Change is needed in the primary care sector – starting with its rent problem

Over the past decade, rental growth in the UK primary care sector has averaged 1.5% per annum, half the typical commercial property growth rate of 3%.

The sector is not reaching its full potential. The low levels of rental growth are acting as a barrier to investment and the delivery of quality modern healthcare practices.

The sector has many appealing characteristics, including low volatility and resilience during the Covid-19 pandemic, as well as strong capital growth and yield compression over the last five years. In addition, the Government’scommitment to reducing the public estateprovides room for private sector investment. But investors are not incentivised to enter the sector; between 2020 to 2021 just 4% of total capital investment into NHS Trusts was from the private sector. Since 2011, only 83 new developments have completed by the two listed third-party developers, equivalent to 1% of the total GP estate.

With low development volumes, the NHS and the Government are going to fall short in their goal of ensuring an Estate that is fit for the future. Already, more than half of the total NHS Estate was built over 25 years ago.

Indeed, the British Medical Association’s2018 GP Premises Surveyfound only half of practices considered their premisesto be fit for present needs. Much of the current stock is small, outdated and in poor locations, unable to serve enough people. In the time since the BMA’s survey, demand for services has been further stretched, withhospital waiting times having risen post-Covid-19.

Stronger rental growth would help to drive investor activity. Our view is the current approach of rent setting needs to change. Typically, rents for primary care centres are paid for by NHS England through a Notional Rent or Current Market Rent. The level of rent is agreed between District Valuers, who act on behalf of NHS England. While the level will vary depending on the nature of the location, physical asset and lease structure, the goal is to provide value for money in line with Treasury guidance. As a result, rents tend to be at the lower end of the market scale. This approach may save costs for the NHS in the short-term but is detrimental to the quality of GP surgeries in the long-term.

Ultimately, alterations to primary care rent setting will require an appropriate change in NHS funding arrangements, either through increases to departmental budgets or to fund the rising rental costs from existing budgets.

For change to happen, the Government will need to act. Without key decision makers from the Department of Health and Social Care, the Treasury and NHS England agreeing on a new approach and making the necessary funding available, the issues of declining quality of medical practices will not be addressed and the UK primary care market will end up with a generation of buildings increasingly outdated and unfit for purpose. All of which will challenge the delivery of quality care outcomes, patient accessibility and the environmental efficiency of the estate.