The average price of janitorial services has been increasing at an estimated annualized rate of 1.2% in the three years to 2017. Rising demand has been the primary contributor to recent price growth. Fortunately for buyers, stiff market competition has prevented janitorial service prices from rising more rapidly.
During the period, strengthening consumer spending has propelled growth in business activity. As consumers have begun to spend more, businesses across the economy have opened more establishments or have expanded their facilities, thereby spurring higher demand for janitorial services. Specifically, the number of US businesses has been rising in the past three years. In addition, office vacancy rates have trended downward, leading to more businesses seeking janitorial services for their occupied office spaces. Finally, although the value of private nonresidential construction has decreased marginally overall during the period, nonresidential construction activity has been highly volatile and rose 10.3% in 2014, which generated a period of high demand for new office spaces. These trends have led to rising demand for janitorial services, which has empowered suppliers with greater pricing leverage.
Changes in supplier material costs have also contributed to janitorial service price growth. Suppliers require various soap and cleaning agents to perform building cleaning. During the past three years, the price of soap and cleaning compounds has been rising. This trend has pushed up market suppliers’ operating costs, encouraging them to raise service prices to protect their profit margins.
Nevertheless, prices for janitorial services have displayed a low level of volatility, providing buyers with the ability to budget accurately for their janitorial expenses. Heavy price competition among suppliers contributes to low price volatility in that it forces suppliers to keep price growth in line with market trends or else risk losing business to competitors.
In the three years to 2020, the average price of janitorial services is forecast to continue rising 1.6% per year on average on the back of continued demand growth. Due to strengthening economic activity, businesses are expected to expand and capitalize on rising consumer spending. Consequently, a rise in business activity will boost foot traffic into brick-and-mortar retail locations and raise demand for janitorial services. In addition, nonresidential construction activity is projected to return to growth. As historically low interest rates continue encouraging borrowing, ProcurementIQ anticipates strong growth in the construction of retail and other commercial facilities, private educational facilities and private healthcare facilities. Heightened nonresidential construction activity will underpin demand for janitorial services, prompting suppliers to raise prices.
Meanwhile, prices for soap and cleaning compounds will continue to rise and increase operating costs for janitorial service providers. This increase in input costs will trickle down to buyers in the form of higher service prices as suppliers attempt to compensate for heightened purchase costs.
Changes in suppliers’ wage costs, which make up suppliers’ largest operating expenditure, also have the potential to raise costs for suppliers and lead to higher prices for buyers. Although there are no current changes to wage regulations anticipated at the federal level, some states, including California and Washington, have already enacted such measures. Fortunately for buyers, suppliers’ wage costs are expected to remain flat during the next three years. Stable wage costs will afford suppliers more flexibility in price negotiations with buyers.
Price volatility is anticipated to be low in the three years to 2020. The continual entrance of new players into the market will help warrant strong price competition, thus buoying buyer negotiation power. Still, buyers should consider locking in long-term agreements to hedge against steadily rising prices.