Knight Frank’s latest report on UK healthcare development opportunities presents a sector at an inflection point. After several years of subdued activity, driven by build cost inflation, tighter funding conditions and planning delays, the market is showing signs of stabilisisation. Yet, the recovery remains uneven with viability highly sensitive to geography, scheme type and operator strength.
Against a backdrop of accelerating demographic demand and persistent undersupply in the care home sector, the report points to a widening gap between long‑term need and near‑term delivery. While investor appetite for modern, future‑proofed healthcare real estate remains robust, the path from capital to completed schemes is shaped by planning risk, operational sustainability and the availability of development finance.
For investors and developers, the opportunity is clear but complex. Nick Herbert at Investors in Healthcare spoke to Knight Frank associate Ryan Richards, one of the report’s authors, about how the development landscape is evolving, where capital is being deployed, and what will be required to unlock the next phase of growth in UK healthcare real estate.
Investors in Healthcare: What are the main blockers constraining the pipeline of care home beds, and what needs to shift first?
Ryan Richards: There are a few, but the main one is the planning system. Developers, investors, and operators all say the same thing: planning is too slow. That’s a key blocker because it delays schemes getting through the system and ultimately being built.
The other major issue is build-cost. While construction costs have moderated from their peak, they’re still high. Layer on top of that the cost of financing, and you get a double hit: higher build costs and higher funding costs.
Another factor is de‑registrations. We’re gaining new beds, but we’re also losing beds at the smaller end of the market. Instead of fully decommissioning those smaller homes, we should consider repurposing them. The care model may need to evolve to make better use of smaller homes, not just the 60–100‑bed formats we’re used to.
IIH: Where is capital being deployed?
RR: Looking at the last year, a lot of capital has gone into operational real estate, with investors acquiring existing freehold homes and operating platforms.
But there’s also meaningful activity in new builds. We’re seeing deals announced for development sites, and lenders are supporting new‑build schemes for both operators and investment‑backed developers.
In terms of subsectors, elderly care remains the main focus – most 2025 transactions were in that space. But there’s growing interest in adult supported living and the specialist care market, where smaller 5–10‑bed homes can be a good fit.
There are several models in senior living – retirement living, retirement villages. But on the healthcare side, the focus is still on conventional elderly care settings.
The shift in emphasis isn’t so much about size as quality. Investors are prioritising high‑quality, high‑amenity homes – what we often call “luxury care.” But that raises the question: when does “luxury” simply become the norm? Many features once considered premium – cinemas, hair salons, enhanced communal spaces – are now standard expectations, and that adds to the cost.
A major issue is the age and condition of existing stock. Around 30% of homes lack en‑suite rooms, and 70% lack wet‑room facilities.
Investors want future‑proofed buildings, and that’s where capital is flowing.
IIH: How are investors underwriting new schemes if the cost of delivering this new standard is increasing? Are yields sufficient to justify the investment?
RR: At the moment, yes – or, at least, to an extent.
We see annual fee growth, which supports operator revenues and therefore investor income, and that seems sustainable for now.
But underwriting depends heavily on understanding the local market: competition, staffing ratios, the ability to staff the home, and whether the home is residential or nursing. Nursing commands higher fees, but if you can’t recruit nurses and rely on agency staff, then your margin collapses. That’s why healthcare remains a specialist market. Only experienced investors tend to underwrite these deals confidently.
IIH: Are you seeing more interest from Core, Core‑Plus, and Core‑Plus‑Plus investors? Will they succeed?
RR: Yes, the pool of investors has widened. Historically, the UK market was dominated by a handful of specialist investors, but the sector’s consistent returns over 10–15 years – especially its bond‑like income profile – are attracting investors who want defensive assets.
More institutions are increasing their healthcare exposure, and there is more interest from overseas capital – particularly from the US – and family offices.
Healthcare offers multiple entry points: not just landlord‑tenant real estate agreements but also platform acquisitions. A family office might buy a small operator with a view to scaling it, for instance.
IIH: Where are the best opportunities now?
RR: The shape of transactions is changing. It’s no longer just real estate deals, it’s asset‑backed businesses, almost private‑equity‑style investments.
A lot of opportunity will come from M&A, especially among mid‑sized platforms. Many family‑run operators may see now as a good time to exit, particularly if planning challenges make expansion difficult or if the next generation doesn’t want to take over.
We’ll also continue to see inorganic growth as existing platforms acquire smaller operators. And while management‑agreement structures have dominated headlines, traditional real‑estate transactions are still happening.
IIH: Will scale be the key for operators? Are we heading for consolidation?
RR: Definitely. The UK market is still highly fragmented compared with Europe. In countries like Germany or Belgium, the top five operators hold around 18–20% of the market. In the UK, it’s historically closer to 12%.
There are many five‑home operators who may become 10‑ or 20‑home operators or be absorbed into larger platforms. Consolidation is coming, but we’re still a long way from a fully consolidated market.
IIH: Is London and the South East still the main focus for investors?
RR: Investors will always be attracted to London and the South East because of the high fee profiles and strong demographics. If you already have land there, it’s a great place to be. But for new entrants, it’s tough as land values are a major barrier.
Some regions offer better opportunities, but again, it comes down to understanding local demographics, competition, staffing, and differentiation. Opening a sixth home in a cluster of five might not be wise unless you can clearly outperform or differentiate yourself from the existing operators.
IIH: What is the outlook for deal activity?
RR: The conditions for activity – especially M&A – are better than they’ve been in years. The sector remains fragmented, investor appetite is broadening, and both operators and investors see opportunities to reposition, consolidate, and grow.
