Vol 8 (2011) - Issue 2

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The UK Facilities Management Sector

The UK facilities management ('FM') sector is a relatively new sector and has witnessed exceptional growth over the past 10-15 years. From a sector focused predominantly on 'hard' services, such as property maintenance and repair, the broad spectrum of offerings now encompasses 'soft' services that could include almost any activity an organisation deems non-core or secondary – including cleaning, security, catering, office services, IT management, document handling, and even specialist functions such as finance and HR. The sector is estimated to be worth over GBP 100 billion and continues to grow, not least because the business trend to focus only on core activities continues to prevail; there has been some reversal of this trend, however, with a few companies taking various FM activities back in-house. The major change in the market has come from a maturing of the market and increasingly sophisticated procurement processes, which are driving down margins. The tightening of the public purse and current public sector austerity measures only add to this pressure, at a time when the private sector is struggling to weather the economic downturn. In the longer term, growth will depend on the extent to which both private and public sector retain confidence in the FM approach, as some believe it to be too inflexible.



Market overview

– The total UK facilities management sector was worth around GBP 117 billion in 2008 and is forecast to reach GBP 127 billion by 2013.

– By value, contracted-out FM continues to dominate the sector, with 60% market share, worth GBP 70 billion supported by companies and public sector bodies continuation to simplify operations in specific areas.

– Total Facilities Management – where full responsibility for FM services is contracted to a third party company who undertakes the work or subcontracts the work to other companies – accounts for 8% of the value of activity, with the remaining 32% representing the in-house provision of their services.

Cleaning and catering services are the highest volume services, with security, mechanical & electrical, energy and environmental services seen as growth 'hot spots'. The sector is seen as one of the largest contributors to the UK economy with each FM job worth over GBP 50,000 in output. Private investment in public sector initiatives such as the Public Finance Initiative and Public Private Partnerships have benefited the sector (eg security, property management, building and construction services), but these contracts are now becoming highly complex to manage efficiently and profitably. The future of these initiatives under the present government is in question and this will have a clear impact on future earning for FM providers.

On the stock markets, FM companies are highly rated by investors as they are perceived to have defensive qualities, good prospective earnings visibility and fairly resilient end-markets. The sector has a strong base and is underpinned by some immunity to cyclical pressures; long-term contracts and earnings. Taking Support Services as a whole (which includes the FM market), the sector marginally outperforms the market in terms of price and PE ratios, although performance varies between the different support services sub-segments.