Facilities Management Services Procurement Intelligence Report, 2023 - 2030 (Revenue Forecast, Supplier Ranking & Matrix, Emerging Technologies, Pricing Models, Cost Structure, Engagement & Operating Model, Competitive Landscape)

Facilities Management Services Category Overview

“Demand for FM services is driven by the rising investments in smart cities and the growing use of automation, IoT, and IIoT to boost operational efficiency.”

The global facilities management (FM) services category is expected to grow at a CAGR of 12% from 2023 to 2030. The category's growth is driven by the increasing use of IoT, automation, and cloud computing by businesses to improve operations and productivity, the advent of IIoT, and a growing focus on providing enhanced client experience while protecting important information about their facilities. Additionally, as more smart city projects are being established in developing nations such as Brazil and India, there is a greater need for cleaning and maintenance services, which is in turn presenting opportunities for this category's expansion. For instance, as of July 2023, according to the Ministry of Housing and Urban Affairs report, in India, task orders for 7,978 projects had been issued by 100 smart cities. Out of these, only 74% of the work, or 5,909 projects were completed. By end-user industry, real estate accounted for 30% of the total category share in 2022.

The global facilities management services category was estimated at USD 1,133.93 billion in 2022. Grant Thornton's 2022 FM report studies show SMEs, in particular, frequently underinvest in technology. 84% of SME businesses were found to be using outdated systems which presented difficulties and disruptions. Due to their lower agility and adaptability, SMEs produce about two-thirds less than large firms, which poses a significant barrier to productivity. Therefore, it is essential that facilities management companies keep up their efforts to incorporate technology into workspaces, as this can facilitate the data-driven insight necessary for businesses to advance.

Advanced sensors and connected IoT devices to optimize infrastructure and network, predictive analytics, and real-time information on traffic volumes, energy, and space usage are some of the instances of the technologies used in this category. Companies must also make sure that cybersecurity is a top priority in tandem with technology. Because technology can scale, like the cloud, businesses will be able to reduce their physical footprints and become more manageable as uncertainty persists, better enabling a workforce that is becoming more and more hybrid.

In the facilities management sector, the interest in building energy management and control solutions is being fueled by increased regulation and an emphasis on ESG. Governments are planning to shift away from fossil fuels in the coming years. Hence FM managers must attend to energy issues as well. Managers should support this shift to maximize energy efficiency and minimize energy costs in the future. Building owners are shifting from labor-intensive to technologically complex solutions, especially for security and fire.

To meet non-negotiable ESG targets, decarbonization agenda, and to combat rising energy costs, energy management solutions are expected to be an attractive investment sector in 2023. The increasing number of impact funds and the emergence of new ESG-focused lending practices demonstrate the extent to which ESG now influences M&A procedures and investment parameters in the facilities management sector.

Supplier Intelligence

“What is the nature of the facilities management services category? Who are some of the leading players?”

The global facilities management services category is highly fragmented with intense competition among vendors. During Q4 2022, 39 facilities management transactions (M&As) occurred, some of which were noteworthy. A few notable companies include Clayton, G4S, and Spie's transactions in this period. For instance, in July 2022, Clayton, Dubilier & Rice acquired Atalian Servest and OCS Facilities Services. The deal aimed to create a global FM platform that will cater to customers in Asia Pacific and Europe across multi-technical, catering, and security services.

With the occurrence of 39 deals, the annual total M&A activities at the end of 2022 reached 143. Investor interest in this FM sector appeared to have increased despite the economic uncertainty of 2022. The subsequent devaluation of Sterling Facility Company piqued the interest of foreign financiers and buyers. Among these 143 deals, the total number of deals involving hard FM services was 103 compared to soft FM services with only 40 in 2022. Over the past five years, there has been a slight increase in the percentage of deals including hard FM services as opposed to soft FM services.

According to Grant Thornton's 2022 report, deal activity in the building energy management and control subsector increased by approximately 60% in 2022 as a result of growing regulation and an emphasis on environmental, social, and governance (ESG) from 2020. Due to the significant market consolidation in the soft FM services sector, there were fewer opportunities for deals, which made buyers more selective.

Key suppliers covered in the category:

• Jones Lang LaSalle IP Inc. (JLL)

• Sodexo

• CBRE Group, Inc.

• Compass Group plc

• Cushman & Wakefield Global, Inc.

• MAB Facilities Management

• Aramark Corporation

• EMCOR Facilities Services, Inc.

• OCS Group

• Serco Group plc

• Veolia Environment S.A.

• Tenon Group

• ISS A/S 

Pricing and Cost Intelligence

“What is the total cost of ownership in the facilities management services? What are the major cost inputs?”

The entire cost of an asset, including both capital expenditure and operating expenses, is known as its total cost of ownership (TCO). This includes the purchase price as well as any additional costs for installation, operation, compliance, disposal, etc.

In this category, the total cost of ownership is divided into five major segments which are reactive maintenance, energy, capital projects, technology and oversight, and preventive and recurring maintenance. Reactive maintenance can account for between 30% - 35% of the TCO share. We have further found in our research, that the main cost elements in the TCO can be further broken down and simplified as labor, materials and supplies, energy, taxes and government policies, purchase, delivery and installation, training, maintenance, water, health and safety, and disposal. Other cost elements can be marketing and insurance.

The chart below illustrates the total cost of ownership in the category:

The four major cost inputs include labor, materials and supplies, energy, and different government policies and taxes. The different policies and taxes can appear in the form of health and safety measures, water, and energy usage guidelines, among others, which can impact the total cost structure. The CAPEX cost accounts for between 10% - 20% of the total cost of ownership in this category. The choices made in the design and construction stages have a big impact on the ongoing OPEX.

Although CAPEX cost may only make up a small percentage of the total cost of ownership during design and construction, other factors such as HVAC systems, lighting designs, and energy-efficient glazing (for instance, where multiple metal oxides are applied to reduce solar heat absorption on energy efficient glass panes through building facades) can have a substantial impact. One such example is the installation of solar panels for parking shade systems. According to a 2022 study, construction flaws are a major contributor to building failures and are estimated to cost the U.S. alone a few billion dollars annually. By ensuring long-term sustainability and efficiency in planning, FM companies can in turn achieve cost savings of 12% - 18% annually. Similarly, effective space management can lead to cost savings of up to 30% in real estate, which is the second most expensive cost for a business.

According to the CBRE report from 2022, the full impact of rising costs (such as FM inputs, materials, and energy) on FM budgets was expected to be seen in 2023. In the next two years, controlling energy expenditures will be essential in facilities management. In the U.S., employers in all industries encountered an unusually tight labor market in 2022. FM employers were under immense strain to fill open positions because of the labor crisis, and productivity plateaued in 2022.

In 2022, the cost of labor increased due to intense competition for workers, particularly in specific FM jobs where entry barriers were low. Although wages for hard FM services (such as HVAC, plumbing, and electrical) had slightly increased, maintaining this workforce was difficult due to the necessary skills and training. Soft service wages, such as those for janitorial, security, and landscaping, increased dramatically. These rates were further pressured by the robust expansion of other industries with equally low entry barriers, such as retail and warehousing. Wage increases of 10% to 15% were observed across the U.S., the UK, and major European regions.

The report provides a detailed analysis of the cost structure and the pricing models adopted by prominent suppliers in this category.

Sourcing Intelligence

“What kind of strategies are considered in this category?"

With a turnover of more than USD 75 - USD 85 billion annually, Germany is regarded as the largest facility management market in Europe. Innovations like personalized workspace concepts and active space management are what distinguish these markets in particular. This raises the need for different kinds of facilities management services. Higher ESG standards and increased operation and maintenance costs, for instance, help these services since they force businesses to make larger investments in their structures. Hence the salaries for facility managers in Germany are also very high compared to the rest of the countries.

According to a McKinsey report in 2021, facilities management can account for between 10% and 25% of total indirect spending for businesses with widespread operations, such as manufacturers, transportation companies, retailers, and logistics firms. Reducing costs has become more important in this area due to a number of recent events, such as rising wages, trade disputes, recession fears, and tech disruption.

"An approved provider is a supplier that meets a predefined set of qualifications, quality standards, prior-proven performances, or other selection criteria."

In terms of facilities management services sourcing intelligence, companies usually prefer to engage with approved vendors. Companies evaluate and determine facility suppliers based on quality management ISO certifications, adherence to different building codes/regulations such as IBC or IRC in the U.S. or Eurocodes in Europe, occupational health and safety management guidelines such as OHSAS and SLAs used. The particular standards that apply may change based on the kinds of facilities or units that are managed, industry standards, and regional laws.

Policies and procedures for supplier and contractor management are crucial in lowering the financial risks associated with those services that are outsourced. Outsourcing is a well-established strategy in this category. Large organizations usually prefer to outsource their facilities management (mostly starting with non-core activities across facilities) to obtain the expertise of specialized service providers, gain better flexibility and visibility in the process, and achieve higher cost and time savings.

In a number of regions, including Europe, the Middle East, and North America, outsourcing now accounts for more than half of the entire facilities management market. Soft services like janitorial and landscaping are favored categories for outsourcing in manufacturing companies. Hard services like maintenance for utility equipment are still usually insourced. Retail, banking, and other non-manufacturing sectors are attempting to balance insourcing and outsourcing to optimize their operating models first.

The report also provides details regarding day one, quick wins, portfolio analysis, key negotiation strategies of key suppliers, and low-cost/best-cost sourcing analysis. 

Facilities Management Services Procurement Intelligence Report Scope