Cost Inflation: Are Fundamentals Still Supporting Fee Growth?

The UK elderly care market remains supported by strong demographic trends despite cost inflation driven by rising labour expenses, higher interest rates and ongoing geopolitical disruption, including the ongoing wars in Ukraine and Iran. An ageing population, increasing care needs and resilient private-pay demand continue to underpin occupancy, fee growth, EBITDARM margins and, consequently, investor confidence in the sector.

The strength of demographic trends underpinning the elderly care sector should not be underestimated. With almost 20% of the population aged 65 or over and the over-85 cohort growing faster than any other age group, demand for residential, nursing and specialist dementia care is expected to increase significantly. As dementia is far more prevalent among older age groups, population ageing alone is expected to drive growing demand for specialist care provision.

Figure 1: UK Elderly Population Growth (2026-2060) [LaingBuisson, 2026].

Furthermore, individuals are entering care homes later in life and with more complex nursing, dementia and dependency needs than previously observed. This shift is driving demand for higher-dependency care settings and modern, purpose-built facilities capable of delivering increasingly specialised care services. However, despite continued demand for modern care facilities, development activity has remained relatively stagnant. Figure 2 shows the limited growth in new bed registrations over recent years, and as a result, overall bed supply has remained largely constrained.

Figure 2: UK change in new bed registrations (1996-2026) [LaingBuisson, 2026].

Importantly, growth in private-pay demand underscores the largely inelastic nature of elderly care. Despite sustained fee inflation, occupancy has remained resilient since 1990, as shown in figure 3, indicating that demand is driven primarily by care needs rather than affordability. For many individuals, particularly in less affluent areas, residential care can remain a more practical and cost-effective option than intensive care provided at home, which often becomes increasingly expensive as care needs escalate. As a result, fee increases have had only a limited impact on demand. With public funding remaining constrained and eligibility criteria continuing to tighten, private-pay residents are expected to represent an increasing share of demand, as figures 4 and 5 demonstrate.

Figure 3: Average market occupancy since 1990 [LaingBuisson, 2026].

While private-pay penetration varies regionally, reflecting differences in household wealth and property values, figures 4 and 5 highlight that the long-term trend remains positive. The growing prevalence of self-funded care, alongside increasing care acuity and favourable demographic trends, continues to reinforce the sector's strong demand fundamentals.

Figure 4: Volume of demand for residential care by payor type [LaingBuisson, 2026].

Figure 5: Volume of demand for nursing care by payor type [LaingBuisson, 2026].

The resilience of these fundamentals is most clearly demonstrated through the continued growth in Average Weekly Fees (AWF). Since 2018, AWF across the UK elderly care market has increased consistently, reflecting operators' ability to recover rising costs through fee growth.

Figure 6: Regional AWF progression (2018-2026) [C&W Elderly Care Database, 2026].

Importantly, these fee increases have not resulted in any meaningful deterioration in occupancy, underlining both the essential nature of elderly care services and the strength of underlying demand. While AWF levels vary across the country, with London and the Southeast continuing to command the highest fees due to higher levels of regional affluence, every UK region has recorded meaningful fee growth since 2019.

This broad-based growth demonstrates the sector being well positioned to mitigate further inflationary pressures over time. Notably, some traditionally lower-fee regions, including the East and West Midlands, have experienced particularly strong fee growth, reflecting increasing investor activity, improving market dynamics and the expansion of modern, purpose-built care stock.

In addition, occupancy levels have generally increased across UK regions over the past few years, further evidencing the strength of underlying demand and the sector's ability to absorb higher fee levels without compromising occupancy levels, as shown in figure 7.

Figure 7: Regional Occupancy Progression (2018-2026) [C&W Elderly Care Database, 2026].

Figure 8 highlights that EBITDARM margins have remained broadly stable in recent years, demonstrating the sector's ability to offset rising labour and operating costs through fee increases. This margin resilience provides further evidence that the market has been successful in absorbing inflationary effects without materially impacting occupancy or underlying trading performance.

Figure 8: Quarterly EBITDARM margins by asset grade [C&W Elderly Care Database, 2026].

The resilience of the sector’s fundamentals is also evident within valuation metrics that have remained notably stable despite a sustained period of cost inflation and elevated interest rates. Between Q4 2024 and Q2 2026, Grade A WholeCo multipliers remained at 11–12x EBITDA and Grade B WholeCo multipliers at 8–10x EBITDA, while prime PropCo yields held at 4.75%, prime SPV yields at 5.75%, and secondary stock at 8.00%+.

This stability reflects continued investor conviction in the sector's favourable supply-demand dynamics, underpinned by demographic growth, increasing care acuity and a constrained development pipeline. The resilience of pricing is particularly noteworthy given the broader repricing observed across real estate and debt markets, demonstrating investors' confidence in the sector's defensive, needs-based demand profile and operators' ability to maintain occupancy despite ongoing inflationary pressures.

While higher borrowing costs have resulted in a more selective lending environment, debt finance remains available. The most attractive financing terms continue to be reserved for larger, established operators with strong financial profiles, and established operating credentials. Nevertheless, the continued stability of both PropCo yields and WholeCo multipliers provides a clear indication that investors remain supportive of the sector's long-term growth prospects.

Despite ongoing cost inflation, the UK elderly care market continues to benefit from strong structural demand drivers, that will continue to support occupancy, fee growth and investor confidence. While cost pressures remain a challenge, the sector's favourable demand fundamentals continue to support growth, reinforcing the defensive and long-term attractiveness of the UK elderly care market.