The market value for outsourced ‘bundled’ services and TFM within the corporate sector has seen some improvement in terms of number of contracts, driven by business confidence levels, a generally improved economy and good growth in the financial and service sector. This has led to reasonable growth in the market of 4-5% per annum. Nevertheless there remains sustained pressure on margins, reflecting consolidation in the market and greater numbers of larger FM contractors who are intent on ensuring they win enough business to satisfy their capacity.
Facilities outsourcing within the corporate market is also considered to be mature across most sectors, with around 75% of services by value thought to be outsourced in some way. Commercial offices and retail are approaching saturation point and as such, growth is largely reliant on expansion of these sectors.
Commercial offices represent the largest end use sector accounting for an estimated 52% of the market by value, followed by the retail sector. The leisure & entertainment sectors also account for a significant share. Certain sectors of the corporate FM industry are likely to offer greater opportunities than others, in particular the office sector in the south east is continuing to show good growth. The leisure sector is expected to continue growing though the retail sector remains under pressure from the growth of online sales. This seems likely to limit the opportunity for substantial new developments of larger scale retail parks, though it may create opportunities in the warehousing sector.
There is a shift from outsourcing an increasing number of non-core services to using FM providers as a much more integrated part of the company’s overall strategy. This more integrated approach links contracts to achieving company goals and these contracts tend to have a greater management element, thereby adding value. There are also likely to be a greater number of international contracts, favouring larger international providers. The FM market has experienced a number of mergers and acquisitions over the last few years, influenced by market maturity, as well as changes in the economic climate. This consolidation is likely to continue over the short term with tightening margins and a challenging economic environment.
There are expected to be inflationary pressures from the introduction of a compulsory Living Wage in 2016, perhaps squeezing the contractor margins, particularly in the public sector where budgets remain under pressure. In any event this is likely to create some inflation in the marketplace. Some of the growth forecast from 2016 onwards incorporates an impact from this change, with growth rates expected to increase to around 7-8% per annum until the end of the forecast period in 2019. However, there are greater pressures to create efficiencies through both cost and energy savings.
“The need to minimise operational costs and redundancies resulting in a reduction in workforces has seen many organisations reducing office space, and this is having a negative influence on the FM market as contract values are cut” said Keith Taylor, Director of AMA Research. “These cutbacks in FM contracts usually occur at the time of re-tendering but have also become more prevalent mid-contract, though pressures have been easing in the private sector as employment levels recover. However, the benefit of office rationalisation has seen a growth in use of niche services such as workspace management and move planning.”
In the longer term, as business confidence improves, it is expected that contracts will incorporate more services, increasing value through specialist skills and knowledge and cover longer periods as companies progressively move away from self-management of non-core services. Energy conservation is likely to continue to be a driving factor within the market. Significant energy costs and tight legislation will encourage organisations to look at reducing consumption through technological investment and energy management. While energy management forms part of most, larger FM contracts, the necessity to employ more complex technology and monitoring equipment is likely to enable FM providers to add value, strengthening the position of those providers with expertise in this area.
The ‘Facilities Management Outsourcing – Corporate Sector Market 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.