Why WA Aged Care Providers Must Stay Abreast Of The Property Development Wave

Published July 10th, 2020

In working closely with aged care providers over the past 10 years, MKDC Design Consultants have witnessed numerous, often abrupt changes to the sector, accompanied by the emergence of unexpected trends.

Similarly, our clients have sought to understand what the future of aged care looks like for them amid reactive consolidation, expanding and refurbishing of aged care property portfolios. More recent pressures on the sector have created a ‘hold’ bubble on property capital expenditure.

With the imminent (and consistently rising) demand for aged care residency as our Baby Boomers reach peak numbers in the next 10 years and beyond, this flags cause for concern.

The aged care sector has been hit harder than most over the last decade, be it through current impacts associated with managing COVID-19, recent introduction of new Quality Standards or the pending recommendations of the Royal Commission into aged care quality and safety. (The final Commission’s report will recommend a whole of system reform and redesign.)

The Commission’s recommendations and Quality Standards will have an overall positive impact on the aged care industry. That said, there’s a desperate need for such recommendations to include and implement major structural funding support changes in order to achieve better quality care outcomes, given the Commission has already recommended the need for a 50 – 100% increase to aged care funding.

Prior to COVID-19, two out of five WA aged care providers reported a loss in the September quarter 2019 (Bankwest, 2019).

This is a national trend that will likely continue, unless the government restructures the Aged Care Funding Instrument (ACFI) to replace it with a more systemic funding fix. This will then allow business to forecast and manage fiscal stability rather than one-off government handouts.

It’s also likely that, through further transparency into the actual cost of aged care services, consumer education will bridge the gap of mistrust currently seen in aged care consumer confidence.

The Commission’s recommendations and Quality Standards will have an overall positive impact on the aged care industry. That said, there’s a desperate need for such recommendations to include and implement major structural funding support changes in order to achieve better quality care outcomes, given the Commission has already recommended the need for a 50 – 100% increase to aged care funding.

Prior to COVID-19, two out of five WA aged care providers reported a loss in the September quarter 2019 (Bankwest, 2019).

This is a national trend that will likely continue, unless the government restructures the Aged Care Funding Instrument (ACFI) to replace it with a more systemic funding fix. This will then allow business to forecast and manage fiscal stability rather than one-off government handouts.

It’s also likely that, through further transparency into the actual cost of aged care services, consumer education will bridge the gap of mistrust currently seen in aged care consumer confidence.

Kath Kusinski, MKDC Director, says: “If government funding doesn’t increase to meet the Commission’s recommendations (pending confirmation), there will be an increased and continued trend towards fiscal losses to aged care providers across the board, resulting in further closures. That’s cause for genuine concern for everyone within and associated with the industry.”

From a property perspective, the impacts of change in aged care over the last 10 years have seen a massive increase in strategic property refurbishment programs and expansion for new residential places. New developments completed or under way in Western Australia will make an indent to meet this real demand that will only increase, with a forecast WA population increase of 43.3 % in 85-year olds in the next 10 years — well over the national average of 31.4%.

This is significant — the average age consumers enter aged care is 85. Within this cohort, there will be a huge demand for dementia care services, with an increase of 41.6% growth in those living with dementia in the next ten years.

Portfolio positioning considering the replacement, rationalisation or refurbishment of assets should form part of a clear investment strategy endorsed by decision makers. Don’t set the plan and leave it — it requires ongoing nurturing and reflection.

Adam Roebuck

We recently spoke with Adam Roebuck, one of Perth’s leading property experts in aged care and not-for-profit development about the current state of the market.

On advising aged care providers about it, he asserts:

“This is a crucial time for aged care and large not-for-profit property custodians to understand their 3, 5- and 10-year capital and major projects planning. Facilities generally have a life of 10-15 years before a major refurbishment is required or around 35 years when a building is near to end of life, unless its base build quality is outstanding. Portfolio positioning considering the replacement, rationalisation or refurbishment of assets should form part of a clear investment strategy endorsed by decision makers. Don’t set the plan and leave it — it requires ongoing nurturing and reflection.

“A few blended residential care, independent living and serviced unit projects are currently in concept or moving toward development in WA. Many providers are trying to find their point of difference with hybrid models of care, that is, some cases may be trying to achieve more than is financially sustainable in the longer term.

“Detailed planning at the concept stage and designing in agility, adaptive reuse and adaptable floor plates should ensure flexibility in models of care as times change. Baby Boomers are well understood (mostly) — but what will Generation X be seeking in aged care in the not-too-distant future? Many will age at home and only come into care when they have no other choice.

“Fiscal lines are very clear when it comes to over- or under-capitalising care assets. Investigate, research, test and repeat is far cheaper than investing in a building that may become obsolete or too expensive to operate before its time. And sometimes, despite good intentions, investigations and due diligence, factors come into play that we hadn’t previously considered.

“In my experience, those who will overcome adversity possess:

  • a clear understanding of their property strategy;
  • a clear understanding of their model of care;
  • defined short, medium- and long-term capital planning;
  • confidence in their capabilities.

“Turbulence is inevitable for quite a while globally and it’s a tough call to make — to move forward or to hold? During these times, it’s prudent to focus on the inevitable — we’re all getting older and one day we may need residential care.”

To discuss aged care planning and strategic property refurbishment programs, call MKDC Design Consultants on 9321 7955 or visit mkdc.com.au/contact

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