News - March 2019
Looking to the future
The shift away from the large-scale PFI projects of the past decade, and ongoing uncertainty over Brexit and the future of NHS capital funding, is expected to impact healthcare construction activity in the next 12 months, experts predict.
The Government’s decision to axe PFI for public-sector projects, and a greater emphasis on improvements to service delivery rather than capital investment, will see the number of projects dwindle slightly over 2019, before an expected improvement in 2020.
This is according to figures recently released by Barbour ABI.
Its Economic Construction Market Review revealed that the value of total contract awards across all sectors declined by 13.1% in 2018, standing at £61.6billion.
And the number of contract awards continued on a downward trend to 10,352 in 2018, a decline of 8.2% on 2017.
While residential remained the largest sector, the industrial sector also saw upward movement, with a 21% increase year on year.
The report states: “The UK economy slowed in the second half of 2018, but with characteristics of an easing off rather than a sudden stop as the UK begun the final manoeuvrings around the Brexit programme.”
And it predicts: “Growth is forecast to be more subdued into the first half of 2019 against a background of low inflation, low interest rates, but indications of potential slowing of the global economy, particularly in terms of global trade and investment growth.”
Bucking the trend, the medical and healthcare sector saw a welcome recovery in 2018.
A mixed bag
But the report warns the outlook for the next 12 months is mixed.
It states: “Following two consecutive years of decline, medical and health contract award values turned positive in 2018, reaching £2.2billion. This is 64% higher than 2017, bringing values back to around the 2012 level and following a 43% decline between 2015-2017.”
Key to maintaining activity over the next 12 months will be the Government’s reaction to Brexit and the additional NHS funding promised following last year’s NHS 70th birthday celebrations.
“The sector is currently adjusting to the lower levels of investment in capital projects than in the early 2000s when PFI schemes for larger-scale hospital developments dominated health sector contract awards and output”, says the report
“The planning pipeline remains positive, but operating at a significantly-lower level than some other construction sectors.”
And it says the recent trend of smaller projects will continue, adding: “The focus of NHS budgets in recent years has been centred on improvement of services at the point of delivery and chronic disease prevention, rather than a large-scale building programme.
“However, there are now critical aspects of NHS provision that are under sustained pressure, in particular A&E provision in some regions, and social care provisions on a national basis.
“Some extra funding schemes have been put in place by the current Government and could provide further impetus for capital injections to extend and improve existing facilities in the medium to longer term.”
Within the health sector the North West was the largest region for contract values in 2018, at £626m, a 29% share.
The second-largest region was London, with 22%, while Scotland also saw a significant amount of activity, at 17%, worth £378m in 2018.
In terms of the pipeline moving forward, the report says: “Following a static year in 2017, the value of medical and health contracts achieving detail planning stage in 2018 improved by 39.3% in 2018 to reach £1.8billion. This good growth in 2018 perhaps signals a more-positive outlook, but values have remained below the £2billion threshold during the last four years.”
Analysts at Glenigan have also made predictions about the market over the coming months.
They reports that, across all sectors, construction activity dwindled by 6% during 2018.
And they forecast a further 2% decline in project starts in 2019, followed by a modest 3% upturn in fortunes during 2020.
And this is a trend they say that will filter down to the healthcare sector, with an expected 6% reduction in underlying project value for healthcare schemes during 2019, before a slight revival of 5% in 2020.
In addition, the development pipeline has shrunk, with an 11% drop in the value of health projects securing detailed planning consent during the first 10 months of 2018.
In terms of the key players, the Barbour ABI report lists the top 10 clients, architects and construction firms in terms of activity within the medical and healthcare sector last year.
The top clients were the Royal Liverpool and Broadgreen Hospital NHS Trust with two projects valued at £341m; and Aneurin Bevan Health Board with a single project worth £210m.
Leading architects and contractors were HKS Architects with two projects work £355m; NBBJ which worked on one project valued at £335mm; Kier construction, which led a whopping 21 projects valued at £302m; and Laing O’Rourke with one project worth £210m.
In terms of where the opportunities lie moving forward, Scotland remains a key area for activity, with an announcement on capital allocations expected shortly.
More than £5billion has already been invested in healthcare infrastructure in the country in the past 10 years; and more is expected as the Government switches its priorities to joining up health and social care with a new generation of purpose-built community-based facilities.
These will be delivered through five hubCos, each with a private-sector development partner.
Collectively, they are developing and delivering a diverse pipeline of best-value, award-winning community infrastructure, currently valued at more than £2.3billion and anticipated to grow to over £3billion in the coming years.
In Wales, projects with a value of less than £4m are delivered by health boards, with larger-scale projects procured through the NHS Building for Wales frameworks.
Seven contractors have been chosen to work across the two frameworks, which are worth of total of £560m over the coming years.