Facilities Management UK Market Report 1Q/2Q 2022
Market update
Challenges
The FM sector has recently faced numerous challenges.
The COVID-19 pandemic reduced demand for services. During lockdowns, many buildings were closed affecting requirements. Furlough helped the sector to protect jobs but there are now difficulties in recruiting sufficient staff.
More widely, the COVID-19 pandemic affected the global supply and demand balance. Restrictions caused a slowdown in production whilst also driving an increase in demand for DIY products and for shipping. As countries started to open up again, price escalation and availability issues were seen. There was particularly strong demand for materials from the construction, infrastructure and industry sectors as governments looked to stimulate social and economic recovery.
Soaring energy prices have impacted the production of energy-intensive materials such as steel and ceramics.
The surge in energy costs is also influencing Consumer Price Inflation (CPI). The annual rate of CPI rose to 5.5 percent in January which was the highest level since March 1992. The energy price cap increased from 1 April 2022 and CPI is expected to reach higher levels this year and remain at these for an extended period. This is impacting wage expectations and the cost of living.
Impact of the Russia-Ukraine war
Russia’s devastating invasion of Ukraine is exacerbating the issues seen.
Brent crude oil surged above $100 per barrel for the first time since 2014. Natural gas prices, which surged in 2021, also saw renewed increases. In early March, the USA, EU and UK committed to reducing imports and dependence on Russian energy which is affecting global markets.
Due to the shortages, price increases are being seen for raw materials, resulting in widespread cost uplifts. On 10 March, British Steel announced a £250/t increase on structural sections for new orders with immediate effect. The increase was attributed to extraordinary volatility in commodity and energy prices as well as significant disruption to international trade flows. British Steel also advised that it will be limiting the booking capacity available. A further £100/t increase was announced on 6 April attributed to the sustained high level of steelmaking costs and continued disruption in international trade flows.
Petrol and diesel prices also rose in the wake of the invasion — data from the Department for Business, Energy and Industrial Strategy (BEIS) has shown the steepest weekly increase in fuel prices in at least 18 years. The average litre of petrol rose from 149.2p on 28 February to 153.0p on 7 March. Diesel climbed from 153.4—158.6p in the same week. Although a 5p per litre cut to fuel duty was announced as part of the Spring Statement, the impact of the higher prices is significant and is impacting travel and delivery costs.
Availability of materials and products is a renewed issue as the conflict has disrupted international trade routes. Delays are reported for materials and certain suppliers are limiting amounts available for purchase. Russia and Belarus have lost the right to supply timber for PEFC and FSC certified products, which is triggering demand for alternatives as well as impacting availability.
Whilst a significant proportion of survey respondents said that their organisations were facing challenges, the issues were particularly apparent amongst organisations offering specific services.
Building fabric and roofing
Out of the respondents, 86 percent said that their organisations were impacted by materials/products price increases, 79 percent by materials/products availability and 64 percent were seeing longer lead-in times.
HVAC and sprinklers, electrical, fire alarms, intruder alarms, CCTV, AV, access control and fire prevention
Of respondents for these disciplines, 59 percent said that their organisations were affected by longer lead-in times, 50 percent shipping/delivery issues, 73 percent materials/products price increases and 77 percent materials/products availability.
Asbestos management, pest control, cleaning and window cleaning and security and safes
Higher salaries being a challenge was reported by 57 percent of respondents.
Survey respondents ranked materials/products price escalation as the greatest challenge to the FM market, followed by the issues with materials/products availability.
Materials
The Repair and Maintenance Construction Material Price Index from BEIS has increased by 27.8 percent since February 2020 (pre-pandemic). Although slight reductions of 0.7 percent and 0.8 percent were seen in the months to December 2021 and January 2022, pressures from the Russia-Ukraine war are expected to cause further price increases. The Index increased by 0.6 percent in the month to February 2022.
In our survey, a third of suppliers said that over 61 percent of their materials and supplies are sourced from builders’ merchants. Some participants highlighted that builders’ merchants are applying percentage uplifts to all materials/products due to shortages and increased fuel/delivery costs. Whilst 59 percent of respondents said that their organisations had preferential supply deals directly with manufacturers, it was highlighted that many producers prefer to supply distributors rather than supplying trade directly.
Nearly half of survey respondents, 49 percent, thought that the issues will continue beyond 2022. This is likely due to strong ongoing demand, the effects of the COVID-19 pandemic backlog and difficulties stemming from the crisis in Ukraine.
Labour availability
The Office for National Statistics (ONS) data shows that vacancies increased by 63 percent between December–February 2020 (pre-pandemic) and December–February 2022. It also shows an 85 percent rise in construction vacancies, a 71 percent increase in transport and storage jobs unfilled and an increase of 23 percent in open positions related to real estate activities.
Across many industries, including construction, vacancies in 2021 were the highest since records began in 2001.
Respondents to our survey advised availability issues with the following roles:
- Engineers
- Commercial roles
- Roofing operatives
- Carpenters
- Electricians
- Gas engineers
- Delivery warehouse workers
Of survey respondents, 40 percent thought that labour availability issues will be long-term issue for the FM sector. Reasons given were that some portions of the sector have a high turnover of workers and that there has been strong demand for trades from domestic construction work.
Others noted that whilst labour is available, wages are increasing. Data from Hudson Contract shows that average pay for freelance tradespeople has increased in all but one English region over the past year. In London, the year-on-year change is 13.6 percent.
Brexit has had an impact on the labour market. ONS data figures show that the number of construction workers from the EU working in London fell 54 percent between April 2017 and April 2020. However, in their latest update Hudson Contract highlight evidence of European workers returning to the UK labour market.
There is also suggestion that domestic construction work may be in decline due to increases in the cost of living.
The impact of materials price and labour cost increases is impacting performance. We saw 66 percent of respondents say that they had passed increased costs on to clients, at least in part.
Respondents whose organisations are working on contractual works have said that it has sometimes proven difficult to pass on costs in the short term.
They also flagged that the rising cost of fuel and further materials price escalation currently being seen is adding pressure.
