In the three years to 2017, the average price of facilities management services has been rising at an estimated annualized rate of 2.1%. Although the increasing price of services negatively affects buyers, the volatility of prices for facilities management services has been low, limiting the risk of sudden and extreme price fluctuations. As a result, buyers have been able to make more accurate budgets and cost estimations, strengthening buyer power.
Various market factors have been contributing to rising prices during the period. For one, input costs have been growing. Increasing demand for these services has been driving service providers to hire additional staff, pushing up average wages in this market. Additionally, suppliers have been experiencing rising operating costs stemming from increasing rent for office space. As costs have been rising, suppliers have been forced to raise service prices to protect their profit margins.
Shifts in demand have also supported price growth. Specifically, demand for facilities management services has been growing during the period in line with increases in the number of businesses nationwide. While the value of nonresidential construction has been falling and volatile during the period, an increase in the number of businesses has expanded the pool of potential buyers of these services. As downstream markets grow, demand for these services strengthens. Higher demand for facilities management services reduces suppliers’ reliance on their individual buyers and has lowered competitive pressure, encouraging them to raise prices. However, corporate profit has been decreasing during the three years to 2017, suppressing demand and restricting price growth slightly.
Given the rising service prices during the three years to 2017, buyers should look to sign contracts soon to lock in lower rates and avoid steeper costs in the future. However, low price volatility allows buyers to carefully consider suppliers and select a service provider that best meets their requirements.
The average price for facilities management services is forecast to increase at an annualized rate of 2.8% in the three years to 2020. Although buyers will continue to be negatively affected by growing prices, price volatility is anticipated to remain low. Thus, buyers will enjoy stable prices, allowing for more accurate budgeting and cost estimating.
Rising operating costs are expected to continue driving price growth. In particular, the cost of office rental space is forecast to rise further. As a result, service providers will face increasing operating costs. Suppliers will transfer these rising costs downstream to buyers in the form of service price increases. However, office rental space is projected to rise at a slower rate during the period, and wages are projected to remain flat, which will slightly temper price growth during the next three years.
Continued demand growth will also contribute to future increases in facilities management service prices. The value of private nonresidential construction is anticipated to increase due to a higher level of investment in new building construction. As a result, more buildings will require facilities management services. Corporate profit will also grow due to strengthening economic conditions, such as improving credit conditions. Increasing corporate profit will expand the average company’s budget, allowing them to spend more on facilities management services. Furthermore, the number of businesses will continue to climb due to the declining rate of unemployment, which will boost consumer spending and spur business investment. Therefore, as the number of businesses rises, the pool of potential buyers of facility management services will expand, contributing to rising demand and prices during the next three years.
Given the expected increase in the price of facilities management services, buyers can sign long term contracts in an attempt to gain pricing leverage, as well as to lock in current prices.