Bleak outlook for healthcare construction sector

Healthcare construction activity 'grinds to a halt' over summer as experts predict fall in opportunities in aftermath of recession

After managing to survive the last recession, the healthcare construction sector is being hit by a drop in activity which has seen the market ‘grind to a halt’ over the summer months.

Despite approving new medical and healthcare building work worth a total of £133m over the past three months, the outlook for the coming year looks bleak, according to experts.

Two reports, from Glenigan and Barbour ABI, show a steep downturn in planned activity within the sector.

In all the other nine construction sectors tracked by Glenigan on an annual basis, there was an increase. Only in health was there no growth

Barbour ABI’s latest Economic & Construction Market Review1 shows that levels of activity in the sector decreased by 1.6% in August 2014 compared to the previous month. In the three months to August the value of contracts decreased by 11.1% on the previous three months, and was 28.9% down on the same period in 2013.

The report states: “The values of medical and health contracts decreased in August month-on-month and are lower than those recorded last year, so longer-term patterns point to fall in activity.”

Glenigan figures tell a similar story. Its Construction Market Review and Forecast2 for September states: “Healthcare construction growth ground to a halt this summer.

“Glenigan’s research shows that, in the year to August 2014, the underlying value of project starts was completely static on a year ago.

“In all the other nine construction sectors tracked by Glenigan on an annual basis, there was an increase. Only in health was there no growth.

“In the quarter to August 2014, there was a 6% rise, but the prospects for any sustained recovery in workloads in this sector do not look promising.”

Overall new work in the year to the second quarter of 2014 was down 19.2% on its pre-downturn peak in quarter one of 2008, the report reveals.

In terms of how the projects are split geographically, the North West is the main source of healthcare construction activity, providing 30% of all new work. This is mainly due to the awarding of the £18m contract for the Liverpool Life Science Accelerator at the Royal Liverpool Hospital. The West Midlands has 15% of the work, and the East Midlands boasts 14% of all recent activity.

In the quarter to August 2014, there was a 6% rise, but the prospects for any sustained recovery in workloads in this sector do not look promising

Most of the work, according to the Barbour ABI figures, is within the public acute hospitals sector (50%), followed by primary care surgeries, health and medical centres (28%) and hospice, nursing and psychiatric homes (10%).

The ABI report also hints to a downturn in future activity, concluding: “In the three months to August the value of contracts decreased by 11.1% on the previous three months, and was 28.9% down on the same period in 2013, indicating the longer-term decline in the value of contracts awarded in the sector.”

Analysing the pace of recovery from this recession compared to previous recessions indicates the comparatively longer time it is taking for the UK to recover than in the past. At the same point in the last recession in the early 1990s the economy was 15.7% larger than at the start of the downturn, compared to just 0.2% at present .

In the three months to August the value of contracts decreased by 11.1% on the previous three months, and was 28.9% down on the same period in 2013, indicating the longer-term decline in the value of contracts awarded in the sector

The level of government debt as a percentage of GDP is also still significantly higher than pre-recession levels. Public sector net debt now stands at 76.5% of GDP in July 2014 whereas in January 2008 it was 35.7%.

Meanwhile the latest forecasts from the Bank of England predict that GDP growth will maintain at 0.8% in quarter three. The bank is also confident that there is significant slack in the economy, allowing it to grow without rapid inflation and it maintains the view that business investment will increase this year, and there is some evidence of this in official statistics. If business investment does maintain its increase, the longer-term outlook for UK economic performance will be substantially improved.

References:

1. Economic & Construction Market Review (Barbour ABI): Click here

2. Construction Market Review and Forecast (Glenigan): Click here

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