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Sentiment in the care operator market – inflation as a cost driver with digitalisation and green leases gaining ground

20/11/2023

Rising energy costs are reducing the operating results of care real estate operators, in some cases significantly, according to the results of a survey conducted by international real estate consultancy firm Cushman & Wakefield (C&W) among 30 private, non-profit and public providers in the first half of 2023. 48 percent of respondents report a fall of 2.5 to 5.0 percent and a further 28 percent between 5.0 and 10.0 percent. 

Another major cost factor described by the survey participants is rent increases due to inflation. Only 17 percent said they would be able to refinance the increased costs, while 52 percent are struggling to cover the additional costs. So far, 31 percent do not feel affected by this. 

Jan-Bastian Knod, Head of Healthcare Advisory, Head of Residential Investment, Cushman & Wakefield, explains: “The survey results are an indicator of sentiment in the operator market. Smaller companies in particular are facing organisational and financial challenges in view of rising interest rates, staff shortages, sustainability goals and non-recoverable energy and personnel costs. However, it also shows that a large proportion have already developed solutions and are well prepared. Operators who have the consideration of social trends anchored in their business strategy have an advantage.”

Shared view of reporting obligations and openness to sustainability goals

51 percent see the reporting obligations, which are increasingly demanded by investors and owners, as an additional burden without any benefit for operations and an encroachment on operational autonomy. On the other hand, 41 percent of the care real estate operators surveyed see this as an opportunity for more transparency and improved cooperation with the owners. 
Sustainability goals in the form of green leases are viewed much more positively, with 73 percent of survey respondents welcoming them and seeing them as an effective means of reducing environmental impact and promoting sustainable business practices. However, only 14 percent already have such green leases in place. 

Ambivalence to the Tariff Compliance Act

Since September 2022, a tariff compliance obligation under the HealthCare Development Act (GWVG) has also been in force in geriatric care. Care staff must therefore be remunerated in accordance with collectively negotiated tariffs or church labour law regulations. At 52 percent, more than half of those surveyed were already paying at or above tariff prior to the introduction of the act, while 41 percent were below it. However, opinion is divided on the question of whether the law is an appropriate tool in the fight against personnel shortages. 45 percent say yes, while 41 percent see no improvement in this area.

Digitalisation on the rise 

At 97 percent, the survey participants confirm that digitalisation in care operations is highly relevant. A clear majority of 66 percent also state that they already use digital technologies as an essential part of business processes. The focus is on process optimisation, improvements in communication and the development of new business areas. Only 3 percent want to concentrate exclusively on care operations and do not attach any particular importance to digitalisation.

The full survey results can be downloaded here.

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