As business is flourishing globally with growth detected across all markets and regions, the demand for facility management (FM) outsourcing is increasing.
More and more companies are looking to outsource all or part of their facility-related operations to FM service providers in order to be able to solely focus on the work that is core to the business. Through 2018, the worldwide FM outsourcing market is expected to reach $1.314 trillion.
The FM industry is, however, not only expanding. It is evolving. Here are 5 major factors that will drive growth in the FM industry towards 2018.
- Economic and regulatory developments
Companies are now facing economic pressures from regulatory requirements and increased competition, which is forcing them to take a look at how they run their business. The increase in regulatory requirements, in particular, have companies looking for strategic partners in FM service providers that can deliver and manage facility services while taking on the associated risks. This is raising the bar for what FM service providers are expected to deliver in the years to come.
- Increased appetite for outsourcing
The penetration of outsourced facility services has increased considerably on a global scale since the 2000s, and growth in the FM market is expected to be 4-5% through 2018. Market penetration for integrated FM is highest in North America and Western Europe. However, penetration is rapidly increasing in the emerging Asia Pacific markets as well. 50% of the growth in the Asia Pacific market is linked to demand from its participating markets, North America and Europe.
- Increased service integration
The IFM market is expanding globally with an estimated annual growth rate of 6-8% to reach $1.314 trillion in 2018. More than 50% of the predicted global growth in the FM industry is linked to the demand from North America and Europe, which accounts for two-thirds of the global market. The demand for integrated facility management is relative to market maturity, which explains why North America and Europe account for 50% of the expected global growth in the market.
From the customer’s perspective, service integration provides the convenience of one point of contact, greater efficiency and financial certainty. Service integration calls for specific contract standards that are more performance based. In these types of contracts, FM service providers collaborate with the customer to define a standard of e.g. what ‘clean’ is, and agree to maintain this standard over a regular checklist. Thus, the customer trusts the FM service provider to self-deliver on the contract, which will increase cost-certainty. The customer will also benefit from reduced contacts, more transparency and control, fewer invoices to manage and a common service level agreement (SLA).
- Nationalisation and internationalisation of contract procurement
In the beginning of the 2000s, there were only a couple of international FM contracts industry-wide. Ten years later, the number of international contracts was somewhere between 30 and 50 with an average revenue of $100 - $500 million. Today, the number of international contracts is still growing, and with estimated revenues of $800 million or more, global IFS contracts are becoming more popular.
According to studies, the reason for the increase in global IFS contracts should be found in the following five drivers for internationalisation.
- Pressure to cut costs
- Demand for simplification and standardisation of services
- Internal pains - performance, productivity and retention of key personnel
- War for talent - attracting the best employees
- Pressure on corporate real estate to deliver a great place to work
Moreover, approx. 15% of customers are considering further centralising their facilities services purchases and/or moving to an IFS contract over the coming 3 years. Finally 80% of IFS contracts have a duration longer than 2 years, which is the common period in other contracts.
- Market demand for value-added services
Today, the decision to outsource is based on much more than the traditional core vs. non-core and cost-reduction parameters. Now, customers expect their FM service provider to have intimate knowledge of the corporate mission, and the competency to address the customer’s specific needs. In particular, companies are looking for strategic partnership in their FM service provider, that will help drive the following three corporate initiatives:
- Social: Concern for their staff, their customers and their communities
- Environmental: Being a good corporate citizen that focuses on the impact of its environmental footprint
- Economical: Ensure shareholder value currently and in the future
Also, FM service providers of the future must have the ability to comply with internal and external regulations and have the financial stability to assume the responsibility and cover the risk of non-compliance. Furthermore, the provider must have the ability to deliver and integrate a uniform set of facility services internationally, and finally, be significantly more efficient. This is most effectively done through service integration and self-performance of the tasks. By integrating, the silos of bundled services are reduced or eliminated.
In conclusion, you could say that the future role of FM service providers is expanding with the expansion of the FM outsourcing market. The role and responsibilities of FM service providers will continue to develop into more strategic partnerships over mere service delivery. In order to keep up with the shifting and expanding customer demands, FMs must offer value-added services, such as credible and effective risk management incl. Health, Safety and Environmental- (HSE) and local labour law management. Moreover, they must have the capability to provide excellence across a broad menu of services and consistent self-delivery on a global scale, as well as the flexibility to grow and change along with the customer.
Lastly, facilities should be seen as an integral part of the strategic and cultural journey of an organisation. The FM provider must be focused on finding new and innovative ways to make facility assets and services not only relevant, but critical to enhancing the customer’s employees experience and enabling their core business. The solutions offered must be adaptive to meet the demands of the changing workforce and world. To accomplish this, companies are looking for FM visionaries.
This blog post is based on ISS’ Perspectives on the FM market development whitepaper.
To learn more about Perspectives on the FM market development, please view our brand new IFMA's Word Workplace 2015 presentation:
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