Adapting Facilities Management to a Post-COVID-19 World

It’s been interesting times for commercial properties these past few years. Shutdowns early in the COVID-19 pandemic were soon followed by a surge in sales. Then, as interest rates rose, demand for commercial real estate began to drop off. 

While that industry’s tumult was capturing the headlines, however, an adjacent one kept calm and carried on. Facilities services, the business of handling building upkeep, is a strikingly resilient corner of the economy. The pandemic’s outbreak emptied buildings, but commercial property owners and managers still needed to maintain them. Public health measures limited occupancy, but cleaning and sanitation became more important than ever. 

In this Executive Insights, we examine the key priorities for facilities management in a post-COVID-19 world, and we discuss the importance determining the right operating strategy for building scale within this dynamic market. 

The building outsourcing opportunity

Facilities services includes a host of activities and service providers that help manage the construction, operation and maintenance of commercial facilities. (It doesn’t include major renovations or the installation of materials in new construction projects.) Services span the full asset life cycle, from commercial development to maintenance services, building operations and management. By 2019, this set of disparate markets added up to a $600 billion industry. Roughly half is in maintenance and repair, with another 35%-40% in operations management (see Figure 1). 

It takes specialized labor and equipment to keep a building safe, comfortable and running efficiently. For that reason, companies ordinarily outsource facilities management, although the rate of outsourcing can vary by service. In addition, about 75% of companies manage their outsourced services internally. These and other services with a relatively low rate of outsourcing have significant upside potential. And any company is likely receptive to outsourcing one or more of its remaining in-house services (see Figure 2). 

U.S. commercial office occupancy rates plunged in the pandemic’s wake and have inched up only haltingly since then, reaching 44% in June 2022, according to swipe-card data from security company Kastle Systems. At the same time, the population is growing and shifting to the suburbs, bringing commercial activity along with it. As a result, despite the toll that remote and hybrid work are taking on occupancy levels, the overall square footage of commercial facilities will likely continue to expand through 2025 (see Figure 3). 

And even properties with reduced occupancy present opportunities to adapt to new service needs. Examples include: 

• Responding to enhanced security requirements by providing advanced or cost-effective security services that existing providers and in-house resources may struggle to provide
• Identifying new or right-sized services for spaces that have been reconfigured to accommodate hybrid work 
• Highlighting consistency, availability and capacity for in-house services affected by labor and staffing shortages 
• Positioning services as supporting employee productivity and well-being
• Showing how services boost office attendance and support back-to-office and hybrid work environments

Scaling up for success

Although fragmented, the facilities services industry is starting to see consolidation in segments like environmental and facilities services (see Figure 4). 

Common acquisition goals include expanding geographic presence, gaining specific expertise and achieving synergistic benefits from scale. 

The most successful acquisition models require significant scale, expert capabilities and a strong track record. National customers with numerous facilities of significant square footage (think 100,000-plus square feet) are more likely to favor a one-stop shop that can match their scale and diversity of needs. For instance, large facilities management companies are in a better position to meet demand for technology-driven energy efficiency, preventive maintenance and decision support (see sidebar). They also have the corporate infrastructure and capital to build an ecosystem of technology companies, commercial real estate managers and other partners that can influence customers and bring them added value.

To capture these benefits, though, scaled players need the right operating model. An effective operating model combines local specialized capabilities (developed internally or through a partnership) with shared expertise and an ability to serve larger customers. The question is whether to build scale within one service or within multiple services. 

Sole-service providers of facilities services focus on providing one aspect of facilities management, such as HVAC or cleaning. They also tend to focus on one geographic region. Multiservice providers may offer different types of services or serve multiple regions. Which way to go may depend on the end market, because each one has a different mix of opportunities. Sole-service franchise models appear likelier to win with customers in healthcare, education and suburban offices, while multiservice models seem best suited to the industrial end market (see Figure 5). 

A resilient industry with positive demand

Regardless of occupancy, commercial property owners and managers have an interest in preventive maintenance and prolonging the useful life of a building. Add the ongoing popularity of outsourcing and the growing number of commercial buildings to take care of, and the result is an attractive environment for ambitious players. 

But facilities management companies still need a well-considered strategy to take advantage of these positive demand dynamics. Scaled players can win in the industry but must determine whether to take a sole-service or multiservice approach. And all facilities management providers must be mindful about adapting and positioning their services to meet customer needs as those continue to evolve in a post-COVID-19 world.