Continued low level growth expected for FM outsourcing in the UK central and local government sectors

The outsourced, bundled facilities management market in central and local government was estimated to have grown by around 3% in 2015. While the market had experienced good growth through to 2011, reflecting the move towards greater levels of outsourcing of a wider range of services and a high level of investment in facilities, it substantially declined in 2012 as government spending fell and the government estate underwent consolidation in order to manage national debt and improve carbon emissions, a trend which continued into 2014.

Factors supporting the market include increasing penetration within central and local government, a move towards a greater array of services being outsourced, and the need for government departments to achieve significant cost savings to meet tighter budget restraints, with the government encouraging greater use of the private sector partners to help achieve this. Nevertheless there remain sustained pressure on margins, reflecting consolidation in the market and greater numbers of larger FM contractors in the market. In addition the Government’s ongoing activity to reduce the size of their estate has continued to impact on contract opportunities both in the central Government sector and the local Government sector.

Social housing remains the largest end-use sector, accounting for around 44% of market value, followed by central government, with local government the smallest sector in this market. Service development is currently focused on niche areas such as energy management and sustainability as well as diversification into wider back office areas outside the scope of this report. These services tend to be high cost, although they will provide long term savings and strict government targets on cost, carbon reduction commitments etc. encourage development in this area.

While remaining under pressure, the market for FM in the central and local government sectors is expected to improve and grow by 3% in 2015 and continue to display positive growth through to 2019. This should be driven by improvement in the social housing sector, as housing associations and local authorities intend to improve their operational efficiencies and as decent home standards need to be maintained. There are also expected to be inflationary pressures from the introduction of a compulsory Living Wage in 2016, which will contribute towards higher growth. Continuously evolving legislation and EU standards is also resulting in a move towards tighter carbon and energy targets, which should provide a boost in demand for energy management services.

“Energy conservation is likely to continue to be a driving factor within the market, as significant energy costs and tight legislation will encourage organisations to look at reducing consumption through technological investment and improved energy management” said Keith Taylor, Director of AMA Research. ”The introduction of the National Living Wage in 2016 could see costs increase, with limited scope to pass these costs on within the public sector and with substantial wage increases from 2016-2020 across the low paid sector, some inflationary pressures are bound to result from this development.”

However, public sector cuts continue with cross-collaboration across departments and regions, as well as collaboration between central and local departments likely to impact on opportunities for FM contracting in this sector. Other factors negatively affecting this market include continuing low levels of public sector new construction, in particular in the social housing sector.

The ‘Facilities Management Outsourcing – Central and Local Government Sector Report – UK 2015-2019 Analysis’ is published by AMA Research, a leading provider of market research and consultancy services within the construction and home improvement markets. The report is available now and can be ordered online at www.amaresearch.co.uk or by calling 01242 235724.