Credit crisis will impact of PFI/PPP bidders raising finance

11 October 2008

Research shows that the FM sector market value is estimated to be around £14bn in 2007, but the current credit crisis in global financial markets will make it harder and more expensive for potential bidders in PFI/PPP deals to raise finance.

The FM market has shown good growth since the early 1990’s, influenced by the desire to control operational efficiencies and costs across a wide variety of sectors, as well as more recently a trend within the private sector for companies to refocus their business to concentrate on core competencies. According to AMA Reserach's Facilities Management Outsourcing Market – UK 2008 - 2012 report, the FM market value in 2007 is estimated at around £14bn.

Executive summary
Since the turn of the millennium, the FM outsourcing market has benefited from the buoyant state of the economy, as well as public sector developments funded through the Private Finance Initiative (PFI)/ Public Private Partnerships (PPP), with the development of the market since 2002 illustrated in the chart above. A key factor influencing market growth in recent years has been the trend to outsource an increasing array of services, with a gradual shift towards ‘bundled service’ and TFM contracts adding to contract values.

The FM market is now approaching maturity in a number of sectors such as corporate offices, retail and most Central Government Departments. As a result of the more limited potential for increased penetration, growth over the short to medium term is likely to be significantly influenced by the current economic downturn. Some growth will continue to be supported by investment in the public sector, with the ‘Building Schools for the Future’ programme a key area of opportunity. Other areas of opportunity are likely to arise from investment in social housing, regeneration schemes and developments in connection with the 2012 Olympics.

However, a potential threat to PFI/PPP, which is being used to fund a number of these schemes, may arise from the current credit crisis in global financial markets, as it will be harder and more expensive for potential bidders to raise finance. Elsewhere, rising fuel costs and legislation relating to energy efficiency will also support growth of FM providers with specialist expertise.

Many of the companies operating in the FM outsourcing market have their origins elsewhere, emerging from the construction, engineering, support services and property management industries. This trend has been especially prevalent in the construction sector, stimulated to a significant extent by the emergence and growth of the PFI sector. Another key factor influencing market entry has been the trend for customers to seek ‘one-stop-shop’ solutions, with this factor also encouraging support service providers to diversify into Integrated FM. As the market has continued to mature over the last few years, the number of new market entrants has slowed significantly. Indeed, the FM market has recently experienced an unprecedented number of mergers and acquisitions, as well as number of business failures and market withdrawals.

While opportunities in the corporate sector are likely to be adversely affected by the present economic downturn, there remain opportunities for some further growth over the longer term. In particular the market is likely to receive a boost in the run up to the 2012 Olympics especially in the hotel and leisure sector, with retail and office developments also forming part of the massive Thames Gateway regeneration scheme. In addition there is likely to be some growth in the less mature shopping mall sector especially once the retail sector starts to recover.

AMA Research’s Facilities Management Outsourcing Market – UK 2008 - 2012 report is available in hard copy or electronic format for £745 and can be ordered online or by calling 0871 3103450.