Facilities Management Outsourcing - Central and Local Government Sector - 5 Key Facts

• In 2017, Facilities Management outsourcing in the central and local government market was estimated to be worth over £4.3bn.
• Social housing accounts for 45% of market value.
• The total running cost of the central government mandated estate in 2015/16 was estimated at over £2.5bn.
• The housing associations' stock has generally been rising over the last few years, increasing 6% between 2012 and 2016.
• The UK FM market is fragmented in nature, with the leading 5 operators only accounting for an estimated 35% of market value.

These facts have been extracted from AMA Research's 'Facilities Management Outsourcing – Central and Local Government Sector Report – UK 2017-2021 Analysis' available for purchase now. 

Social Housing Construction & Maintenance Market - 5 Key Facts

• Housing Association completions were down by around 3% in 2016-17.
• Around 68% of social housing completions in 2016-17 were for affordable rent, an increase of around 40% on completions in the previous year.
• Going forward, social housing completions are expected to increase by around 2% per annum to 2021-22.
• Total expenditure on housing association repair and maintenance is expected to decline to around £2.8bn by 2022.
• Under the London Affordable Homes Programme 2016-2021, the Greater London Authority has secured £3.15bn to start building at least 90,000 new affordable homes.

These facts have been extracted from AMA Research's 'Social Housing Construction & Maintenance Market Report - UK 2018-2022' available for purchase now. 

Facilities Management Outsourcing - Health and Education Sector - 5 Key Facts

• The market value for outsourced integrated services and TFM in health and education is expected to grow by 17% through to 2022.
• The penetration of bundled and TFM outsourcing within healthcare is estimated at around 25%, with outsourcing generally higher for 'soft' services.
• The Primary education market accounts for 52% of services costs in the education market.
• Building maintenance and improvement accounts for a significant portion of FM expenditure in education, representing 25-30% of the overall market.
• Bundled services in the Mental Health & Learning Trusts represent 20% of the total service provision.

These facts have been extracted from AMA Research's 'Facilities Management Outsourcing – Health and Education Sector Report - UK 2018-2022' available for purchase now. 

Modest forecasts for construction output amid Brexit uncertainty

Recently revised data indicates that total construction output increased by 8% in 2017 compared with 2016, to reach a total value of £163.5bn. In terms of value, new work accounts for the largest share, with output growth having been particularly strong in the residential new work segment, which saw growth of 14% in the year. RMI output has also been stronger in the residential than in the non-residential sector. Overall RMI output increased by 7% in 2017.

In H1 2018, the construction sector remains uncertain to moderately optimistic. Indications are that new orders remained positive into Q4 2017 and this should lead to some growth in terms of output into 2018 and beyond for certain key sub-sectors, and as a result, the outlook for the UK construction market remains mildly positive into the medium-term, although with lower rates of overall growth than previously forecast.

The outlook for the housing sector remains positive, if modest, with 17% overall growth in residential output currently forecast between 2017 and 2022. The imbalance between demand and supply for new housing will remain one of the key drivers for continued output growth for the residential sector, and the number of new programmes designed to address shortage in housing stocks should motivate output into the medium-term.

However, predicted growth in the newbuild sector is set against lower growth levels for completions, and also takes into account an element of materials inflation – in particular for the finishing of new housing, such as sanitaryware, tiles and electrical wiring products. RMI in the residential sector is currently forecast to remain relatively steady, with low annual growth rates reflecting consumer confidence levels.

The non-residential sector is facing more subdued growth into the medium-term with output currently forecast to reduce to 1-2% 2018-19, followed by annual growth of around 3% to 2022. The issue of business confidence and investment levels and the “wait and see” approach regarding the commitment to future funding and capital commitments are all likely to act as a brake on output levels into the medium-term. 

Infrastructure will remain the largest sub-sector with growth underpinned by HS2 which has the potential to deliver £3-4bn pa of output to 2022. However, the HS2 works also bring into question the issue of capacities both in terms of materials but also workforce which could result in skills shortages for other sub-sectors into the medium-term.

The entertainment & leisure sector output is forecast to see good overall growth to 2022, when output is forecast to be around £10.9bn.  Following growth of around 33% in 2017, annual growth rates are currently forecast to fall back to around 3-5% from 2018 to 2022.

The retail sector is currently forecast to perform less well, due to a combination of structural changes within the sector and also potential reduction in consumer confidence and spending levels, and the public sector is likely to see less investment in capital projects into the medium-term, particularly given the focus on the collapse of Carillion and their extensive involvement in PFI contracts. 

“Overall growth in construction output is forecast to reduce to around 2% for 2017-18, but improving to 3% for 2019-22” said Jane Tarver of AMA Research. “This more modest forecast takes into account the continuing uncertainty surrounding the Brexit process affecting the timing of business investment decisions.”

The ‘Construction and Housing Forecast Bulletin - GB 2018-2022’ is published four times a year by AMA Research. The bulletin provides analysis of the overall construction market in current prices, in terms of new work and RMI activity, also public and private sectors and new orders, housing starts and completions, as well as forecasts to 2022. It is sold on a subscription basis and can be ordered online at www.amaresearch.co.uk.

Facilities Management Outsourcing - Corporate Sector - 5 Key Facts

• In 2017, Facilities Management outsourcing in the central and local government market was estimated to be worth over £4.3bn.
• Social housing accounts for 45% of market value.
• The total running cost of the central government mandated estate in 2015/16 was estimated at over £2.5bn.
• The housing associations’ stock has generally been rising over the last few years, increasing 6% between 2012 and 2016.
• The UK FM market is fragmented in nature, with the leading 5 operators only accounting for an estimated 35% of market value.

These facts have been extracted from AMA Research's 'Facilities Management Outsourcing - Corporate Sector Report – UK 2017-2021 Analysis' available for purchase now. 

UK data centre construction market worth around £1.1bn following two years of growth

The UK construction market for data centres is estimated to be valued at around £1.1bn in 2017, following two years of market growth. Performance has been positive in recent years, with high take up of space in the co-location sector from late 2015 onwards. In 2016 and 2017, the data centre market benefitted from major investment decisions from Amazon Web Services, Microsoft, IBM and Google, and there are several other major data centres being developed across the UK, which should provide further impetus to the market in the next year or two.

The commercial, or co-location, sector has experienced the greatest level of growth, boosted by major data investments from global players in the last two years. Co-location providers account for a significant proportion of new build data centre projects and data centres in this sector are built to a high specification. While growth in the commercial sector has outpaced the private data centre sector, most of the existing data centre estate still belongs to private businesses.

In contrast, expenditure in the public sector has fallen slightly as the Government’s cloud-first policy has led to increased outsourcing and use of wholesale and co-location providers to reduce its IT expenditure. Output in the private sector has remained static since 2015, as businesses increasingly seek to adopt cloud-based solutions and reduce reliance on in-house data centres, recognising the cost, efficiency and security benefits associated with using commercial data centre provision.

A key driver for data centre construction has been the rapid growth in demand for data storage. Consumers’ demand for digital content continues to grow, particularly due to increasing levels of online video streaming, downloading of other media such as music and reliance on social networks. In addition, ongoing rapid growth in mobile data usage is fuelling demand. Greater levels of online shopping, banking, information services etc, have also led to rapidly increasing amounts of data being processed over networks.

By far the largest geographical UK data centre cluster remains in the London and M25 area, though there is growth in other areas with large campus style data centres established in Wiltshire, Leicestershire, South Wales and Cambridgeshire. Manchester and Scotland are also becoming more established data centre markets. This trend of migration from London to other regions, offers cheaper alternatives for data centre locations without compromising the quality of service offered.

“Indications are that construction output within the data centre sector will rise consistently from 2018 onwards, driven by steady overall construction output, but primarily by underlying factors driving greater IT and internet usage” said Hayley Thornley, Market Research Manager at AMA Research. “The commercial sector is expected to drive construction growth, while the trend towards outsourcing data centre services from both the public sector and private businesses is likely to lead to relatively modest growth in these sectors.”

Overall, the data centre construction market is forecast to grow by around 3-4% per year through to 2022.

An increasing focus on cloud-based delivery of software and platforms will continue the shift from private corporate servers to cloud-based solutions, and this, coupled with increased use of blade servers, much more significant growth of virtualisation of servers, should support the development of larger, ‘high density’ data centres. The adoption of modular design data centres is also likely to continue in coming years, with a move towards more automated, software-defined data centres likely to improve productivity and reduce costs.

The ‘Data Centre Construction Market Report – UK 2018-2022’ report is available now and can be ordered online at www.amaresearch.co.uk or by calling 01242 235724.

Contract Cleaning Market - 5 Key Facts

• Cleaning and hygiene services often form part of a total facilities management contract, typically comprising around 12-15% of the total contract value.
• Contract cleaning is estimated to account for around 70% of the total UK market for cleaning services in 2016.
• The commercial sector, particularly offices, remain a key end use sector in the cleaning market with a share of 43%.
• Nearly 90% of the firms competing in the industry employ less than 10 individuals.
• Market estimates indicate that contract cleaners account for the bulk of cleaning equipment sales, estimated at around 75% of the market.

These facts have been extracted from AMA Research's 'Contract Cleaning Market Report - UK 2017-2021 Analysis' available for purchase now. 

The UK health and education facilities management market declined by 2% in 2017

Over the last few years, the potential for growth in facilities management (FM) outsourcing within the healthcare and education sectors has been limited, largely due to factors such as political and economic uncertainty, cuts in public sector budgets and closure of a number of facilities. Growth within the market for outsourced integrated services and TFM in health and education has therefore been on the modest side. In 2017, the market was estimated to be worth £3.2bn – around 2% lower than in the previous year.

FM market growth has also been hampered by a decline in the number of large-scale projects undertaken. Although healthcare and education represent two of the largest Government departments in terms of PFI/PF2 activity, the number of schemes being signed off on a year-by-year basis is declining due in part to the difficulty in obtaining finance.

In both the healthcare and education sectors there has been a gradual trend towards bundled service and TFM contracts, largely at the expense of single-service varieties. That said, single service contracts remain prevalent within certain market sectors, such as catering in primary and secondary schools. The growing adoption of bundled and TFM contracts has had a positive effect on market value, since these tend to be higher priced. However, the reduction in the number of PFI projects, together with greater contract renegotiation, has limited growth within the TFM sector in the hospital sector.

Healthcare represents the larger of the two sectors covered by this report, although the sector is mature and has declined 3% within the last year. The sector has been impacted by pressure to minimise operational costs to protect frontline services, as well as ongoing rationalisation of the NHS estate as under-utilised premises are sold off. Acute hospitals account for a significant percentage of outsourced FM services, with outsourcing most commonplace in areas such as community health providers and general/acute hospital care.

FM outsourcing is less well-established within the education sector. In 2017, market value saw a small decline compared to the previous year, as growth was affected by restrictions on budgets. Outsourcing of FM services within education is heavily skewed towards primary and secondary schools, which account for almost three-quarters of market value.

Building, engineering & maintenance and cleaning represent two of the most commonly outsourced FM services within the healthcare industry. Although maintenance is also dominant within the education sector, back office functions such as administrative and clerical functions, along with catering, are also widely outsourced. Energy management is likely to provide opportunities in the FM sector.

The higher-level merger and acquisition activity within the FM market appears to have stagnated, most likely due to the current political and economic uncertainty and the low margins currently obtained in the contracted-out services sector. The market’s leading players have appeared more inclined to divest businesses rather than acquire them, in order to focus on core areas of expertise. Until its collapse, Carillion was one of the leading providers of FM services to the health and education sectors.

Fiona Watts of AMA Research said: “The outlook for the FM outsourcing market within healthcare and education is considered moderately positive over the short to medium term, although growth within both sectors is likely to depend upon the prevailing political and economic situation. Government encouragement of greater private sector involvement is expected to continue, providing some optimism in the market.”

A further boost to the market should arise from the continued shift away from single service contracts towards bundled service and TFM packages. This trend is likely to have a more substantial impact within the education sector, where single-service contracts still dominate in several areas. However, budgets are likely to remain restricted for the foreseeable future, despite recent commitments from the Government to increase funding in the NHS and refurbishment of schools.

The ‘FacilitiesManagement Outsourcing - Health & Education Market Report – UK 2018-2022’ report is published by AMA Research, a leading provider of market research and consultancy services with over 25 years’ experience 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.

Tough times for support services industry as Carillion collapses

 Carillion's failure is significant within both the construction and the facilities management (FM) industries and will have implications for clients, competitors and suppliers across the spectrum of the construction industry.

The company employed approximately 43,000 people, and had grown via the acquisition of companies such as Mowlem, Alfred McAlpine and John Laing Integrated Services. The company was made up of the following business segments: Support Services, which includes facilities management; PPP Projects, which covers sectors such as healthcare, defence, education and transport; Construction Services excluding the Middle East; and Middle East Construction Services.

The facilities management environment in particular has been a key sector for Carillion as they supplied FM services to more than 150,000 properties across the UK, whilst the Support Services division operated in sectors such as defence, local government, corporate, healthcare and home affairs/justice, providing both hard and soft FM services. Elsewhere, the company jointly owned the CarillionAmey joint venture, which provided maintenance and housing services for personnel from the armed forces and their families.

Some challenges that have faced the FM industry in recent years have included:

• The Brexit effect - the current uncertainty caused by the Brexit vote has hampered economic growth, and one effect within the outsourcing industry has been a slowdown in the overall contract pipeline, with companies less willing to invest until the economic and political situation becomes clearer. There is also a worry that the industry will see labour shortages if immigration is restricted.

• Budget cuts - in the public sector, the market is strongly influenced by the Government's attempts to rein in spending levels, to reduce the public sector deficit. Budget cuts continue to impact upon many government departments, including leading FM end-user sectors such as healthcare and education. Across both central and local Government, budgetary constraints mean that the current emphasis is upon public sector organisations 'living within their means.' Many public sector organisations are therefore more reluctant to commit to long term outsourcing contracts, with the result that shorter contracts (e.g. three years or less) are becoming more common and renegotiation of longer term contracts is also evident.

• Declining contract values - the need to minimise operational costs has seen many organisations reducing both office space and their workforces, therefore having a negative influence on the FM market, as contract values are cut.

• Higher labour costs - the introduction of the National Living Wage in such a labour-intensive market (FM and support services), has led to increased pressure on contract prices and on some existing contract margins where the costs could not be recovered.

• Price competition - increasing competition between suppliers in the market has constrained both market values and growth and had an adverse effect upon margins, and in some instances led FM suppliers to underbid and over-commit to delivery in order to secure contracts successfully.

The growth of FM provision has created some major companies that are, to some extent, victims of their own success. They are managing very large numbers of contracts across many countries, something which can lead to operational and management problems. These developments have led to some companies adopting more stringent procedures for monitoring contracts, to ensure performance levels are adhered to and costs kept down.

Within the last couple of financial years, turnover for many of the leading FM operators has decreased, something which can mainly be attributed to the factors mentioned previously, i.e. the uncertain state of the economy, the continued rationalisation of the government estate and the market's maturity. The market appears to be approaching something of a crossroads, with FM services now also incorporating data management in greater quantities - companies able to embrace these new concepts and technologies will be the most likely to prosper.

There is little doubt the UK FM market is facing difficult times, not just in terms of profitability, but also the fall-out in terms of sentiment from the Carillion failure and whether this leads to a change of direction in many public and private sectors, with regards to the attraction of outsourcing.

For a more detailed review of the facilities management and outsourced services markets, visit this link, which provides details of market reviews relevant to this industry.

Technology and sustainability key drivers of the UK Contract Cleaning market

Following three years of marginal growth, the UK contract cleaning market accelerated between 2014 and 2016 in line with the economy. Uncertainty caused by factors such as Brexit mean that this market growth is unlikely to be sustained over the next few years. Looking forward, demand is likely to be relatively buoyant in the transport sector, while the retail, commercial offices and the government sectors are likely to provide fewer opportunities, at least in the short term.

Contract cleaning is a mature market covering both single and multi-service contracts, in the commercial, manufacturing, healthcare, retail, transport, local authority and central government sectors. There has been an underlying trend towards greater levels of outsourcing over the last decade which has driven demand for the contracting out of cleaning services. Cleaning and hygiene services often form part of a total facilities management contract, typically comprising around 12-15% of the contract value.     

Despite over 40,000 businesses operating in the cleaning industry, the market for contractors is dominated by a relatively small number of large IFS/IFM and multi service providers and large and medium sized specialist cleaning contractors. There is also a significant franchise sector in the market, as cleaning remains one of the most popular franchise opportunities, offering a relatively low-cost investment, in a robust market with relatively few barriers to entry.

Fiona Watts of AMA Research said: ”Cleaning is one of the most competitive of all contracted-out sectors, and profit margins are under significant pressure due to rising labour costs and increasing raw material and equipment costs. In addition, there is pressure on the cleaning industry to improve standards, particularly in the healthcare sector, while also increasing efficiency.”

The drive towards more sustainable cleaning practices has become an important issue within the industry, with clients demanding more sustainable practices from contract cleaning companies.

The market is also embracing the use of technology, which is driving advances in performance and efficiency. For example, the first fully automated robotic floor cleaning machines have been launched in the UK and robots using UV lights to kill the DNA of bugs have been trialled in the NHS to help fight HCAI’s. Other technological developments include increased connectivity, which allows contractors to digitise cleaning procedures using sensors, gather and analyse real-time data to help them work smarter, create efficiencies and raise standards. Technology is expected to become ever more present within the industry over the coming years.

Looking forward, moderate growth is expected to continue within the contract cleaning market with a mix of negative and positive factors impacting the market. The demand for bundled service and Total Facilities Management contracts will continue to be a strong driving force as public and private sectors look to maximise value from contracts. However, there is concern that the Brexit decision may have an impact on the labour market and, with labour costs accounting for an estimated 80% of any invoice within the contract cleaning market, changes such as an increase to the National Minimum Wage have a significant impact on the health of the sector.

The transport sector is forecast to show good growth, driven by the expanding UK aviation and rail infrastructure and growing passenger numbers, something which should have a positive impact on the contract cleaning industry. Demand in many sectors are expected to decline in the coming years, such as the retail sector and the commercial office sector where reduced development activity will limit new contract cleaning opportunities in the short term.

The ‘Contract Cleaning Market Report – UK 2017-2021 Analysis’ report is published by AMA Research, a leading provider of market research and consultancy services with over 25 years’ experience in 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.

UK waste management contractors benefit from new income streams

The UK waste management contracting market, which includes collection, treatment & disposal and materials recovery, was estimated to have decreased slightly in 2016 compared to the previous year. The reduction has been partly due to the impact of Central Government cuts to local authority environmental services budgets and the impact of falls in global commodity prices on recyclable materials.

Up to 2015, annual growth was primarily driven by the implementation of EU Directives, aimed at reducing the volumes of landfilled waste and increasing the levels of material recovery through recycling, composting and energy-from-waste. Above all, the impact of the Landfill Tax escalator on landfill gate fees has made these alternative approaches more commercially attractive.

From 2014 through to 2015 the drop in the price of crude oil also contributed towards a fall in prices for key commodities including certain grades of steel, plastics and glass. This then forced down prices for recyclates in turn making single-stream waste collections and recycling financially unviable. Also, with reduced volumes of higher value materials being accepted for treatment at recovery facilities, growth overall gate revenues have also been constrained. However, later in the second half of 2016 through to early 2017, commodity and recyclate prices for some grades have recovered.

Growth in contractors’ annual revenues has been driven by the development of relatively new income streams, including segregated recycling collections, organic waste collections and the development & operation of energy-from-waste (efw) plants. Investment in the expansion of efw and recycling infrastructure capacity has contributed towards growth in aggregate industry revenues from these sub-sectors, and diversification into new areas of product recycling e.g. WEEE (waste electronic & electrical equipment), ELV (end-of life vehicles) and mixed plastic packaging have also stimulated growth.

EfW, landfill and other non-hazardous waste treatment & disposal services are estimated to account for up to 45% of industry revenues, with collection and recycling services each contributing around a quarter of the total. However, as a considerable proportion of MSW, CIW and C & D waste management services are delivered under bundled contracts covering most or all elements of waste management, these are only broad estimates. There is still a need for the UK to improve commercial and industrial waste recycling although in recent years there have been improvements in recycling rates, mainly driven by voluntary initiatives, there being far fewer legislative drivers than for municipal waste.

In recent years, there has been substantial market consolidation through acquisition resulting in an increased level of polarisation between the national contractors and also larger regional operators and smaller contractors operating mainly within the commercial and construction markets. The creation of added-value income from the sale of recycled materials, compost, electricity sales and refuse derived fuel (rdf) has also brought in recent market entrants from the energy, facilities management, composting and manufacturing sectors (especially paper).

Keith Taylor, Director of AMA Research, commented “Over the short term, industry prospects will still be determined by EU legislation. However, now that Article 50 has been signed, there may well be a possible slowdown in household spending combined with rises in imported goods, driven by uncertainties surrounding 'Brexit’ and likely volatility in the economy. There are also concerns as to whether the Government will remove some of the more prescriptive elements of EU waste legislation and replace them with voluntary targets for local authorities and businesses.”

Even before the 'Brexit' referendum, the government had already stipulated that after March 2018 there will be no subsidies for new AD plants under 5MW and EfW plants of 5MW and above, thereby most likely leading to a decline in capacity over the medium term. However, there remains a substantial volume of EfW incinerator and gasification capacity in the current development pipeline scheduled for completion by 2020.

The ‘Waste Management Market Report – UK 2017-2021 Analysis’ report is published by AMA Research, a leading provider of market research and consultancy services with over 25 years’ experience 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.

Facilities Management Outsourcing - Corporate Sector Report - UK 2015-2019 - Key Facts

1. The corporate market for outsourced ‘bundled’ services is forecast to grow by 33% by 2019.
2. Commercial offices represent the largest end use sector accounting for 52% of the market by value, followed by retail.
3. Facilities outsourcing within the corporate market is considered to be mature, and estimated at around 75%.
4. The leisure and entertainment sector is expected to offer opportunities, with budget hotels in particular expected to exhibit good growth.
5. The top 10 FM bundled providers are estimated to account for over half the market.

These facts have been extracted from AMA Research's report 'Facilities Management Outsourcing - Corporate Sector Report - UK 2015-2019 Analysis', available from www.amaresearch.co.uk or by calling 01242 235724. 

FM Outsourcing – Health and Education Market - Key Facts

1.  The market value for outsourced integrated services and TFM in health and education is expected to grow by 17% through to 2019.
2. The penetration of FM outsourcing within healthcare is estimated at around 30%, with outsourcing generally higher for ‘soft’ services.
3. FM outsourcing within the education sector is less well established, at 20-25%.
4. Catering accounts for a significant portion of FM expenditure in education, representing 15-20% of the overall market.
5. Bundled services in the Mental Health & Learning Trusts represent only 14% of the total service provision.

These facts have been extracted from AMA Research's report 'Facilities Management Outsourcing Market Report – UK 2015-2019 Analysis ', available from www.amaresearch.co.uk or by calling 01242 235724. 

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.

FM outsourcing in the UK corporate sector to grow by 7-8% per annum until 2019.

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.

Merger and acquisition activity to continue in UK health and education FM sectors

The market value for outsourced integrated services and TFM in health and education has fallen during 2015 and is now estimated to be worth around £3.5bn. The potential of facilities management outsourcing in the health and education sectors has been limited since the beginning of the review period, as an increase in outsourcing has been offset by the decline in new large scale projects coming to the market, due to the cancellation of large scale capital expenditure programmes in 2010 and budget cuts introduced in 2012.

However, the underlying trend towards outsourcing an increasing array of services, including a gradual shift towards ‘bundled service’ and TFM contracts, has been a positive influence on growth, adding to contract values. This is likely to continue as efficiencies are sought in order to operate within ever tightening budgets, prompted further by a political focus on private sector involvement and greater levels of co-operation across regions and departments. Healthcare represents the largest sub-sector in this market, while FM outsourcing within the education sector is less well established.

The public health sector has undergone a period of restructuring which has limited the development of the FM market in this sector, and significant changes also came into effect in April 2013. However, the market is thought to have started to normalise from these effects and the scope for increased penetration nevertheless remains a positive influence, supported by the Government’s encouragement of more cross-regional co-operation in procurement. Energy conservation is also likely to remain a key driving factor within the FM market. 

The education sector had been expected to represent one of the most dynamic end use sectors for FM outsourcing, but is now likely to remain limited. The cancellation of Building Schools for the Future (BSF) and concern over the value of some long term PFI service contracts, coupled with the restriction on budgets, has seen new contracts decline and being renegotiated in order to bring down existing costs.

Merger and acquisition activity amongst FM providers has continued and there have also been a number of instances of business failures and market withdrawals. This has been influenced by market maturity, changes in procurement practices and moves by larger providers to expand services and geographic coverage. This trend towards consolidation is likely to continue over the medium term.

Energy conservation is likely to remain a key driving factor within the FM market. Volatile energy costs and legislation relating to carbon emissions and sustainability will encourage organisations to look at reducing consumption through energy management. While energy management already forms part of most FM contracts, the necessity to employ more complex technology and monitoring equipment is likely to enable FM providers to add value, with many providers expanding their provision in this sector.

“The announcement of a compulsory ‘Living Wage’ from 2016 is likely to result in inflationary pressures and resulting market growth as FM contractors pass on these increased labour costs” said Keith Taylor, Director of AMA Research. “Some absorption of the costs and erosion of margin seems likely, though the 36% rise in ‘Living Wage’ up to 2020 will probably be impossible to totally absorb.”

The outlook for the FM outsourcing market within healthcare and education is considered to be modest over the short to medium term, reflecting government focus on private sector involvement balanced by the need to work within restricted budgets. Focus on ‘Value for money’ continues to support the market in terms of outsourcing penetration, although it can limit individual contract values.

The ‘Facilities Management Outsourcing - Health and Education 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.

Facilities Management Outsourcing Market Report - Key Facts

Did you know that....

• The market for outsourced 'bundled' services and TFM is expected to grow by almost 25% over the next 5 years.

• Healthcare and education have been the most rapidly growing sectors in recent years and now represent 18% of the market, though the growth of these sectors has now slowed sharply.

• The leading services by value in the FM outsourced market include cleaning and building maintenance, both with just over 10% of the sector.

• Within the corporate end use sector, commercial offices represent the largest end use sector, reflecting high penetration and contract values.

• Central government end-users account for around a quarter of the market and penetration of outsourced FM services is reasonably high in this sector. Other sectors include local authorities and social housing.

These facts have been extracted from AMA Research's report 'Facilities Management Outsourcing Market Report - UK 2014-2018 Analysis', available from www.amaresearch.co.uk or by calling 01242 235724.

Margins remain under pressure in the UK Contract Cleaning market

The market for contract cleaning services in the UK has seen low level growth over the past two years and is now worth around £5.5 billion. Though the market was affected by the economic downturn, it has benefited from increased standards in cleanliness demanded by key areas such as health and food hygiene. Many contract cleaning companies have reported relatively steady growth with further modest growth forecast until 2019 reflecting ongoing recovery in the economy and rising costs.

Contract cleaning is a mature and highly fragmented market, despite the high level of merger and acquisition activity that seems to have become an ongoing characteristic, and is one of the most competitive of all the contracted-out sectors. Despite the difficult economic climate over the last 5 years - and continued cuts across budgets in both the private and public sectors - the market has performed reasonably well compared to the wider FM and construction industry. The ‘commercial’ market (offices, retail etc) is the largest sector with an estimated 43% value share, with local authority and health also representing key sectors.

The UK market for non-domestic cleaning products, including equipment, materials and chemicals, has been largely flat in recent years and only modest growth is forecast for the 2015-2019 period. Key trends in this sector include; increasing development of antibacterial products, in particular in the healthcare, food preparation and hospitality sectors, growth in the powered cleaning machine sector, greater focus on improving efficiency and increased automation of cleaning processes, increase in daytime cleaning. The market continues to be strongly driven by legislation and higher standards for cleanliness, hygiene and health and safety.

One of the major issues facing the industry is the recent announcement of the Government’s Living Wage, which means that over 25’s will receive an hourly wage rate of £7.20 per hour from April 2016 rising to over £9.00 per hour by 2020. While some of these costs will be absorbed, the rise is substantial and will have a major impact on the contract cleaning industry where average pay rates are low and labour costs represent a high proportion of contract prices. As a result, this will inevitably drive the market upwards and is also likely to drive growth in the equipment sector as larger employers look to increase productivity levels to offset higher labour costs.

The provision of ‘one-stop shop’ solutions and bundled services has become an increasingly more attractive option, particularly for larger clients. The economic downturn also increased pressure on companies to improve their operational efficiencies and control costs. It seems likely that demand for bundled services contracts will continue to be a strong driving force in the market over the next few years. It has already become a key factor behind the number of acquisitions of single service providers by FM companies, particularly into specialist sectors such as energy management.

In addition, the drive towards more sustainable cleaning practices is a growing issue across the contract cleaning industry, driven by demand from clients keen to ensure that their corporate responsibility towards the sustainability agenda is met. As a result, cleaning firms have introduced a range of new ‘green’ measures in order to meet this growing area of demand, including daytime cleaning and more energy-efficient cleaning equipment. Daytime cleaning is now becoming more popular where a high standard of cleanliness is required in areas such as healthcare and offices.

“Cleaning is one of the most competitive of all contracted-out sectors, with profit margins under constant pressure, though the cleaning and support services industry is generally accepted to be more ‘recession proof’ than other sectors.” said Andrew Hartley, Director of AMA research, “It is a highly labour intensive industry and the introduction of the Living Wage with incremental increases is bound to have an impact on the market in the medium term, probably leading to a combination of rising contract values, reduced margins and greater investment in powered cleaning equipment and daytime cleaning.”

The ‘Contract Cleaning Market Report – UK 2015-2019 Analysis’ report 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.