The new Facilities Management Market Report from MTW Research finds that the FM market has slipped to the lowest level of growth for eight years as business uncertainty exerts pressure on client budgets and erodes average contract prices in 2019.
FM sales have declined to levels not seen since 2012, according to MTW, with pricing pressure representing a key threat to many FM contractors in 2019. This threat is set to grow as additional Brexit delays and confusion are likely to further undermine growth. The analysis shows that almost 50% of FM contractors are now experiencing static or declining sales in 2019, with 30% of FM companies achieving only a ‘mediocre’ credit rating.
The 200 page report identifies a number of longer term fundamentals which should underpin more healthy growth post 2020, including an increasing number of FM contractors resisting the ‘race to the bottom’ in terms of contract prices; a switch to ‘outcome-based measuring’; and growth in advanced data analytics and differentiation through technology, all offering added value opportunities.
In the short term, the report makes for some grim reading with FM market borrowing set to increase by more than £1 billion in 2019 with average debt levels rising by 20% in the last six years. MTW found that net worth for the FM industry has risen by just 8% since 2013 and actually declined in 2018 with a similar downward trend forecast for 2019.
Margin erosion is not a new issue for the facilities management market but the research has identified that overall industry profitability has exhibited annual declines since 2017, suggesting a concerning longer term trend is emerging. MTW’s director, Mark Waddy, said: “The sustained declines in profitability are manageable as long as the trend reverses as we expect post 2020, though we’re expecting the pace of decline to quicken in 2019, with more than 30% of FM contractors currently reporting falls in profitability.”
The integrated facilities management market has grown share in recent years though the report indicates that further share gain is likely to be modest due to stronger pricing pressures in this sector. Since 2013, IFM sales have increased by some 20% whilst other more specialist sectors - including catering and security - outperformed the overall FM market in the last few years in terms of profit and sales growth.
Despite the challenges evident, MTW forecasts modest growth in 2019 for FM providers though the market is set to remain particularly competitive in terms of prices and margins. The need for differentiation and shift in focus away from low margin/high volume contracts is becoming increasingly urgent for the bundled services sector in particular in order for the market to remain sustainable in the longer term. The report is available to purchase from £595 from MTW Research’s website.