Market experts predict government cutbacks will result in fewer opportunities in the healthcare sector
Industry figures show the healthcare construction market is facing its biggest challenge in a decade, with a predicted 16% reduction in the number of new projects and a severe drop in planning approvals across the sector.
Though the healthcare market has remained relatively stable despite the current economic situation, 2013 will see the first signs of a major about-turn that will leave contractors competing for a much smaller number of opportunities.
According to construction analysis agency, Glenigan, the number of schemes coming up for tender will shrink over the next 18 months, with a greater emphasis on smaller refurbishment projects rather than large-scale building replacement.
Alongside the cuts in capital funding, re-organisation of the NHS is also set to disrupt the flow of new health projects
The latest figures from Glenigan show the construction market as a whole was down 1% for the 12 months to July this year. And, although private housebuilding project starts saw a 36% increase for the three months to July, most other sectors saw opportunities decline, with non-residential starts – including health - down 3% year on year and 21% lower than just a year ago.
Declines in Government-funded work have had a particular impact on project starts, with the scarcity of centrally-funded investment likely to continue to restrict the pace of recovery.
Glenigan’s economics director, Allan Wilen, said: “Government funding remains tight and we have recorded a continued decline in the number of public sector projects in the development pipeline.
“Though the level of health projects has remained resilient so far, we expect a shrinking flow of work over the next 18 months.”
Glenigan has recently published a report entitled Value of underlying project starts by sector , which forecasts that opportunities within the healthcare market will drop by 16% during 2013.
It states: “Construction has remained under pressure during the first half of the year. Planned cuts in government investment are depressing the flow of public sector projects, while the double dip recession in the UK economy has disrupted a tentative recovery in private sector work.
Looking ahead the reduction in the value of projects coming through the development pipeline is expected to weigh on project starts during the second half of this year, with a 16% drop in project starts forecast for 2013
“The March Budget re-affirmed the Chancellor’s commitment to reducing public spending and lowering the budget deficit. At £46.8billion, after allowing for accounting distortions, gross public sector gross investment will be 20% lower during the current financial year than two years ago. Social housing, education and health are among the worst affected sectors.
“While overall spending on the NHS is set to rise in line with inflation over the spending review period, capital funding has been cut back. Having been cut by 14% during 2011/12, spending will be held at this lower level in cash terms during the current and next two financial years. Alongside the cuts in capital funding, re-organisation of the NHS is also set to disrupt the flow of new health projects.”
Commenting on the outlook for the next 12 months, it adds: “While underlying project starts strengthened during the first half of the year, this was due a temporary boost as work started on a £80m PFI hospital project and a large private sector nursing home. Looking ahead the reduction in the value of projects coming through the development pipeline is expected to weigh on project starts during the second half of this year, with a 16% drop in project starts forecast for 2013.
The Department for Health’s capital budget may have avoided the Chancellor’s axe during the Spending Review, but with comprehensive reform of the NHS underway, the construction of new facilities has not been a priority
This is forecast supported by the industry body, the Construction Products Association, which has recently published its own market report.
Construction Industry Forecasts 2012-2015 claims public sector construction will decrease by 18% between 2011-2014, with the healthcare marketplace seeing a 40% fall in workloads.
It states: “Health output fell sharply in the first three quarters of 2011, by 12% compared with the first three quarters of 2010. The Department for Health’s capital budget may have avoided the Chancellor’s axe during the Spending Review, but with comprehensive reform of the NHS underway, the construction of new facilities has not been a priority.”
Key to a large proportion of future growth in the sector, the report claims, will be the ProCure21+ scheme, which sees local supply chains take on small and medium-sized refurbishment and new-build projects for the NHS.
The report states: “Contracts continue to be let via the ProCure21+ framework. To date there are 78 active schemes, 16 of which have registered in the past six months. Worth between £650m and £750m per year, this framework will be an important procurement route for new construction and refurbishment work in England.”
But it adds that there could be alight at the end of the tunnel after 2015 when the market could begin to see growth once again. It states: “Publicly-financed health output is forecast to record double-digit declines in 2011, 2012 and 2013, of 12%, 16% and 11% respectively. A 6% fall is anticipated in 2014, ahead of 2% growth in 2015.”
The market is already taking its toll of some companies, with 865 construction firms going into liquidation during the first quarter of this year – a 24% rise on the previous year. However, the number of companies entering receivership, administration or voluntary agreements was 35% down on the previous year, suggesting the situation may ease over the coming months.
Click here for the full Glenigan report.
Click here for the Construction Products Association report.