Healthcare Emerges as New Area of Construction Growth

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Tuesday, June 14th, 2016
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HEALTHCARE CONSTRUCTION
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Healthcare has emerged as a new area of longer term growth within the construction sector in Australia amid expectations of a shortage of beds, a growing pipeline of major projects and the need to maintain and refurbish an enlarged existing stock after several years of strong building activity.

For now, conditions remain subdued as work on a large number of projects built in recent years has either finished or is reaching the final stages. Accordingly, the dollar value of construction work done on major hospital and healthcare facilities has dropped from a peak $6.347 billion in 2013/14 to what is expected to be $5.790 billion in the current financial year, according to Australian Construction Industry Forum. Work is further expected contract in 2016/17.

Beyond that, however, ACIF reckons activity will grow by a healthy 14.7 per cent to reach $6.526 billion by 2020/21. Furthermore, over the next five years, the average annual value of work done is expected to come out at $5.895 billion – up 8.5 per cent on the $5.431 billion averaged over the five years to 2014/15.

According to ACIF lead forecaster Kerry Barwise, the recovery will be driven by a number of factors. Whilst a number of large hospitals have been built in major metropolitan areas in recent times, Barwise says the next wave of projects would revolve around smaller scale regional hospitals and other specialised health and aging service activities.

Recent data also points to a fundamental need to boost the overall volume of new supply. Whereas federal government data implies demand for an additional 82,000 hospital places over the next decade amid an aging population, only 36,778 such places came online over the past 10 years, implying that the nation will have to increase the rate at which we construct new facilities if we are to meet implied levels of demand.

Moreover, the pipeline of possible projects listed on the Cordell database is reasonably strong – enough to deliver up to 80,000 new beds if all projects went ahead. Finally, strong levels of construction activity in recent years have added to the volume of existing stock which will now need to be maintained, repaired and eventually, refurbished.

Whilst healthcare was not a major focus in the federal budget, meanwhile, it may find more prominence in a number of state budgets. Victoria’s recent budget, for example, allocated a record $2.9 billion to health funding overall, including $1.6 billion to upgrade and build new facilities including the nation’s first stand-alone specialist heart hospital.

That said, the sector has experienced a number of challenges over recent times in terms of project delivery. At the Perth Children’s Hospital, for instance, more than 900 door frames are said to have to be ripped out after revelations they may not comply with fire safety standards in a hospital which is expected to be delivered at least a year behind schedule.

Previously scheduled to open last month, meanwhile, the $2 billion new Royal Adelaide Hospital will now not be ready until next year – the project earlier this year also saw its second fatality on site. Hopefully, lessons will be learned as the new wave of projects comes on board.

CONSTRUCTION

State by State

According to ACIF:

  • Thanks to work on major redevelopments of the Westmead Hospital as well on hospitals and facilities at Mount Druitt, St George Hospital in Koogarah and the Wagga Wagga Base hospital as well as new hospitals and health centers at Wollongong, Gosford and Wyong, the dollar value of work done in New South Wales will rise by a further 13.5 per cent to go from an expected value of $1.424 billion in the current financial year to $1.616 billion in 2017/18 despite having already almost doubled since bottoming out at previously horrible lows of $793 million in 2011/12.
  • Likewise, having also almost doubled over the past three years, activity in Victoria is expected to grow by 13.5 per cent over the four years from an expected $1.611 billion in 2015/16 to a forecast $1.829 billion in 2019/20 amid a decent range of projects in the $100 million to $300 million value range before the possibility of a whopping $2 billion redevelopment of a women’s and children’s hospital in Parkville later in the decade.
  • Having come off massive highs amid a sustained period of major hospital construction in the south-east, activity in Queensland is expected to drop by almost a quarter in 2016/17 but then bottom out at $945 million before increasing by 27 per cent in the three years spanning 2016/17 until 2019/20 amid a good range of projects in the $40 to $200 million range.
  • Despite the anticipated completion of the new Royal Adelaide Hospital, South Australia still offers good opportunities with the value of work set to grow by 9.3 per cent this year and remain at historically elevated levels thereon after thanks to projects such as the redevelopment of Flinders Medical Centre and the building of the new Calvary Adelaide Hospital.
  • In other states, activity is set to be relatively subdued.
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