Experts predict end to healthcare construction boom
Economists say fewer planning applications shows market is drying up
The continued development of new hospital facilities and a major investment in nursing homes has led to an 8% growth in the underlying value of health construction projects in England, new figures reveal.
But industry experts are warning that a significant drop in the number of planning applications submitted last year indicates the market is about to take a nosedive.
Despite cutting the NHS capital budget by around a fifth between 2009 and 2012, economists say that, unlike the residential market, which has been severely affected by the economic downturn, the healthcare sector has so far managed to keep its head above water.
The underlying value of planning approvals fell by 24% over 2011 and this is one good indication that the reductions in government funding is restricting the development pipeline
Speaking this week, James Abraham from construction analysis agency, Glenigan, said: “As the Government’s Health Bill is considered by the House of Lords, and ahead of this month’s budget, there has been much debate surrounding the future of the NHS.
“The construction industry had been braced to absorb a large drop in the value of health-related activity in England. However, over 2011, Glenigan reported an 8% growth in the underlying value of health project starts. This increase was driven by two key types of facilities: hospital work and nursing home construction.”
He said that construction work is becoming increasingly concentrated in the South of England, with the North of England, Scotland and Wales seeing a reduction in project starts over the same period.
The figures show that the value of schemes worth under £100m increased by 9% last year. The majority of these projects were publicly funded, with just a few financed through the PFI procurement process. The value of nursing home projects increased by 41% over 2011 compared to 2010, largely thanks to private sector investment, such as the £20m spent by the Anchor Trust to refurbish and extend West Hall in Surrey.
I am highly sceptical that the national growth in health starts will continue
However, despite movement in these two areas, others have seen major declines, echoing what is going on in many other specialist construction sectors. For example, there was a 22% decline in the value of health centre and surgery projects caused by a dramatic drop in public funding between 2009 and 2011. In contrast, the number of privately-funded schemes rose during the same period.
Abraham said: “The majority of health projects which started last year were in the South of the UK; a regional split that became more pronounced than in 2010. The underlying value of project starts in London, the South East and the South West of England increased by 68%, while the growth figure for the midlands and East of England was 29%. This was in stark contrast to the trend seen elsewhere, as Wales, Scotland and the North of England saw a decline of between a third and two thirds compared to 2010.”
But he warned that the next year would see the industry tested further, with the growth levelling out.
He said: “Looking forward to this year, I am highly sceptical that the national growth in health starts will continue. The underlying value of planning approvals fell by 24% over 2011 and this is one good indication that the reductions in government funding is restricting the development pipeline. The two growth sectors last year – nursing homes and hospitals – saw large falls in planning approvals, so a retrenchment in project starts is likely to follow.”
Of the projects that do reach fruition this year, many are again expected to be in the South of England, he added.
