Care home operators weighing up whether to refurbish tired stock or start again with a new build should start with a “forensic scheme appraisal” and avoid following gut instinct about old versus new, according to leading care funding and finance experts.
Speaking on a panel session 'Refurbish or Rebuild? Making the right choice for care operators’ at this week’s Care Innovation Summit, supported by The Care Home Environment, the panel concluded the right answer varies depending on the specific asset, market and business plan.
The panel – comprising Knight Frank partner Kieren Cole, Virgin Money senior director Neil Dyer, Civitas supported living and care real estate chief operating officer Tom Falconer, Cygnet Bank relationship director Richard Martin and Housing21 strategic asset management director Rupert Lecomber – said this means understanding factors including, local demographic demand and competition, net operating performance and occupancy trends, space standards and layout – especially ensuites and accessibility, current and future energy and ESG performance, and the full lifecycle investment still to come
Polishing a “proverbial”
The risk with refurbishment, the panel warned, is spending a fortune and still owning a property that is “not actually that desirable” to residents, funders or buyers.
Mr Lecomber warned of the danger of “polishing a proverbial” by investing heavily in refurbishment only to be left with a building that is still in the wrong place, with an inflexible layout or an energy profile that will struggle to meet future standards.
Smaller, well-located homes can beat big boxes
While big, purpose-built homes have dominated new development for years, the panel agreed that scale is no guarantee of success.
Frank Knight’s Kieron Cole said he personally preferred “smaller, town-centre schemes” that benefit from better access to community amenities, easier staff recruitment and have a stronger local identity to dealing with 70-bed homes built in the wrong locations.
Refurbishment often cheaper – but not always smarter
The panel agreed that full refurbishments tend to be cheaper than rebuilds - typically costing around half the cost of a new build - especially when compared to a like-for-like basis, according to Mr Lecomber.
He added refurbishment also offers two big advantages - the ability to retain an income stream on site during works, and avoiding huge disruption and reputational risk of closing and “decanting” people living there wholesale.
However, the panel stressed that refurbishments must be tested against how the asset can meet shifting demand and requirements in 10–15 years’ time, such as layout to meet changing demand, and environmental, social governance requirements (ESG) or fire safety.
ESG and energy: heating systems now a strategic issue
The panel discussed how sustainability is no longer a nice-to-have add-on to capital projects, adding that care home heating systems and energy networks are rapidly becoming a strategic constraint.
They highlighted new and emerging regulations around communal heating systems, particularly in extra care environments, the difficulty – and cost – of upgrading older equipment to meet future rules, and the fact that EPCs are evolving, and future compliance will likely require a combination of heating, fabric and smart controls
This means some existing communal systems may prove “almost unaffordable” to make compliant under future standards, pushing operators towards deeper interventions or even site replacement.
Civitas’ Mr Falconer recommended bringing in specialist energy and ESG advisers to help prioritise measures that genuinely reduce bills and carbon, rather than chasing marginal EPC point gains that don’t improve the resident or operator experience.
Funding, valuations and the efficiency premium
From a capital markets perspective, Virgin Money’s Mr Dyer said that modern, efficient stock attracts better pricing and deeper demand from lenders and investors, with features that drive valuation uplifts, including post-late 1990s purpose-built designs with en-suites and efficient layouts, strong energy performance and clear pathways to meeting or exceeding future regulatory standards.
However, he added there is a ”significant market for more modest accommodation”, particularly for those without “hotel-level” budgets and for local authority-funded care. But these assets tend to sit on “lower valuation multiples and higher upgrade costs”, which operators must factor into refurbishment decisions, he said.
Capacity crunch
Beyond individual business cases, the panel flagged a system-level issue of “nowhere near enough new builds coming through to meet projected need”.
With a projected shortfall of around 20,000 beds by 2030, refurbishment moves from being a strategic choice to an operational necessity, said Mr Cole.
The panel agreed that operators, lenders and asset managers will increasingly have to maximise and upgrade existing estates – where it is viable to do so – to avoid widening the capacity gap.
Conversations about “refurbishment, changing needs of tenants and regulation” are now a “constant” part of managing care assets, added Mr Lecomber.
Fire safety and the hidden risks
Recent fire safety legislation and enforcement put in place following the Grenfell Tower fire is hitting converted schemes particularly hard, according to the panel, who pointed out that purpose-built homes have an advantage as compliant fire doors, compartmentation and systems can be designed and certified from the outset.
Conversely, adapting facilities for fire safety in conversions can become subjective and complex, driving up cost and uncertainty.
Speaking during the Q&A, Hallmark chair Avnish Goyal CBE said the provider had “spent millions” correcting issues in relatively new buildings – from defective dampers to inadequate door frames and sprinkler provision – and urged peers to:
“Look at your buildings and look closely… if you do have a fire, you want to be sure you can actually save the residents.”
Refurbishing around people
The panel also emphasised that the experience of people living in a home must sit alongside financial modelling. Large housing providers routinely refurbish around existing residents, accepting longer programmes and higher complexity, rather than forcing people to move, explained Mr Lecomber.
Most people would rather endure well-managed, phased disruption than the trauma of leaving their home and community altogether, he said, adding that upholding “clear communication”, offering continuity of staff and, where possible, honouring “legacy rent levels” are key to maintaining trust.
Ultimately, the panel concluded that the sector’s direction of travel is towards evidence-based decisions at asset level. For each scheme, operators must ask: “Does refurbishment create a safe, sustainable, fundable home with a clear long-term role in its local market – or is it time to rebuild, repurpose or exit?”
