Opportunities pick up in education sector

Despite years of austerity measures, education is set to benefit from a pickup in activity and wider opportunities, aimed at fulfilling the sector’s rising demand from the nation’s growing population. Amandeep Bahra, an economist at the Construction Products Association, reviews market changes.

According to the Department for Education (DfE), the number of pupils in state-funded schools across England is projected to rise to 8.0 million by 2023 from 7.1 million in 2014. Inevitably, growing demand for school places will put schools under increased pressure to meet capacity, which is already a basic issue for the education sector.

Another issue involves addressing the conditions of existing schools. According to the Property Data Survey Programme in January 2015, around a third of schools were graded C, which suggests they were exhibiting major defects and/or not operating as intended, and 9.0 per cent of all buildings surveyed were graded D, meaning life-expired and/or at serious risk of imminent failure. The government established a Priority School Building Programme (PSBP) in 2011 which outlined a pipeline of activity to begin addressing this issue.

Between 2011 and 2013, output in the education sector contracted in each year largely due to falls in both publicly-funded and privately-funded education. However, in 2014, output rose by 15.4 per cent compared to a year earlier and the sector was valued at £9.0 billion. Growth was mainly supported by the first batch of PSBP in addition to the backlogs of repairs. In addition, the UK higher education sub-sector is also currently benefiting from increased investment and will boost activity going forward. Also, more recent data suggest new orders rose by 9.9 per cent in 2014 compared to 24.2 per cent in 2013, which is likely to feed through into activity for the sector over the next 12–18 months.

Current schemes

In 2013, the PSBP began its first projects to address those schools in the worst conditions and requiring urgent repair. Through the programme, 260 schools will be rebuilt or refurbished across England. Of the total number of schools, 214 schools will be funded through a capital grant and 46 via a £700 million private funding initiative.

Four years after the programme’s inception, as of June 2015, only 25 of 260 schools have been completed and 138 have construction contracts approved. Despite schools being developed at a much cheaper cost under the PSBP compared to the previous school building initiative (Building Schools for the Future), primarily owing to smaller buildings and more standardised designs, progress has been slow. Activity has been held up by delays with procurement and achieving private finance. The first three of five batches under Private Finance 2 (PF2) secured funding in March, with the remaining two delayed until August. Construction on all schemes under the first batch started earlier this year with the first due for completion in August 2016. Construction on most of the other batches is currently underway with the fourth batch expected to begin in June 2016. Potential delays have been flagged, however, which could move PSBP activity beyond its initial target completion date of 2017.

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• First batch: seven schools in Hertfordshire, Luton and Reading worth £150 million
• Second: 12 schools in the North East worth £160 million
• Third: 12 schools in the North West worth £110 million
• Fourth: seven schools in Yorkshire worth £120 million
• Fifth: eight schools across the Midlands valued at £190 million

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In addition to the existing PSBP, the government announced in May an additional £2.0 billion funding for a second programme, PSBP2, which will undertake rebuilding and refurbishment projects across 277 schools between 2015 and 2021.

Higher education

Despite higher tuition fees and a 1.7 per cent fall in the total number of students over the 2013/14 academic year, according to the Higher Education Statistics Agency (HESA) the demand for student accommodation and investment into university facilities has risen. Student accommodation is mainly a derived demand from full-time students, which increased over the academic year 2013/14, whilst foreign student numbers have continued to rise. While this trend is expected to continue, the removal of the student number cap for UK universities this year is likely to provide a boost to student numbers.

According to Savills, the first five months of 2015 experienced record institutional investment levels in the purpose-built student accommodation sector mainly due to investment from overseas. High-profile accommodation continues to attract wealthy international students, and with increased competition for accommodation the overall demand for good quality accommodation has risen. Supply in the capital is already limited and faces pressure from the residential market. As a result, major developments in universities have been seen in regions outside London.

The largest development currently underway in the higher education sector is the £1 billion campus transformation at the University of Manchester, which will see construction span over eight years. The £1 billion North West Cambridge development is another major project which includes 3,000 new homes and 100,000 square metres of research space and a range of community facilities. Construction on the first phase is expected to begin this autumn and complete by 2017.

Other schemes include a new campus development at the Olympic Park for University College of London, a £120 million 2,000-bed student accommodation at the University of Sussex which will incorporate new facilities, and an £80 million Automotive Innovation Centre at the University of Warwick. In addition, a major regeneration project worth £80 million at Roehampton University is currently underway which includes a student accommodation block, and at Queen Mary University a conference suite and a new graduate facility worth £27 million is due for completion by late 2016. The University of Edinburgh has also invested in major renovation works covering ceiling repairs, new service installation and basement extensions which is expected to complete by 2017.

Overall, the Construction Products Association expects the sector to expand 3.7 per cent in each year between 2015 and 2017 before expanding further by 3.8 per cent in 2018. While schemes such as the PSBP are aiding the relief of capacity problems, the pace of the UK’s growing population could increase the challenges for the education sector given that the government has already announced further cuts in the budget this year. Prior to the budget, the government announced a £450 million cut in non-schools education as measures to reduce public sector debt.

Planned capital funding for the education sector also fell to £4.7 billion in 2015/16 compared to the initial planned £4.9 billion funding. Nevertheless, over the medium-term, activity is likely to be supported by ongoing work on higher education schemes and repairs and maintenance.