Fragmentation acceleration

The elderly care home sector has become ever more fragmented over the last five years. The largest five operators’ market share fell from 16% in 2014 to 13% in 2019. Nationally, the Big Five (HC-One, Four Seasons, Barchester, Bupa and Care UK) operate 62,000 care beds: 12,000 fewer than five years ago. All five operate more than 7,000 beds each.

At the same time both ‘upper-tier’ and ‘mid-tier’ operators have grown their share of the market (see table below). Those providers, ranked between 6th–15th and 16th–30th, have continued to catch up with the major players. These upper- and mid-tier operators run around 3,000–6,000 and 1,500–3,000 beds, respectively.

While the Big Five outperform the rest in terms of bed capacity, they have failed to consolidate their position and face legacy issues with ageing stock. Bupa and Four Seasons have been the largest fallers between 2014 and 2019 seeing their stock reduce by 63% and 43%, respectively. They also have by far the oldest stock compared to their peers, with the bulk built in the 1990s or before.

HC-One has become by far the largest provider of elderly care with 22,000 beds, an increase of 78% since 2014 and 68% more than their nearest rival Four Seasons. They have fuelled this growth with large acquisition deals, such as when they acquired 110 care homes from Bupa in December 2017 in the biggest deal seen in the market to date. HC-One is ranked first in terms of number of beds in seven out of the 12 regions but are particularly dominant in the North where they have a market share of 9% across the North East and North West.

Closing in on the Big Five are Anchor and Sanctuary. They have continued to increase market share since 2014, growing the number of beds under their remit by 38% and 57% respectively. They have done this through a combination of smaller selective acquisitions and development.

Need for more supply

With an ageing population and much of the UK’s care home stock in need of modernisation, there is a clear need for more supply. This comes at a time when stock is growing far slower than need. Across the UK, the number of beds only increased by 0.9% between 2014 and 2019, while the population aged 85+ grew by 9.1%.

We predict current trends will continue: upper- and mid-tier operators will continue to grow their portfolios organically through development, while the Big Five’s collective share of the market declines. Four Seasons’ ageing stock looks likely to be broken up, providing opportunistic operators to add to their portfolios where it makes sense.