The NHS is the latest public body to start looking at land disposals on a large scale. But the Naylor Review shows property deals will be a lot more complex
Like many public bodies before it, the NHS has been tasked with raising billions of pounds to pour back into its creaking services through the sale of its unwanted land.
For many in the property sector, it is the next great opportunity for a massive land release. NHS trusts alone occupy 16,000 acres of land around the country, much of which is surplus to requirements. The Department of Health has set a target of 26,000 homes on NHS land by March 2020.
But there is a substantial barrier to a straightforward land feeding frenzy: the incredibly complex layers of “ownership” within the NHS, and the fact it has less inclination to sell because of politicians’ reluctance to making dramatic cutbacks.
Compared to other public sector bodies like the Ministry of Defence or Department of Justice, the thousands of trusts and partnerships that can own anything from sprawling estates to single buildings make sales and development plans and incredibly difficult.
But the NHS needs the money.
Conservative estimates put the current backlog of estate maintenance costs at £5bn. Another £5bn is needed to deliver the modernisations proposed in the Five Year Forward View, the health service’s plan to keep its estate appropriately modernised. This is just for the maintenance of the estate itself, rather than any operational costs of the NHS that the government is already funding.
The Naylor Review, formally launched this week, is primarily charged with demonstrating to the NHS itself the potential it can release through its estates, and simplify that for the vastly different skill sets and management bodies.
NHS provider trusts portfolio
- 1,200 sites
- 16,061 acres of land
- 280m sq ft total gross internal area
- 7,600 GP practices
The Naylor Review
Sir Robert Naylor, previously chief executive of University College London Hospitals, was commissioned to write the independent review by the secretary of state for health.
Essentially, the task was to set out a strategy for how best to advise on rationalisation and future use of the NHS’ estate. To this it says there are three challenges:
- The capacity and capability within the NHS for strategic estates planning;
- Its capacity for national planning;
- The lack of incentives for organisations to act.
“There is a big deficit in our strategic ability, and as a consequence of that there is no overarching estate strategy,” says Naylor.
Only about 12% of total NHS land is managed by NHS Property Services and community health partnerships. The other 88% is the hands of trusts, partnerships and other bodies. This means there is very little resource to deal with property and estate-related matters within each trust.
“There are very few trusts that have the capability to develop even small capital schemes. This lack of strategy of has made it really difficult to make a robust case to the treasury for investment,” says Naylor.
The problem is that, despite the lack of resources and strategy, development deals within the sector are far more complex, with providers wanting to include the development of additional services, as well as just selling land (see below).
Recommendations
The review gives 17 recommendations for the disposal of the NHS estate, [see box out] which focus on three key themes: the creation of a central body to provide advice, carrots and sticks to get trusts moving, and increased funding.
But from the property sector’s perspective, it has the one critical recommendation – the establishment of a board responsible for property disposals and advice. A shadow board has been set up, with Ian Ellis, former chairman of Telereal Trillium, at the helm. He says there needs to be a powerful but entrepreneurial company at the centre of the NHS.
According to Alex Dawson, director of public sector at Savills, the challenge for the private sector in working with the NHS is the diversity among stakeholders, and a board could go a long way towards solving that.
“The diversity of trusts needs co-ordination with a national property board: it’s not control but national co-ordination to maximise potential,” he says.
Unlike other public land disposals, demands on the NHS are far more tempered as politicians are highly reluctant to cut funding to hospitals. As a result, the review is more geared towards showing trusts the potential value they could obtain through estate rationalisation.
Essentially, the review focuses on the preparation before land sales: working up plans, placing accountability, and ensuring the right expertise is in place.
“What we need to understand is how we turn planning into deliverability. How do we help the system implement these plans?” says Ellis.
There is also an acceptance in the recommendations that outright land sales are not the only answer.
Dawson says that as public sector land disposals have become more complex and advanced over the years, the focus has shifted towards finding an income stream.
The report also has a few suggestions that will raise eyebrows: notably that all land disposed of must first be looked at for housing NHS staff, and that any funding from trusts should be matched by an already heavily committed central government.
Potential and the need to overcome mistrust
The potential, of course, is massive. The report says there is space for 29,000 homes on NHS land, with a potential £5.7bn to be realised in total sales across the estates, were trusts to take a more risk-oriented view.
As with many public land sales, the vast majority of value is concentrated in London, but the incentives for regional trusts and operators to work will be the potential savings in running costs.
Naylor says as much as £1bn a year can be saved though using modernised buildings, and with so much of the estate in need of modernisation, there will be huge incentives for trusts around the country to use their land.
The new board will hopefully help advise on the best route forward for that development.
In London, where the affordable housing shortage is most acute, the report advocates using land for affordable NHS housing for members of staff, and Naylor says he has had a number of productive discussions with the Greater London Authority.
But perhaps the most important task of the report, the new board, and indeed property developers, will be getting NHS trusts to release their land.
Chris Hobson, chief executive of NHS Providers, said the new board needs to gain the support of providers and that the organisations he represents are nervous of “the centre” overcommitting the NHS, as was the case with expensive and long-term private finance initiatives signed by NHS trusts in the 1990s.
The report is a big step in repairing that relationship and making sure the NHS is fit for purpose in the 21st century.
How an NHS property deal can get complex
In a hypothetical example, a hospital has five acres of land surrounding it, which is owned through an NHS trust. It wants to sell some of this to a housing developer to raise cash to reinvest in its services. Possibly it will keep some of the housing as affordable accommodation for staff, and probably keep the freehold of the land, so as not to lose its interest completely. So far, simple.
But as part of the modernisation of the estate, the hospital wants to reduce admissions by providing more primary care – for instance, GP surgeries. The logical solution would be to put these on the surplus land. However, GP surgeries are privately run, and not the responsibility of a trust. Thus there needs to be overarching co-ordination and strategy.
COMMENT: An example of how development can work
Peter Cox, director of community solutions, part of Morgan Sindall Investments
The Naylor Review could be a widely welcomed catalyst for change – existing NHS infrastructure is in desperate need of modernisation and consolidation, and if the report’s recommendations are taken forward the impact will be felt far beyond hospital corridors and GP waiting rooms.
Trying to plug revenue gaps in the face of continuing budget cuts is no easy task, and health providers tend to hold on to their surplus land until they need to release its value to fund new facilities. While tempting to do, a more sustainable approach is to consider how they can increase their estate income on an ongoing, longer-term basis to support their service delivery as budgets are cut by central government.
We are already working with both the NHS and other public bodies to deliver solutions to these estate challenges; as a specialist in this area we have developed more than £1bn in assets through public-private partnerships over the past decade.
Our team provides project delivery and funding to help a number of NHS trusts strengthen their estate priorities, in tandem with what Sir Robert Naylor has set out in his report. One example is our 50:50 strategic estates partnership (SEP) with Burton Hospitals NHS Foundation Trust, which supports the rationalisation and development of the trust’s estate in line with its current and future clinical delivery strategy.
In practice, this means delivering a new health campus on a five-acre surplus site (alongside our joint venture partner Arcadis) which will accommodate more than 200 residences for vulnerable older people, young adults with severe learning disabilities and doctors and nurses. In addition, the site will provide primary care at scale with a primary care hub serving 30,000 patients, a 100-place nursery, as well as community and commercial space.
Our role in the joint venture enables us to use our commercial skills to put in place an innovative funding package and commercial structure which will deliver greater financial value to the trust.
Together, the SEP can maximise the use of surplus land and reinvest the profits back into existing and new infrastructure. This allows the best possible outcomes for patient care, creates more motivational work environments for NHS staff and provides much-needed housing for the hospital’s staff. At the same time, it also helps tackle some of the biggest health and social issues that the local authorities in this part of Staffordshire face.
Naylor’s 17 recommendations
Improving capability and capacity
- Establish a powerful, strategic NHS Property Board to provide leadership, expertise and delivery support to sustainability and transformation plans (STPs), arms-length form the department of health, to empower speedy executive action. This will include functions of NHS Property Services, community health partnerships and others.
- Establish the board in shadow form immediately and substantively by April 2018. It should consider if the functions and residual assets it inherits from the abolition of primary care trusts (PCTs) should be divested back to providers.
- The board should bring together and expand the current strategic resources into a new national strategic planning and delivery unit to support local areas and strengthen capacity to deliver major projects.
- Board should be the primary voice to the system on estate matters and ensure clear messages about a fit-for-purpose estate, releasing land and addressing backlog maintenance.
- Board should produce improved guidance on estates planning and disposals for the NHS including scope, planning, private sector access, staff housing models and partnerships.
- Board should produce improved guidance on building standards so they support the five-year forward view (5YFV) and deliver value for money.
- Board should improve transparency and intelligent use of data.
- Board, in partnership with other national bodies, should review processes to ensure they are proportionate and effective.
Encouraging and incentivising local action
- STPs should develop affordable estates and infrastructure plans, with an associated capital strategy, to deliver the 5YFV and address backlog maintenance.
- Benchmarks should be developed for these plans. STPs failing to develop plans should not be granted access to capital funding either through grants, loans or private finance.
- Department of Health and the Treasury should provide assurances to STPs that any sale receipts from locally owned assets will not be recovered centrally.
- NHS should provide guidance on the relative roles of providers and STPs with respect of estate matters.
- NHS England and the NHS Property Board should ensure primary care facilities meet the vision of the 5YFV. This should consider linking payments to the quality of facilities and greater use of fit for purpose standards.
- Land vacated by the NHS should be prioritised for the development of residential homes for NHS staff, where there is a need.
- Urgent action should be taken to accelerate delivery of a large number of small scale and low risk housing developments.
Funding and national planning
- All national bodies should work together, sharing intelligence, to develop a robust capital investment plan for the NHS by summer 2017.
- Substantial capital investment of around £10bn is needed around term, which could be met by contributions from three sources; property disposals, private capital for primary care and from the Treasury.
To send feedback, e-mail alex.peace@egi.co.uk or tweet @egalexpeace or @estatesgazette
