UK health construction market sparks interest from overseas

Economic downturn and dampening down of PFI leads to fresh opportunities for investment

The proposed new Royal Liverpool Hospital will mark the last major PFI hospital scheme in England

Despite a reduction in the availability of high-value contracts, the UK will become an increasingly popular market for infrastructure investment over the next few years, industry commentators are predicting.

Addressing delegates at last week’s Healthcare Estates 2012 conference in Manchester, experts forecast that big players in the US market would show a growing interest in opportunities for investment in the UK.

Mark Longley, director of UK healthcare at property and real estate service adviser, CBRE, said: “Healthcare is seen as a growth sector and something of a safe haven. Governments will always have to invest in healthcare and it is seen as a sector ripe for investment.

Governments will always have to invest in healthcare and it is seen as a sector ripe for investment

“I predict we are going to see an opening up of healthcare as a market, with new entrants, new investment, and a number of different procurement solutions.”

He said US giants such as Ventas REIT and HCP were already looking to invest in the UK market and that he expects others to follow from the US and Europe.

“I think it’s a time of great opportunity and we will see new companies coming in with different degrees of success and, I am sure, offering different forms of investment.”

The speakers predicted that PFI procurement would continue, albeit in a reduced form.

Longley said: “There is a continuing need for capital to support the change in the way health services are being delivered and to drive better outcomes. PFI will still have a role to play in this, but it will be a diminishing role.

I predict we are going to see an opening up of healthcare as a market, with new entrants, new investment, and a number of different procurement solutions

”There are many things wrong with PFI as a process, including a lack of flexibility, but as a funding mechanism there is nothing really wrong.”

And he predicted an increase in more modern investment channels such as leasehold and joint venture partnerships.

He said: “There will be alternative solutions coming through. Leasehold as a procurement vehicle is used more widely in primary care and is likely to remain only a peripheral player in the secondary care sector. We will, however, see more joint ventures. In these cases commissioning trusts will need to be very clear what they want these partners to bring to the party, whether it be money, land, or facilities management expertise.”

There is a continuing need for capital to support the change in the way health services are being delivered and to drive better outcomes. PFI will still have a role to play in this, but it will be a diminishing role

Jim Chapman, built environment expert at the Design Council CABE, added: “None of the procurement channels have been perfect. If we continue with PFI we have got to put some sharpness into the process. I hate the amount of waste and we do not evaluate schemes properly.

“The UK used to be at the forefront of healthcare infrastructure and we have lost some of that, but I’m sure we can go back and show that the UK knows what it is doing when delivering high-quality healthcare premises.”

The last major PFI scheme expected to be approved in England is likely to be the new Royal Liverpool Hospital. The £425m development for NHS North of England marks the end of a decade where the controversial PFI procurement process has been used to fund a generation of modern healthcare buildings.

In December the Government is expected to announce what it thinks will replace PFI as the capital funding process off choice moving forward.

Companies