The Health Service Journal (HSJ) recently reported on research by consultancy EC Harris which highlighted that NHS data indicates that there are 3.3 million square metres of NHS estate which is either empty or under used.
The research recommends that trusts should get land redesignated to allow residential development to increase the value of that land and to reorganise the use of buildings to maximise the use of core space, enabling outlying buildings to be emptied and those sites disposed of.
In the past the NHS has preferred to sell on a conditional basis which requires the buyer to seek out the best planning position at its own expense, rather than engage speculatively in planning applications of its own. This report comes at a time when foundation trusts (FTs) are focusing on how they can consolidate the estate within their ownership and extract value. We agree that there is a case for investing in good strategic estates and planning advice to get planning permission for more valuable uses.
The principle is good but FTs and other NHS bodies will need to weigh up how much of this locked-up value can actually be released. Undoubtedly much of the surplus and under used space will be in the wrong place or may already be identified for potential future development. Or it may be that the cost of relocation and disposal outweighs much of the value that might be achieved. It may even be the planning process itself that is holding up a disposal for alternative uses.
If an FT is preparing its estates strategy it will need to bear in mind which parts of its estate comes within the “protected property” category which is possible where it is under-used rather than empty. Also there may be some third party interests (maybe other trusts or independent sector tenants) that need to be taken into account.
There seems to be a growing appetite for FTs to enter into Asset Backed Vehicle schemes and these represent another way in which value can be maximised from estate. If a clear insolvency regime was introduced then FTs could borrow directly (rather than through a joint venture vehicle) – logically this would be a cheaper source of finance but ultimately will depend on how the funding market views the FT covenant. Another option which we are currently structuring for one of our PCT clients is the ChariCo one where a charity is set up as the development vehicle. All surpluses can be reinvested into the local health economy.
PCTs are awaiting details of the Operating Framework later this month and other DH guidance before being able to prepare a full estates strategy dealing with the future of their various estate interests. We anticipate that there will be a significant amount of primary estate which will become under-used or empty as provider arms are transferred or reconfigured and GP Consortia take over the bulk of PCTs commissioning roles.
We are also waiting for news of precisely what roles Community Health Partnership and the National Commissioning Board will have in relation to ownership and management of NHS estate.
Surplus and under used space needs to be assessed having regard to future NHS requirements. Care needs to be taken that strategic decisions to dispose of estate don’t jeopardise requirements flowing from major re-organisation. On the one hand we accept that the NHS may not be able to afford its previous resistance to selling off the “family silver” but on the other it could find that sourcing appropriate estate in the future may place a heavy burden on trimmed budgets. In some cases it may be more prudent to explore third party revenue streams to support the core business aims of the trust.
There are two effectively conflicting forces on how much more space may become available at acute sites. On the one hand there is a drive to move to locality commissioning and to keep people out of hospital environments and move them to communities but on the other the placing of large ex PCT provider teams with acute trusts (albeit described in some circumstances as a short term measure) would seem to suggest the opposite. Much will depend on the appetite of the FTs to become true primary care estate managers along with all their other responsibilities.