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Local focus for healthcare projects

Allan Wilén looks at the prospects for healthcare projects, and finds a silver lining for ac contractors amidst the dark clouds of current construction spending

Strong government spending led to a bright year for the health construction sector in 2008. Overall output in the sector soared 46 per cent, as work progressed on a number of flagship projects, including the £1 billion London & Barts hospital redevelopment and several other major extensions and refurbishments.

The good news is that investment in the NHS remains a Government priority, with further substantial funding increases planned for the next three years. However, changes in health policies and a new funding process are set to markedly alter the type of projects coming forward for development.

Health investment is now shifting away from the construction of major regional hospitals, towards improving primary care facilities and smaller district hospitals that can provide patients with more locally based healthcare. This change of policy is already evident in the flow of new projects starts over the last year. Despite a 14 per cent rise in the value of underlying projects during 2008 to £2.2 billion, fewer major hospital schemes meant that overall sector starts were down by a fifth on the previous year.

In the longer term, there should be more of a silver lining amongst the dark construction clouds, as new funding arrangements, which from last year gave individual NHS trusts greater power in setting their investment priorities, should help to accelerate the flow of new projects. The trusts will be able to respond more quickly to locally identified priorities without referring centrally for approval. Unfortunately in the short term the new regime appears to have the opposite effect, temporarily disrupting the flow of new health projects.

The value of underlying planning approvals for 2008 was down 23 per cent on 2007 levels and Glenigan expect this to translate into a decline in the value of underlying construction starts during 2009. Indeed, a sharp drop in project starts during the three months to February suggests that the decline in planning approvals may have already begun to filter through to the value of projects starting on site.

But the value of project starts are expected to strengthen during 2010, as NHS trusts’ investment programmes gather momentum. Again it seems to be primary health care facilities, rather than major new hospital schemes, which are set to take a growing share of capital expenditure.

Allan Wilén is economics director of construction intelligence specialist Glenigan