquiring long-dated liabilities. They do need to match these liabilities with long-term, lower risk assets which provide attractive investment returns; many have looked to diversify their portfolios away from traditional fixed income towards private markets and have increasing appetite in the real estate sector for ground‑rent style investments secured by operating assets such as hotels and student accommodation. Care homes fit this model well, offering long-term, low‑risk, inflation‑linked income secured against an operating, demand‑resilient asset class.

Structuring care‑home finance as ground‑rent or long‑lease investments allows asset owners to recycle capital while retaining operational control. These hybrid structures, which combine long‑term, inflation‑linked ground rents for institutional investors with retained ownership and operating equity for sponsors, can align interests and de‑risk exposures that formerly deterred large investors.

The market now sits at an inflection point. Institutional entrants like Welltower demonstrate scale and an acquisitive exit pathway for developers. With PRT demand and insurers’ search for long‑dated, inflation‑linked assets, ground‑rent and long‑lease models offer a credible alternative route to attract long‑term capital, enabling owners to recycle capital and grow their businesses while keeping operations focused on improving care outcomes. For patient capital willing to engage operationally, there is an opportune moment to consider longer‑term finance into the sector.