As part of Bidwells’ latest edition of Building Trends, Richard Pilsworth explains how the sale of disused NHS estate could provide significant opportunities for construction companies across the UK and further afield
The NHS has a huge national property portfolio - 281 million sq ft - which is substantially larger than the entire central London office market.
The NHS surplus estate represents an exceptionally-large opportunity for house builders and other property developers in the years ahead as the pressure for disposal and capital realisation intensifies
Over the next few years, the NHS estate is likely to be reduced and disposal of non-core property is now high on the agenda. This will provide an exceptional opportunity for house builders and other property developers.
With burgeoning government debt, public health expenditure is falling significantly as a proportion of overall economic output and the health sector’s share of the total economy is now starting to contract following many years of rising costs.
With a 2012 NHS pension fund deficit of £10.3 billion to compound the situation, the NHS is likely to have to realise the latent value held in its surplus asset portfolio in order to just continue to function at anything approaching its current level.
A vast estate
The NHS is a vast enterprise from a property perspective, spending £7.3 billion annually in hard and soft property costs. The costs of asset management, upgrade, refurbishment and renewal totalled £2.1 billion in 2013/14, which also requires a large workforce. In 2013 the NHS employed approximately 55,200 people in ‘property maintenance’ across its estate excluding GP operations.
Poor condition
A significant proportion of the NHS estate is in poor condition and current estimates give a figure of £1.37 billion required to remediate buildings and building systems that are judged to be in critical condition thorough either lack of regular maintenance, obsolescence, or because they have had to be adapted from other uses.
Disposals increasing
In 2013/14, approximately £180m in capital receipts was realised by the NHS from property asset sales, often involving intricate land transactions. This is estimated to rise to £223m in 2014/15 with further increases projected thereafter.
Big business
There are 32 NHS trusts in the Bidwells region, encompassing all forms of health service provision. These operate a total of 774 locations of all sizes and formats. The total hard facilities management spend of NHS trusts in the Bidwells region in 2013/14 was a remarkable £552m.
Limited new build and upgrading
Not surprisingly in the current financial climate, new-build expenditure within the NHS is restricted to only a small number of key projects. In 2013/14, the NHS trusts in our region spent £97m on new-build property projects, £30m of which was within the East & North Herts Trust (Lister Hospital, Stevenage).
In 2013/14, £111 million of NHS trust capital was committed to building improvement programmes in the same region. Importantly, this expenditure was spread across most trust organisations, reflecting the widespread need to upgrade many NHS facilities.
Asset disposals to escalate
In 2013, the Department of Health undertook a detailed national survey and review of all surplus land held by NHS trusts which might be suitable for development, particularly from a housing perspective. There was a 100% rate of return (399 trusts in total).
Some 47% of trusts (188 organisations) identified at least one surplus land parcel, resulting in a total of 414 separate land assets identified for potential disposal covering 816.5ha (1,960 acres) of mostly-brownfield land. The property consulting sector will clearly assist the Department of Health and individual trusts in generating potentially-viable disposal strategies.
NHS Property Services
NHS Property Services was established in April 2013 to administer all the ex-primary care estate not transferred to healthcare providers as part of the NHS organisation. This company holds legal title on approximately 4,000 assets worth around £3 billion, with a portfolio extending to around 29 million sq ft, employing 3,200 staff, and spending £130m-plus per year in external property management services.
Of the 3,792 assets in the NHS Property Services national portfolio, more than half (just under 2,000) are health centres and 700 are office properties. Notably, there are also 273 surplus land assets presently registered.
Large opportunity
The very nature of the NHS estate – typically close to concentrations of population and infrastructure – means that very many assets are in commercially-attractive locations within which planning consent may be more readily achievable with regards to change of use
The NHS surplus estate therefore represents an exceptionally-large opportunity for house builders and other property developers in the years ahead as the pressure for disposal and capital realisation intensifies. This will place significant pressure on NHS property teams, whose previous focus has hitherto generally been on asset management.
In addition, the very nature of the NHS estate – typically close to concentrations of population and infrastructure – means that very many assets are in commercially-attractive locations within which planning consent may be more readily achievable with regards to change of use.
