Despite a flurry of investment commitments over the past three years, the value of the market for the construction of schools, universities and hospitals declined by 13% in 2020.

The situation reflects how disruptive COVID-19 has been to economic activity across the economy. This has seen education orders decline significantly in contrast to a sharp rise in public orders in the health sector. The situation highlights how limited public resources are being marshalled in favour of tackling COVID-19 directly, and cements a step change in the government’s strategy towards public investment.

The critical work being facilitated through public education and health estates, and long-term funding commitments have secured growth in the sector, but MBD anticipates that this may result in significant reductions in spending in the future and changes to corporate and wealth taxation, as we move away from the crisis and the government begins to reckon with increased in public debt.

Nonetheless, we anticipate strong growth for this area of construction, supported in particular by the 10-year school rebuilding scheme, and plans to create 40 new hospitals by 2030, which recently received additional funding. The regional and national frameworks through which this funding will be delivered therefore offer developers with access to secure and sustainable work for the coming five years.

• The impact of COVID-19 on the schools, universities and hospitals construction market.

• Market sizes and segmentations of the schools, universities and hospitals construction market.

• Summaries of estates, and funding channels for capital works for schools, universities and hospitals.

• How COVID-19 will shift priorities on school, university and hospital estates.

• A review of industry structure and recent company activity, performance and strategy.

The first COVID-19 cases were confirmed in the UK at the end of January 2020, with a small number of cases in February. As the case level rose, the government ordered the closure of non-essential stores on 20 March. 

A wider lockdown requiring people to stay at home except for essential shopping, exercise and work ‘if absolutely necessary’ followed on 23 March. It wasn't until 15 June that non-essential stores were allowed to re-open, followed by pubs, restaurants, hotels and hairdressers on 4 July, and many beauty businesses on 13 July.

By September, it had become clear that the UK was at the start of a second wave, and social distancing measures were intensified. Continued increases in infection numbers led to Wales implementing a two-week national lockdown from 19 October, England announcing a month-long lockdown from 5 November, and Scotland introducing a new five-level system of coronavirus restrictions. 

Despite these restrictions, however, case numbers continued to increase, and after a brief relaxation for Christmas Day, a full national lockdown was announced on the evening of 4 January. There is no defined end date for the lockdown: the legislation presented to Parliament extends to 31 March, but Boris Johnson has said that he hopes that schools will be able to re-open after February half term.

The UK’s vaccination programme started on 8 December, and with both the Pfizer-BioNTech and the Oxford-AstraZeneca vaccines licenced for use in the UK, the government aims to offer a vaccine to 15 million people by mid-February.

Our core assumptions on the path of the pandemic had always included an expectation of severe disruption to markets and consumers’ lifestyles well into 2021, with a strong likelihood that the virus would still be with us even into 2022. Although the second wave of infections and subsequent lockdown puts us towards the negative end of our initial expectations, these developments are still broadly consistent with our previous assumptions.

Similarly, Mintel had factored in the likelihood that an effective vaccine would be available from early- to-mid 2021. The licensing of the Pfizer-BioNTech and Oxford-AstraZeneca vaccines puts us slightly ahead of that assumption, but the challenge associated with rolling out a new vaccination programme to millions of people means that our previous assumptions are still broadly consistent with the new reality.

Mintel’s economic assumptions are based on the Office for Budget Responsibility’s central scenario included in its November 2020 Fiscal Sustainability Report. The scenario suggests that UK GDP will have fallen by 11.3% in 2020, recovering by 5.5% in 2021, and 6.6% in 2022. GDP isn’t expected to return to pre-COVID levels until the fourth quarter of 2022. The central scenario has unemployment peaking at 7.5% in Q2 2021.

The current uncertainty means that there is wide variation on the range of forecasts, however, and this is reflected in the OBR’s own scenarios. In its upside scenario, economic activity returns to pre-COVID-19 levels by Q4 2021. Its more negative scenario, by contrast, would mean that GDP doesn’t recover until Q3 2024.

The second wave of infections and subsequent lockdown mean that the short-term prospects for the country are consistent with the OBR’s negative scenario, but this needs to be balanced against the fact that the vaccine rollout is ahead of even the OBR’s central scenario. Medium- to long-term, then, we are still basing our forecasts and market analysis on the OBR’s central economic scenario.

In this Report the construction market for schools, universities and hospitals is based on the value of new construction orders for schools, colleges, universities and health-related buildings from the public and private sector as identified by the ONS.

The market is segmented into two parts, defined below:

• Education: construction expenditure on schools (including nurseries), colleges and universities

• Health: construction expenditure on buildings delivering healthcare, including hospitals, GP practices, community health centres and specialised care facilities.

Mintel has used the following definitions in this Report:

• Estate: all buildings and land owned by an organisation

• Local authorities: local government.