Construction in the Education Sector

Education has been a surprisingly strong sector of the construction industry over the last two years. Following the capital spending cuts in the early years of the Coalition Government, construction in the health and education sectors was forecast to fall by up to 40% over the subsequent years. Initially, these expectation were met, as education construction output fell by around 20% over the 2010-12 period.

However, 2013 saw some stabilisation of the sector and this was followed by exceptional growth of 19% in construction output in 2014. As a result, the sector recovered to a value of £10bn – bringing it back to the same level as 2010, prior to the scrapping of the BSF (Building Schools for the Future) programme. Further growth of around 5% is expected in 2015, with forecasts for modest growth in 2016/17.

Increasing output levels are being driven by a combination of factors, including ongoing investment in key building programmes, such as the Priority Schools Building Programme (PSBP), and programmes to deliver new and refurbished facilities for the primary and secondary schools estate, such as the Academies Programme. In addition, further education has also benefited from improvements and new facilities for FE colleges whilst the University Technical Colleges programme is likely to boost output growth into the medium-term.

 

A key factor to note is the pupil population is expanding rapidly, with overall numbers expected to grow by 7% in 2016-20. As a result, the current landscape is changing, with a combination of rising demand for school places set against a backdrop of lower budgets and restricted designs – a stark contrast to the early days of the BSF programme. These issues will make for a very challenging environment for schools and contractors in the education sector going forward and the key to the future of education construction work volumes remains the rate of procurement and funding levels of key national building programmes. For example, in the new build sector, the Government’s Priority Schools Building Programme is expected to generate increased workloads in 2016 and, in addition, the Government has also announced a further £2bn for a second capital funded phase between 2015 and 2021.

The Free School model, which the Conservative government is expanding, will now mean that state-funded academies can be set up without needing to consult the local authority and will remove further demand for places at authority controlled schools. So far, over 290 free schools have opened in England with another 100 or so approved and due to open in 2015-16 and beyond.

In Scotland, the Schools for the Future Programme, worth £1.8bn, is expected to deliver 100 schools up to 2019, while in Wales around £1.4bn is being spent through the 21st Century Schools Capital Funding Programme to 2018.

Higher Education

University construction work remains a much smaller market than the schools & colleges sector and declined steadily between 2008-12. However, in 2014, the value of public sector university work to contractors reached £1.8bn – the highest value recorded and a 45% increase on 2013. Despite the increase in tuition fees, student numbers continue to expand in the HE sector, which has placed great pressure on university infrastructure, and there is a considerable need to address past under-investment and provide additional spaces for teaching, research and student accommodation.

Key long-term capital building projects in the higher education sector, which should underpin output growth into the medium-term, include spending plans for the Russell Group of universities, forecast to be in the region of around £9bn between 2013-17.

In general, investment is increasing among UK universities as competition to attract overseas students intensifies, and there is a particularly buoyant pipeline of ongoing new work at a number of universities as part of major long-term development programmes to increase provision for additional students, upgrade residential, teaching and research accommodation and to build new campuses, at the moment.

Student Accommodation

Going into 2016 and beyond, the outlook for the student accommodation sector remains positive, with student numbers expected to increase with the removal of the cap on student numbers. The student accommodation sector will continue to be characterised by acute undersupply in many of the major university towns across the UK, ensuring that the pipeline of new developments will remain buoyant over the coming years.

Whilst universities still remain the largest provider in the purpose built student accommodation sector, there has been a dramatic change in the balance of supply between institutional and private providers, and the impact of private operators in the market has been significant. In 2014-15, private sector operators formed around 44% of supply and given current rates of development and investor activity, it is expected that private operators will overtake universities over the next decade.

Driven by structural changes affecting the HE sector and continued budget cuts, traditional halls of residence and privately developed city-centre apartment blocks are now being replaced by community-led ‘student villages’, designed to include retail, healthcare and entertainment facilities and enhance the overall student experience. Students are increasingly demanding higher quality accommodation with combined study and social space, with the latest technology and amenities.

 

In conclusion, while pressures on capital spending in the public sector will continue to be a feature of the next five years, the education sector currently offers good prospects for the construction industry. The diversity of sectors and funding programmes, coupled with rising pupil/student numbers, should ensure a steady stream of attractive projects, which will help underpin work for the supply chain over the next few years.

 

This article was based on the ‘Education Construction Market Report – UK 2015-2019 Analysis’ report, which was recently published by AMA Research. The report is available at http://ift.tt/1MbtgrL or by calling 01242 235724.

 

 

 

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