The Facilities Management market has dropped to the lowest level of growth for 8 years as business uncertainty exerts pressure on client budgets and erodes average contract prices in 2019, according to MTW Research.
Facilities Management market sales have declined to levels not seen since 2012, according to MTW, with pricing pressure demonstrating 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 nearly 50% of FM contractors are now experiencing static or declining sales in 2019, with 30% of FM firms 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 battling the ‘race to the bottom’ in terms of contract prices; a switch to ‘outcome based measuring’; growth in advanced data analytics and differentiation through technology all offering added value opportunities.
In the short term, the report makes for difficult reading with FM market borrowing set to rise by more than £1bn in 2019 with average debt levels increasing by 20% in the last 6 years. MTW found that net worth for the FM industry has risen by just 8% since 2013 and 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.
Commenting on this trend, 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 quicke
n in 2019, with more than 30% of FM contractors currently reporting falls in profitability.”
Despite the obvious challenges, MTW forecast modest growth in 2019 for FM providers though the market is set to remain particularly competitive in terms of prices and margins.