The UK social care market is attracting renewed investor interest, supported by strong underlying demand, constrained development and growing appetite from international capital. But beneath the optimism, investors and operators face a more complex environment: valuations remain challenging, financing costs are elevated, and uncertainty over commissioning and regulation is shaping investment decisions.
Those were among the central themes of a roundtable on UK social and long-term care at the McDermott Will & Schulte HPE Europe conference in September, where investors, advisers and operators discussed market conditions, capital flows and the outlook for 2027.
The broad consensus was that the sector’s fundamentals remain attractive. However, the market is changing, with opportunities increasingly dependent on asset selection, operational performance and the ability to navigate a more demanding investment environment.
Return to activity
After a period of uncertainty earlier in the year, transaction activity was showing renewed momentum by September. Participants reported a significant increase in deal flow, although completing transactions remains challenging.
The market is increasingly divided between smaller transactions and larger portfolio deals. Smaller acquisitions are benefiting from competitive high-street bank lending and interest from private operators and family offices. At the larger end, the pool of buyers able to acquire portfolios worth more than £1bn is considerably narrower.
This is prompting some institutional owners to sell assets in smaller packages rather than pursue large portfolio disposals. Transaction volumes may be improving, but the number of headline deals remains limited.
Capital is also coming from a wider range of sources. US family offices are increasingly targeting UK healthcare, with interest extending beyond elderly care into mental health, children’s services and specialist provision.
The result is a competitive market, particularly for established businesses with strong management teams and attractive operating performance.
However, high levels of interest do not automatically translate into completed deals. Financing, valuation expectations and the alignment of buyer and seller objectives remain significant obstacles.
As the host, Jason Zemmel, partner, at McDermott Will & Schulte, put it when questioning the sustainability of the recovery: “Is this a sustainable return to activity that will lead to completions and transactions, or is it simply a period of renewed dealmaking that keeps everyone busy?”
The distinction between deal flow and completed transactions is likely to remain important as the market moves into 2027.
Elderly care: demand, supply and existing assets
Elderly care was identified as one of the sector’s most compelling investment opportunities, with limited new development creating a persistent imbalance between supply and demand.
Construction costs have risen substantially, while higher financing costs have made new schemes more difficult to deliver. One participant estimated that only one or two net care homes had been added to the UK market in each of the previous two years, illustrating the extent of the development slowdown.
This constraint is changing investor priorities.
Where the market previously focused heavily on modern, purpose-built care homes, investors are increasingly considering older properties that offer scope for capital expenditure and operational improvement.
These assets may provide opportunities to increase occupancy, improve management and enhance financial performance without the cost and complexity of developing new facilities.
The discussion also challenged the assumption that older buildings are necessarily unsuitable for future care provision. A well-located home with effective management can remain viable without meeting every contemporary specification, provided it continues to meet residents’ needs and relevant standards.
At the premium end, demand remains strong for high-quality assets, but the number of buyers able to meet the highest valuations is limited. For investors, the challenge is balancing the security and quality of premium assets against the potential returns available from secondary properties requiring improvement.
Specialist care: opportunity with complexity
The discussion extended beyond elderly care to supported living, learning disabilities, autism, mental health and other complex services.
Investors see opportunities to build larger platforms in these markets, supported by underlying demand and the potential for strong operating performance.
However, specialist care presents a different investment proposition. Commissioning arrangements, local authority and NHS purchasing decisions, and changes in policy can have a significant effect on individual businesses.
Participants highlighted the difficulty of developing larger facilities where commissioning requirements are uncertain or inconsistent. A service may appear attractive at a national level but face very different conditions in individual local markets. This creates challenges for institutional investors seeking to deploy substantial amounts of capital.
Supported living and certain complex residential services were identified as areas of opportunity, particularly where providers can demonstrate strong operating performance. Specialist care should not be treated as a single investment category. Investors need to understand the specific service, local commissioning environment and operational requirements before committing capital.
Operational performance moves centre stage
For operators, the investment environment is only one part of a more demanding operating landscape. Workforce recruitment and retention, regulatory scrutiny, technology and organisational culture are all priorities.
The discussion emphasised that recruitment and retention cannot be addressed through pay alone. Leadership, employee experience and the ability to create a supportive working environment are also important.
Technology and artificial intelligence are creating further opportunities, but operators warned against adopting new systems without understanding their effect on employees and operating models. The challenge is to ensure that technological investment supports the organisation’s objectives rather than simply adding complexity.
Regulatory developments are also increasing demands on management teams. Participants highlighted the need to adapt governance arrangements and prepare for changes in Care Quality Commission inspection approaches.
For investors, these issues reinforce the importance of management capability. Strong demand may support the sector, but the ability to deliver quality care, maintain workforce stability and manage regulatory obligations remains central to sustainable performance.
Legacy of previous cycle
Valuations remain a significant issue.
Investors that acquired assets during the 2020–21 period may find that current market pricing does not support their original expectations. Higher borrowing costs, changes in gilt yields and increased uncertainty have affected valuations, particularly in specialist care.
The number of transactions is also insufficient to establish a clear market-wide picture. Smaller deals involving motivated sellers may not provide a reliable benchmark for larger institutional portfolios.
Zemmel highlighted the issue directly: “A lot of the stock coming up for sale, particularly institutionally owned assets, was acquired in 2020–21. Are we seeing a valuation disconnect between what those owners need to achieve and what buyers are prepared to pay?”
The question reflects a central challenge for the market: sellers may be working towards valuations based on the previous investment cycle, while buyers are assessing assets against a different financing and risk environment.
For some investors, accepting lower valuations may be necessary to exit existing positions. Others may choose to retain assets while waiting for market conditions to improve.
One view expressed during the discussion was that the sector could be moving towards a more stable valuation environment after the volatility of the previous cycle. That could support longer-term investment, although the transition may be painful for some existing owners.
Towards ’27
The outlook for the next 12 months was broadly positive, with continued interest from overseas investors, strategic buyers and private operators.
However, participants stressed that the market should not be viewed as an automatic route to successful transactions or investment returns. The strongest opportunities are likely to depend on careful asset selection, realistic valuations and a clear operational strategy.
Existing care homes may offer opportunities to meet demand more quickly than new development, while specialist care could attract further investment where commissioning and operating risks are well understood.
For operators, workforce culture, management quality and regulatory readiness will remain critical.
The roundtable’s central message was that UK social care continues to offer attractive long-term investment fundamentals. But the next phase of growth will require a more selective approach, with investors and operators placing greater emphasis on execution, operational quality and sustainable returns.
