How big is FM?

07 December 2007

Market researchers vary by £billions in their estimates of the size of the FM sector. FM Researcher Qi Zhou Moss has been examining why this is so and suggests new ways of looking at the FM industry to arrive at a more accurate calculation.

FOR THE PAST 15 YEARS, facilities management industry has gone through tremendous changes which have benefited the FM market greatly. In response, FM market research has also grown from little or no reports to about a dozen publicly available market publications. However, the recognition of the scopes and definitions of FM are considerably different among market research agencies, and there are huge disparities among the estimated sizes and forecasts. More importantly, each of the leading research agencies has some problems with their research methods which can cast doubts on their findings.

I have investigated what are the common problems with the main publications, and propose a different research methodology that focuses FM market research on the demand side of the market.

The Centre for Facilities Management (CFM), one of the oldest research bodies specialising in FM, published its first UK market report in 1992. Since then, we have been using a consistent research methodology, regularly updating market intelligence data, trends and FM organisation characteristics. Through this, CFM has built up a market intelligence database available to CFM member organisations.

In the past five years, CFM has also expanded its market intelligence database to continental Europe, Australia, South East Asia and North America through its research network. These research activities have made CFM one of the leading FM market intelligence experts in the field.

CFM is not the only FM market research agency. There are some other FM market research publications that are regularly updated in UK including:

● AMA – FM Outsourcing UK Market 2006
● BSRIA – Facilities Management UK 2005
● CFM – UK FM Market Analysis 2005; UK Public Sector FM Market Report 2006;
● i-FM – Trends and Opportunities 2007
● MBD – UK FM Market Research Report 2007
● Mintel – FM (Industrial Report) UK 2007

There are also some market research publications on European and World FM markets including:

● BSRIA – World Facilities Management 2006; Facilities Management in France 2001, Facilities Management in Germany 2001; FM in Spain and Italy 1999
● Capgemini – FM in the Nordic Countries 2006
● CFM – European FM Market Analysis 2007
● Frost & Sullivan – European Integrated Facility Management(I-FM) Market 2006; Northern Europe I-FM Markets 2005; Southern Europe IFM Markets 2006; Central Europe I-FM Markets 2005
● Twynstra Gudde – Facility Management in Netherlands 2007 However, despite these active market research activities, FM market research is still an emerging research area. Compared to some of other established research subjects such as construction, FM market research is far from mature and there tends to be little or no consensus among different market reports, with each using different methodology and scoping for the FM sector.

The graph above shows the huge differences of the estimated size of UK FM market, which varies from £4.5bn to £187bn.

CFM has separated the FM markets into the following sectors:

● Building operations and maintenance
● Catering
● Environmental management
● Infrastructure management
● IT and Telecommunication
● Management Consultancy
● Property Management
● Support Service
● Transport.

To estimate the size of the market, CFM uses other research sources to consolidate the estimated sizes for each of the above listed sectors, then adds them together. It made a major change in 2005, as it noticed that telecommunication sector alone has grown to over £51bn (comparing to £24.3bn in 2002). Although FM does contribute to this sector through support of flexible working, intelligent buildings etc, we can’t justify the inclusion of the whole telecommunication sector into FM market values.

Therefore, in the CFM 2005 report, this element was taken out of the table, and only IT support functions such as IT security, IT training, and CAFM & ITFM were included. This has resulted in the 2005 market size being restated from £225.5bn to £174.4bn.

However, there are two problems with this CFM’s calculation. First we have included some sub-sectors that can’t be separated within the main sectors. In management consultancy for example, FM consultancy services are only one of the arms. However, the existing statistics couldn’t single out FM management consultancy from other business consultancy services.

The second problem is just the opposite. Some of the sub-sectors, such as vending services, have not been incorporated into catering sector estimates. CFM is not alone with this problem - all of the market research agencies who are using similar methodology have the same problems.

Mintel, is one of the world’s renowned market research experts. Despite estimated potential FM market size at £187bn in its 2005 report, Mintel has adjusted the figure to £115.2bn in the newest September 2007 report, which is a 38 per cent drop from its 2005 value. The reason for this difference is the changes in the market segmentations used in the two reports. Mintel had used similar market segmentation as CFM in the FM industrial reports between 2002 and 2005. This structure was abandoned in the 2007 report, which has separated the market into TFM (Total Facilities Management), Contracted-out and Internal sectors. The contracted-out sector is the biggest among the three, and used similar sub-sectors as the previous structure (see table).

The table (left) shows three main changes:
● separating catering, cleaning and cleaning out from support services;
● replacing building operations and maintenance with M&E engineering and building fabric maintenance;
● taking IT and telecommunication out of the table.

The last of three main changes would explain the key reason for the drop in the estimated market size (IT & Telecommunication contributes to £30bn of market value in 2005).

Interestingly, the later adopted market segmentation of Mintel is the same as MBD’s report. In MBD’s 2004 report, the estimated size for FM market in 2003 is £102.7bn. However, it didn’t explain on what research basis it has estimated the TFM, contracted-out and internal market size. (Could this be by the number of announced contract wins? How would it apply to internal FM contract sizes?)

AMA’s report is limited to the out-sourced FM market.
Compared to these reports above, it also excludes “provision of outsourced accommodation facilities services”. This means that its main focus is at single and bundled FM services, and excludes the majority of the PFI/PPP contracts. This resulted in the estimated market size in its 2004 report at £12bn, which is significantly smaller than the other figures mentioned here. AMA estimated the market size by “aggregating turnovers or value of contracts managed of companies providing TFM and bundled facilities services contracts”. However, as it excludes some main sectors such as infrastructure services and maintenance services, this does not represent the whole FM market structure.

Frost & Sullivan defines three FM solution types: In-house FM, single service users, and Integrated FM (I-FM). It has estimated the whole I-FM market in Europe at $10bn in its 2002 report. Frost & Sullivan based its report mostly from interviewing “key FM decision makers”. Therefore, the whole report reflects on the statistical results from the survey, rather than explaining how it deducted the figure of $10bn. In Frost & Sullivan’s 2006 report, it estimated the market size has increased to $12.7bn in 2004, and would set to grow to $22.3bn in 2011- only a proportion of other estimates.

In addition to the common problems arising from the market definition and segmentation that causes the huge disparities among the estimated market sizes, another common problem is the use of back-dated data. Quite often the data used is already two years old by publication.

Different approach
The whole FM market comprises of both demand side and supply side. The diagram oppossite (previous page) shows that the current understanding of the FM market is very much limited. Current FM market research focuses on the supply side of the market, especially the main FM suppliers’ market, and there is a big gap of knowledge about the demand side for the FM market both in the UK and Europe.

What is the real size of the FM market? The list of top FM suppliers on www.i-fm.net shows a total turnover of the top 50 suppliers has reached £16.9bn. Therefore, this puts doubts on any market size estimates that are below this figure. However, do we know how dominant are these 50 main FM suppliers in order to calculated

Does anyone have the market intelligence on the complete picture for the FM sector? Probably not. With the FM industry increasingly mature and gaining recognition among other industries, it is time for the different research agencies to collaborate, to work out the best market research methodology that would give more accurate result. A good development is the introduction of the new SIC code for FM and the new European FM standards. If all future market researches adopt the standardised definition and scoping of FM, then the disparities would become a lot smaller.

Additionally, instead of retaining a methodology that looks primarily at all the main suppliers and different types of contracts, researchers could investigate the market from the client organisation side, and base future calculations on their annual FM spend, which would include any out-sourced or in-house services. Researchers could choose a few demand side organisations from each main industry, and aggregate their FM spending to represent the spending of the industry, based on their market share. For example, the top five banks in UK take up about 80 per cent for the whole banking industry. If their total annual FM spending is £4bn, then the FM market from in banking sector might be around £5bn. Using this method, the FM market size could be arrived at by adding the sums of the FM spending for each industry. If anyone is interested to collaborate with CFM in this new market research methodology or would recommend some other methods, please get in touch with the author.

● Qi Zhou Moss Centre for Facilities Management, University of Salford. She has been responsible for market research within CFM since 2002. She is European FM Researcher 2007.