July-December 2025 Aged Care & Retirement Living Sector Review: Consolidation, capacity constraints and a tighter reform envelope
Introduction
If the first half of 2025 was defined by expectation – of reform, capital reallocation and sector reshaping – the second half tested how much strain the system could absorb.
Between July and December, the reform agenda moved from planning to implementation. The new Aged Care Act commenced, Support at Home entered its first phase, and financial settings tightened across the sector.
What emerged was no longer a system in crisis, but one increasingly differentiated – separating operators with scale, access to capital and operational discipline from those facing constrained options or exit decisions.
1. Consolidation activity shifts toward strategic scale
Consolidation across aged care accelerated further in the second half of 2025, with a clear shift in deal rationale.
Earlier transactions were often distress-driven. By year-end, acquisitions were increasingly strategic, focused on scale, asset quality and service alignment.
Larger operators – including Regis, Respect, Roshana and Hall & Prior – continued to pursue acquisitions as a lower-risk alternative to greenfield development, particularly where per-bed pricing sat well below build cost. Several closed or mothballed facilities were also acquired for reopening.
Mission-led providers such as Uniting AgeWell and Scalabrini Communities pursued targeted growth through smaller or culturally aligned providers, prioritising continuity of care, workforce stability and geographic fit.
At the same time, divestments and closures by operators including Southern Cross Care Tasmania, Catholic Healthcare and the Salvation Army highlighted the growing difficulty of sustaining smaller residential footprints – particularly in regional markets with workforce and capital constraints.
From a lender’s viewpoint, acquisitions carry a significantly different risk profile to greenfield developments, according to Belinda Hegarty, Westpac’s National General Manager Healthcare & Professional Services.
“Buying existing assets significantly reduces delivery risk, shortens times to generate positive cash flow and are easier to forecast financial performance,” she said
“By contrast, greenfield projects face prolonged timelines and slower ramp ups, in addition to exposure to construction related risks. Both individual facility forecasting and consolidation forecasts should be presented for lenders analysis, and any cost synergies assumptions explained.”
2. Acquisition economics continue to favour existing stock
A widening gap between acquisition pricing and development costs became increasingly evident in the second half of 2025.
Transactions priced at approximately $200,000-$350,000 per bed stood in sharp contrast to construction costs now exceeding $500,000 per bed in many markets.
With accommodation pricing under Federal Government review, higher construction costs and tighter care margins have shifted capital toward existing, compliant stock with known performance profiles.
However, underlying demand continues to accelerate. Australians aged 85 and over are forecast to double by 2041, with Government estimates indicating a requirement for approximately 9,300 net new beds annually over the next two decades.
The formal end of the Aged Care Approvals Round (ACAR) on 1 November has also removed location-based constraints, allowing boards – rather than Government allocations – to determine where investment proceeds.
Funding requests for new developments remain subdued. While rising occupancy and several years of minimal new supply clearly signal underlying demand, a new build is only bankable where the fundamentals are robust.
“Lenders will focus on an operator’s delivery track record and ability to manage construction and ramp‑up risks,” said Belinda.
“Repayment capacity continues to rely primarily on the pool of RADs generated by the development, with any residual senior debt assessed against the broader group’s recurring cash flows.
3. Residential capacity constraints flow into the health system
By late 2025, residential aged care occupancy had tightened across multiple regions, while new supply lagged sharply behind demand. Net bed growth in 2024-25 fell to approximately 800 beds – a historic low.
The downstream impact became increasingly visible through hospital discharge delays. By December, close to 3,000 older Australians nationally were medically ready for discharge but unable to access residential aged care, home care or disability supports.
State Governments escalated pressure on the Commonwealth to lift funding for both hospitals and aged care capacity, particularly in the absence of a new national health reform agreement.
With aged care capacity now a significant constraint on acute health systems, attention has returned to targeted capital grants.
In December, the Commonwealth announced $40 million to upgrade two regional homes in NSW and South Australia, while the Western Australian Government opened applications for a $100 million incentive program aimed at stimulating new bed supply.
4. Early impacts under Support at Home
The commencement of Support at Home on 1 November has begun to surface early implementation dynamics, with consumer groups, families and providers noting access and transition issues as the system beds down. This has occurred alongside the release of an additional 20,000 Home Care Packages ahead of commencement.
Assessment timeframes remain extended in some parts of the system, particularly outside hospital pathways, while providers are observing early shifts in consumer behaviour – including greater sensitivity to co-contributions and stronger demand for fully funded clinical services.
Evidence provided at Senate Estimates indicated that some consumer responses were still emerging and had not been fully anticipated, highlighting the complexity of forecasting behaviour under the new settings.
As the sector looks ahead to July 2026, when service price caps are scheduled to apply, revenue predictability in home care is expected to remain an area of focus. In this environment, scale, service diversification and systems capability are increasingly being viewed as important foundations for long-term viability.
5. Workforce availability becomes a binding constraint
Despite Fair Work Commission wage increases, workforce availability remained a limiting factor through the second half of 2025.
From April 2026, metropolitan residential aged care providers face potential AN-ACC funding penalties for failing to meet mandated care minute targets. With only 54% of providers currently compliant, workforce and financial pressures are set to intensify.
Migration pathways have also continued to have a limited impact. The Aged Care Industry Labour Agreements delivered just 249 overseas workers over two-and-a-half years.
In response, the Federal Government progressed a virtual nursing and telehealth trial with Amplar Health, while providers increased investment in staff accommodation, regional incentives and integrated care models to improve workforce utilisation.
Workforce shortages are well understood and lenders are actively engaging with operators to understand the implications of care minute shortfalls, according to Belinda.
“Non‑compliance is examined as part of credit assessment to ensure operators but not viewed as a red flag in isolation.”
6. Retirement living absorbs demand, alongside rising regulatory focus
Retirement living continued to attract capital and consumer demand, particularly across land lease and private aged care models. However, the second half of 2025 reinforced that the sector is not immune from regulatory oversight.
The Victorian Civil and Administrative Tribunal’s ruling on Deferred Management Fee structures in the Lifestyle Communities case, alongside incoming Victorian retirement village reforms, signalled a stronger focus on transparency, consumer protection and contract clarity – with implications for valuations.
At the same time, demand for care-enabled retirement living continued to grow. Operators increasingly embedded care suites, external home care services and transition pathways within village models.
The Department of Health, Disability and Ageing’s Shared Care trial – pooling Home Care Package funding for shared resources such as 24/7 nursing in community settings, including retirement villages – is set to commence in 2026 and is expected to further integrate care into retirement living environments.
Westpac continues to see a steady pipeline of development activity in private care and land lease models and consider this a key sector supporting the ageing population.
“Demand remains strongest in markets where operators can demonstrate the capacity to lift unit pricing in line with local demographic affordability,” stated Belinda.
“The quality of developments has continued to lift, and with that, the demand drivers and the residents value proposition need to be clearly articulated when seeking bank funding.”
7. Fiscal discipline shapes the reform environment
The Mid-Year Economic and Fiscal Outlook (MYEFO) released in December confirmed a shift that had become evident throughout 2025: aged care funding has moved from rapid expansion to tighter fiscal management.
Funding continues – but without the scale of increases seen in earlier reform phases. This places greater emphasis on capital efficiency, operating discipline and strategic prioritisation.
In this environment, banks play an increasingly active role not just as funders, but as partners in navigating reform risk, capital structure and long-term sustainability.
The increased funding does give banks greater confidence in long‑term sustainability of the sector.
“The sector has now stabilised to a point where financial performance is far more predictable than in prior reform years,” Belinda underlined.
“This increased consistency has made assessment more straightforward, with fewer of the large year‑on‑year swings that previously complicated forecasting and sensitivity analysis. Regardless, it remains important to detail key assumptions underpinning forward projections and explaining any material changes between periods.”
Evermore powers ahead with Forster CBD precinct
Evermore Retirement Living is entering the final stretch of Stage One of its Solaris project in Forster, with completion of the first 60 apartments slated for December this year.
The three-stage, 148-apartment development is under construction in the coastal town, blending retirement living with retail and healthcare in a single mixed-use precinct. Stage One is almost sold out, with current pricing ranging from $700,000 to $1.5 million.
Anchored by a 1,750sqm IGA supermarket and a 900sqm medical space to be occupied by Hope Skin Cancer and GP Clinic, Solaris is designed to deliver a “lift-ride” lifestyle – allowing residents to access essential services without leaving the building.
“We’re seeing retirement living evolve into a genuine extension of the care continuum, not a separate ‘housing’ product,” said Evermore Retirement Living CEO Coyne Graham.
“At Solaris the intention is simple: residents live independently, but support is there around the clock and can be stepped up or down as needs change. That’s how you preserve independence while still delivering safety, clinical oversight and family confidence, and it’s why care-enabled retirement models are absorbing so much demand.”
The remaining two stages are expected to roll out progressively over the 18 months to two years following Stage One’s completion.
Westpac’s support key to success of project
Westpac has supported the project, working alongside Evermore to help bring the large-scale regional development to market.
“From a developer’s perspective, Westpac has been consistently constructive and solutions-focused and has brought a deep understanding of what makes these projects work in the real world,” said Coyne.
“They back quality and governance, they want the resident value proposition to be explicit and defensible, and they understand that transparent structures and consumer outcomes are now central to bankability. That kind of support is a competitive advantage for projects that are genuinely lifting the standard of retirement living.”
What the second half of 2025 signals for the sector
By year-end, it was clear that consolidation will continue as operators reassess long-term strategies in response to regulatory, workforce and funding pressures.
The commencement of the new Aged Care Act on 1 November marked a significant legislative milestone, embedding a rights-based framework and higher expectations around quality, transparency and accountability.
However, from a banking perspective, Westpac’s assessment of the sector remains broadly unchanged. The Act largely organises reforms already underway rather than introducing sudden structural shifts, and has not, in itself, triggered a material re-rating of sector risk or viability assumptions.
Instead, attention remains focused on execution risk, cost control, workforce availability and the ability of operators to translate regulatory intent into sustainable operating models.
With demand for aged care and seniors housing set to rise, providers able to achieve scale, broaden service offerings and operate efficiently will be best positioned to manage volatility and grow their market share.
For operators pursuing growth, success will depend on having a clear strategic direction, a detailed understanding of cost and workforce drivers, and realistic cash flow modelling.
Early engagement with banking partners on capital structure, timing and risk allocation will remain critical to managing reform challenges and supporting sustainable growth.
