A report from Cushman & Wakefield found that Q1 2025 alone held £940m in transactional volume, marking the culmination of two years of sustained growth.

Volumes were boosted by the acquisition of Care REIT by California-based CareTrust REIT; in total, US investments made up 71% of all transactions in the sector for H1 2025. According to the report, momentum was steady, with consistent 12-month rolling volume rises since 2023 and now surpassing £4bn.

Investors have also increasingly targeted B- and C-graded stock, which Cushman & Wakefield claimed reflected a growing appetite for consolidation and attractive pricing for investors, as well as broader ownership structure ranges.

Meanwhile, occupancy appeared stable across all asset grades, with market-wide occupancy currently sitting at 89.6% and expected to hold steady.

Attractive returns

Specialist finance professionals have echoed a favourable view of elderly care home assets. Among them is Justin Trowse, managing director at Mortimer Street Capital.

“At the moment, care home assets are really standing out, largely because traditional residential development just isn’t delivering the returns it used to,” he said.

“Care homes bring a different proposition. They’re trading businesses, which means they’re valued on yield, not just the physical asset.

“That’s a big plus in the current market. But it goes deeper than that. We’re seeing long-term demand driven by an ageing population, evolving family dynamics, and a real lack of quality care provision across the UK.”

Demographics create demand

Other professionals also highlighted the benefits of the asset class in the face of changes in demographics and other societal elements. Deepesh Thakrar, senior director of debt finance at Oaknorth, noted both an ageing population and a rise in dementia cases — a figure reported by the Alzheimers Society — as signs of the ever-growing need for fit-for-purpose care infrastructure.

He also cited occupancy levels, as well as rising annual fee growth, with Cushman & Wakefield reporting a 7.9% year-on-year hike in Q1 2025, despite quarterly growth slowing.

“From an investor’s standpoint, care homes provide stable, long-duration income, particularly when operated by experienced providers with strong reputations and compliance histories,” explained Deepesh.

“Operators that prioritise care quality, workforce engagement, and sustainability are best placed to weather short-term volatility and attract long-term capital.”

Supply is not keeping up

With an ageing population also comes a reported lack of supply for care beds. According to research by Knight Frank, while bed supply in the UK grew by 2.9% over the past decade, the over-65 population grew by approximately 20.7% over the same period.

Aspects such as an ageing population and supply constraints can make the asset class resilient and attractive, according to Anthony Newman, senior specialist relationships manager at Allica Bank.

“That, combined with the property-backed nature of the sector, is driving interest from both experienced operators looking to expand and investors looking for stable returns.

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“Regulation, staffing, and planning costs create high barriers to entry – helping insulate existing businesses from new competition and making it a solid opportunity for well-backed clients.”

Operational knowledge is key

However, alongside the sector’s unique benefits come distinctive challenges. Some experts noted staffing as a particular issue after new visa restrictions were implemented on international care workers entering the UK.

In addition, Deepesh noted wage inflation and NI contributions as factors to take into account.

“From a credit risk perspective, this calls for deeper operational due diligence and flexibility in structuring,” he said.

Justin added: “The main challenge for lenders and brokers is that care homes are operational businesses, not just property plays.

“A lot is going on behind the scenes, such as staffing, regulations, CQC ratings, and demographics, which impact viability and performance.

“So, underwriting and funding a deal here means understanding how the business operates, not just what the bricks and mortar is worth.”

Positives, but not all plain sailing

Guy Brocklehurst, relationship director at Leumi UK, highlighted positives such as demand for new development sites, and also suggested that affordability was less of a concern, due to older generations benefiting from house price growth.

However, this could also carry its own challenges for the market.

“The sector is not immune to inflationary pressures on build and staffing costs, and there is now fierce competition at the prime end of the market,” warned Guy.

“The new supply coming to market is almost entirely targeting the affluent, private paying consumer, as low fees make local authority-funded care homes harder to underwrite.”

Other wider market conditions have also had an impact on the asset. “Rising costs, including increases to the National Living Wage and Employers’ National Insurance, have certainly put pressure on margins,” said Conor McDermott, director of SME lending at LHV Bank.

“Many are responding by revising fee structures and improving their operational efficiency. These measures have helped keep occupancy levels steady.

“For the sector to remain attractive to lenders, it needs to strike a balance between meeting growing demand and running sustainable day-to-day operations.”

Adding value to assets

For specialist finance professionals, the care home asset class holds plenty of potential. However, Justin emphasised that those looking to enter the market needed a thorough understanding of it.

“Specialist lenders have a real opportunity to add value in this space, especially when it comes to transitional or value-add projects,” he said.

“Think care home conversions, refurbishments, or helping operators improve quality and CQC ratings to reposition an asset. These deals need flexible structuring — things like bridge-to-term finance or capex facilities — and that’s where specialist finance can come into its own.

“The key is understanding how these businesses are valued. It’s not just about the property; it’s about cash flow, EBITDA, occupancy, and the strength of the operator.

“The more the finance market tunes into that side of things, the more support it can give the sector to grow in a sustainable, scalable way.”