In the three years to 2017, the average price of facility maintenance and repair services has been increasing an estimated 2.7% per year on average, primarily as a result of rising demand. Various macroeconomic trends, including the higher business activity, have been driving up demand during this time. For example, as consumer spending has increased, businesses have been experiencing an uptick in demand for their goods and services. In effect, businesses such as hotels, retailers and manufacturers have opened more locations to capitalize on rising consumer spending. This trend has been resulting in higher demand for facility maintenance among these buyer segments. In response, suppliers have been raising their prices.
Moreover, demand for specialized services, including fire protection, air treatment, restroom power cleaning and clean room sterilization, has been growing as workplace safety has become a higher priority for building managers. In response, large-scale operators capable of providing such services have increased their base facility maintenance and repair service offerings. This trend has prompted suppliers to raise their prices at a moderate pace. Price hikes, however, have been less significant among smaller operators that provide only nonspecialized services.
Limiting the impact of rising demand on service prices has been falling fuel prices. Suppliers use their own means to travel to and from the buyer's facility to perform services, making fuel the largest overhead expenditure item for suppliers. During the past three years, the price of gasoline has been dropping significantly due to the overproduction of crude oil. The savings in fuel costs has been preventing suppliers from raising prices more rapidly, benefiting buyers.
Low price volatility has also been aiding buyers. In general, buyers benefit when price volatility is low because it indicates that prices are not likely to fluctuate drastically, thereby enhancing buyers' ability to accurately budget for purchases. Nonetheless, because prices are still anticipated to rise, buyers are advised to enter into long-term service agreements now in order to lock in lower prices.
The average price for facility maintenance and repair services is forecast to rise at an annualized rate of 1.8% from 2017 to 2020. During the period, price volatility is expected to remain low, protecting buyers against the risk of drastic price fluctuations.
Through 2020, the number of businesses is projected to rise. With the creation of new commercial establishments, business owners will require facility management and repair services to ensure that their facility internal and external needs are met. As a result, the growth in the number of businesses will lead to rising demand for market services. In addition, industrial production activity is anticipated to continue to grow moderately during the next three years, further boosting demand. As a result, suppliers will gain greater pricing leverage, harming buyers as a result.
Alongside greater demand, service providers will continue to broaden their scope of offerings to incorporate more services geared toward decreasing workplace health and safety hazards. As more services are added, demand for facility maintenance and repair is likely to increase further. Furthermore, as suppliers expand their service offerings, suppliers' costs are likely to increase, contributing to the expected rise in service prices.
Also contributing to higher prices in the next three years will be rising fuel costs for suppliers. The falling price of gasoline has been driving operators' overhead costs down during the past three years. However, this trend is forecast to reverse. In the years to 2020, IBISWorld expects the price of gasoline to increase. As suppliers' transportation costs increase, so will service prices for buyers.
Unfortunately for buyers, due to rampant changes to fuel costs, price volatility is expected to rise to a moderate level, hurting buyers' negotiation power. In general, buyers lose negotiation power when price volatility rises because it indicates that prices are more likely to fluctuate, which will reduce buyers' ability to accurately budget for purchases. In response to this trend, buyers are advised to enter into long-term service agreements now to lock in lower prices.