An Assessment of The South African Facilities Management Industry. March 2012 Final Deliverable

Transcription

1 An Assessment of The South African Facilities Management Industry March 2012 Final Deliverable 1

2 Project Background, Methodology and Definitions Project Background The South African Facilities Management Association (SAFMA) is an organisation that advances the interests of the Facilities Management (FM) Community in South Africa SAFMA s key objectives include: Facilitating and promoting skills development Promoting awareness and growth of the industry Creating a hub for knowledge and information In order to gain better insight into the South African FM industry and provide its members with a substantiated view, SAFMA approached Frost & Sullivan to undertake a detailed assessment of this industry In response to this request, Frost & Sullivan conducted an assessment of this industry, the results of which are presented in this report South African FM Industry: Report Structure, Executive Summary 2. Introduction to The South African Facilities Management Market 3. Overview of The South African Facilities Management Market 4. Outsourced Facilities Management Market 5. In-house Facilities Management Market 6.Service Perception and Skills Analysis 7. Strategic Conclusions Source: Frost & Sullivan 2

3 Project Background, Methodology and Definitions Project Methodology and Definitions In conducting this analysis Frost & Sullivan utilised both primary and secondary research methods South African FM Market: Project Approach, 2010 Primary research involved collecting empirical data from market participants regarding market revenues, growth rates and employment figures. This was done through telephonic interviews with key individuals within relevant organisations Secondary research involved utilising Frost & Sullivan s internal database as well as publicly available information such as company annual financial statements and industry publications *Some organisations were contacted more than once Source: Frost & Sullivan Approximately 45* interviews were conducted across 36 organisations in this industry. The majority of the interviews where targeted towards in-house FM companies that include major banks and engineering firms Eight out of the13 major outsourced FM companies participated in this analysis 3

4 SAFMA Table of Contents Executive Summary Slide 6 Introduction Slide 6 Industry Overview Slide 7 Key Market Drivers and Restraints Slide 9 Summary of Major Findings Slide 10 Introduction to The South African Facilities Management Market Slide 16 Project Rationale Slide 17 Aim and Objectives of the Project Slide 18 Scope of the Project Slide 19 Consulting Approach Slide 20 Methodology Slide 21 Definitions and Acronyms Slide 22 Overview of The South African Facilities Management Market Slide 24 Industry Overview Slide 25 Regulatory Environment Slide 28 Industry Challenges Slide 31 Market Drivers Slide 39 Market Restraints Slide 42 Market Revenues and Growth Forecast Slide 45 4

5 SAFMA Table of Contents (Contd ) Outsourced Facilities Management Market Slide 47 Market Overview Slide 48 Market Revenues and Growth Forecast Slide 51 Employment Analysis Slide 60 Competitor Analysis Slide 62 In-house Facilities Management Market Slide 67 Market Overview Slide 68 Market Revenues and Growth Forecast Slide 71 Employment Analysis Slide 79 Service Perception and Skills Analysis Slide 81 Service Perception Analysis Slide 82 Skills Analysis Slide 85 Strategic Conclusions Slide 88 Key Market Issues Slide 89 Current Initiatives Slide 91 Conclusion Slide 93 5

6 Executive Summary Introduction The South African Facilities Management (FM) industry is currently at its growth stage and experiencing steady growth South African Facilities Management Market: Market Overview, 2010 The industry is yet to receive formal recognition from government institutions such as Statistics South Africa, which has potentially been a hindrance to the development of the industry In 2009 the economic recession drove most companies to implement more cost-effective measures of running and maintaining their operations. This involved outsourcing some of their FM services in order to reduce labour costs and focus more on their core operations Source: Frost & Sullivan The South African FM market is expected to become more formalised as industry participants keep track of market developments This is anticipated to improve on the level of service delivery thereby increase demand for FM services This analysis aims to map out the FM industry, determine the size of the market and its sectors and determine the current levels of employment in the industry 6

7 Executive Summary Industry Overview South African Facilities Management Market: Market Segmentation, 2010 South African Facilities Management Market Outsourced FM Market In-house FM Market Integrated FM Companies Functional Service Providers FM Managers Functional Service Providers (In-house) Functional Service Providers (Outsourced) Source: Frost & Sullivan The South African FM market is segmented into outsourced and in-house FM market segments The outsourced FM market is characterised by integrated facilities management companies as well as functional services providers The in-house FM market is characterised by functional service providers that are managed by endusers internally 7

8 Executive Summary Industry Overview (Contd ) Integrated facilities management companies provide multiple services that include hard and soft services as well as business support Hard services refer to services that are central to the operations of a company. Essentially, hard services include technical services such as upgrading and maintenance building technologies Soft services are services that are regarded as being non-core to the operations of a company. Soft services generally include cleaning, catering, gardening and security Business support services generally include administrative services such as HR management, administration and finance, supply chain management and risk management. Further, they include typical FM services such as reception, switchboard and CAFM support services. Facilities Management Market South African Facilities Management Market: Market Segmentation, 2010 Source: Frost and Sullivan Most FM companies use internal expertise for hard services and outsource soft services to functional service providers Integrated Facilities Management Functional Service Providers Generally functional service providers provide soft services such as cleaning, catering, health and safety and asset management services Hard Services Soft Services Business Support Soft Services 8

9 Executive Summary Key Market Drivers and Restraints The South African FM market is characterised by various market drivers that include amongst others: Cost benefits of outsourcing FM services The need for companies to focus on core operations through outsourcing the asset management function These drivers have varying degrees of impact on the market. The cost benefits of outsourcing FM services are expected to have the greatest impact on the market in the medium to long term Major market restraints currently affecting the FM market include: Stiff opposition to outsourcing FM services in the industrial sector Perception that FM services can be managed more cost effectively in-house Delayed approval of government contracts Infrastructure development in the commercial and public sectors South African FM Market: Overview of Market Drivers, 2010 South African FM Market: Overview of Market Restraints, 2010 Stiff opposition to outsourcing FM services in the industrial sector Increased focus on energy management and green buildings The need for companies to focus on core operations through outsourcing the asset management function Perception that FM services can be managed more cost effectively inhouse Cost benefits of outsourcing FM services Delayed approval of government contracts Source: Frost & Sullivan 9

10 Executive Summary Summary of Major Findings Market Revenues In 2010 the South African FM market was valued at ZAR24,814.4 million Approximately 70.0 percent of total market revenues were generated by the in-house FM market segment Most end-users currently prefer managing functional service providers internally. This gives them greater control over the quality of service delivered South African FM Market: Percentage Revenue Breakdown, 2010 Outsourced FM Services, 30.0% South African FM Market: Overview of Market Revenue, 2010 Sector Revenues (ZAR Million) Commercial 17,411.6 Public 4,917.9 Industrial 2,484.9 Total 24,814.4 Note: All figures are rounded; the base year is Source: Frost & Sullivan The commercial sector contributed the bulk of market revenues. In 2010 this segment generated approximately ZAR17,411.6 million, representing 70.2 percent of total market revenues In-house FM Services, 70.0% Note: All figures are rounded; the base year is Source: Frost & Sullivan The public and industrial sectors generated approximately 19.8 and 10.0 percent respectively Currently, these market segments make extensive use of in-house FM management rather than outsourcing this function 10

11 Executive Summary Summary of Major Findings (Contd ) South African FM Market: Market Revenues and Growth Rates, Revenues (ZAR Million) Revenue Growth (%) Revenues (ZAR Million) 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5, Revenue Growth (%) Revenues (ZAR Million) 24, , , , , ,428.4 Revenue Growth (%) Market Revenues (Contd ) Note: All figures are rounded; the base year is Source: Frost & Sullivan The South African FM market is anticipated to achieve a growth rate of approximately 6.3 percent in Between 2011 and 2015 the market is anticipated to experience steady growth and achieve a growth rate of 7.2 percent by 2015 Growth in market will be mainly driven by infrastructure development and the increased need by enduser to outsource their FM functions. This will allow companies to focus on their core operations 11

12 Executive Summary Summary of Major Findings (Contd ) Outsourced FM Market: Employment and Skills Analysis, 2010 Integrated Facilities Management Company FM Managers Functional Service Providers (In-house) Functional Service Providers (Outsourced) Employment and Skills Analysis Source: Frost & Sullivan The outsourced FM market is characterised by integrated facilities management (IFM) companies. These companies employ both FM managers and functional service providers. Further, FM companies also outsource functional service providers in cases where they lack the relevant expertise In 2010 the South African outsourced FM market employed 6,395 people. These included FM managers and in-house functional service providers. However, the figure excluded outsourced functional service providers 12

13 Executive Summary Summary of Major Findings (Contd ) Employment and Skills Analysis (Contd ) Approximately 6.7 percent of the total number of employees in the outsourced FM market were FM managers while the majority, 93.3 percent, were functional service providers The number of employees is anticipated to increase from 6,395 to 7,788 between 2010 and Growth in the number of employees is anticipated to achieve a CAGR of 4.0 percent between 2010 and 2015 The number of people employed in the in-house FM market proved difficult to quantify However, most employees in the in-house FM services market were involved in the provision of cleaning, security and catering services These three segments represented 73.0 percent of the total number of people employed Outsourced FM Market: Percentage Breakdown of Number of Employees, 2010 FM Managers, 6.7% Functional (In-house), 93.3% In-house FM Market: Percentage Breakdown of Number of Employees, 2010 Gardening, 10.6% Building repair and maintenance, 5.4% Security, 24.4% Electrical and lighting, 1.7% Catering, 12.4% FM Management, 8.4% Hygiene services, 0.9% Cleaning, 36.2% Note: All figures are rounded; the base year is Source: Frost & Sullivan 13

14 Executive Summary Summary of Major Findings (Contd ) Employment and Skills Analysis (Contd ) Some of the most critical skills in the South African FM market include FM management, technical knowledge and the coordination of various FM services These skills are currently in short supply due to the lack of adequate training programmes and accredited training facilities in South Africa Currently, the FM market lacks an accredited qualification for FM managers. This is negatively affecting market development as employers are unable to determine the correct skills set required for competent employees South African FM Market: Overview of Skills Rating (1-low, 10-high), 2010 Numeracy Computer Literacy Training FM Management Tender Processing Technical Knowledge 9.0 Coordination 8.0 People Skills Note: All figures are rounded; the base year is Source: Frost & Sullivan FM managers are required to possess a unique combination of skills that include finance, HR and technical skills amongst others. This makes it difficult to identify relevant individuals in the market Due to the lack of critical skills in this market, most companies have resorted to internally training their employees in order to ensure that their skills are up to standard and that best practices are upheld in the industry Key 1 Least Important 10 Most Important 14

15 Executive Summary Summary of Major Findings (Contd ) Service Perception Most organisations currently view FM services as a cost that negatively impacts on profits FM services are considered to be secondary requirements that do not form part of a company s core operations. Hence companies strive to minimise any costs related to FM services South African FM Market: Overview of Service Rating (1-low, 10-high), 2010 Key Administrative 5.0 Gardening Catering 1 Least Important 10 Most Important FM Management Cleaning Building Maintanance and Repair 9.0 Security Technical Support Source: Frost & Sullivan South African FM Market: Service Rating, 2010 Rank Attribute 1 FM Management 2 Building Maintenance and Repair 3 Technical Support 4 Security 5 Cleaning 6 Catering 7 Gardening 8 Administrative Source: Frost & Sullivan FM management, building maintenance and repair and technical support are considered to be the most important services in this industry However the level of service delivery has been severely compromised due to the critical skills shortage in the country 15

16 SAFMA Table of Contents Introduction to The South African Facilities Management Market Project Rationale Slide 17 Aim and Objectives of the Project Slide 18 Scope of the Project Slide 19 Consulting Approach Slide 20 Methodology Slide 21 Definitions and Acronyms Slide 22 16

17 Introduction to The South African Facilities Management Market Project Rationale The South African Facilities Management Association (hereafter SAFMA) supports, represents and advances the cause and interests of the Facilities Management (hereafter FM) Community in South Africa. Some of SAFMA s key objectives include: To facilitate, promote and support skills development and thereby enhance the supply of skills To create a home for the industry for reference knowledge, information or direction To promote awareness and growth of the facilities management industry and enhance the credibility of FM In light of these objectives, SAFMA wishes to gain better insight into the South African FM industry with the aim of better supporting their members and presenting a substantiated view of the FM industry to members and government Key Report Chapters Regulatory Environment Industry Challenges and Market Dynamics Market Revenues and Growth Forecast Employment Analysis Skills Analysis Service Perception Source: Frost & Sullivan 17

18 Introduction to The South African Facilities Management Market Aim and Objectives of the Project OBJECTIVE 1: Develop an overall view of the FM market in South Africa to establish market dynamics and the current operating environment The aim of this project was to provide SAFMA and its members with insight into the South African FM services market and determine market size, number of people employed and the importance of the market in South Africa OBJECTIVE 2: Perform an in-depth analysis of the outsourced FM market including market quantification, competitive landscape and current employment levels OBJECTIVE 3: Analyse the status of the in-house FM market including market quantification and current employment levels OBJECTIVE 4: Develop an understanding of the perception of FM services and the skills involved OBJECTIVE 5: Provision of strategic conclusions drawn from the research conducted 18

19 Introduction to The South African Facilities Management Market Scope of the project SERVICE SCOPE Outsourced FM In-house FM TARGET MARKET SCOPE Public (including parastatal) sector Commercial sector Industrial sector GEOGRAPHIC SCOPE South Africa 19

20 Introduction to The South African Facilities Management Market Consulting Approach Frost & Sullivan utilised tried and tested marketing techniques to provide structure to the research and an easy format to compare results across different market segments. The project was carried out using primary research (telephone or face-to-face interviews) and secondary (published and online material) as the principle methods of data gathering. The focus of the interviews for this project primarily included the respondent types outlined in figure below. Respondent Type Target Designations Type of Information Facilities management companies Functional service providers Company Directors General managers HR managers Marketing and Sales managers The size of the market and their operations The trends in the market Key participants Employment numbers Drivers, restraints and Challenges Commercial, industrial and public sector end-users Company Directors Facilities managers Procurement managers General managers Office managers Perception of FM FM requirements Own Skill abilities Reason for using outsourced or inhouse FM 20

21 Introduction to The South African Facilities Management Market Methodology For the primary research, Frost & Sullivan developed discussion guidelines for the targeted respondents. Our experienced team of consultants, with good technical and commercial understanding of the industry, had discussions / interviews with senior stakeholders / managers in the targeted organisations. This approach enabled Frost & Sullivan to go beyond basic market information and obtain an in-depth understanding of end-user perceptions within the FM market Frost & Sullivan utilised a 3 step approach to perform the analysis 1. Internal Expertise 2. Secondary Research 3. Primary research Frost and Sullivan tapped into the cross-industry expertise in the various business units to understand industry dynamics Secondary research was utilised to determine key market dynamics and the competitive landscape in the Facilities Management market Primary research focused on obtaining specific insight from market participants regarding their needs and capabilities Market analysis to support SAFMA understand the South African FM market 21

22 Introduction to The South African Facilities Management Market Definitions and Acronyms Definitions Outsourced FM Services: The service provided by a dedicated Integrated Facilities Management (IFM) company who manages a selection of contracted service providers with the aim of providing maintenance and operational services to a business facilities In-House FM Services: The internal management of all functional service providers by end-users Commercial Sector: The commercial sector is characterised by shopping malls, retail outlets, corporate offices and the tourism and hospitality industries Public Sector: The public sector involves local, provincial and national government buildings. In addition it also includes public healthcare and educational institutions as well as other public buildings such as airports, bus and railways stations Industrial Sector: The industrial sector includes companies in the energy and power, automotive, food and beverage, mining, petrochemical, manufacturing and steel Hard Services: These refer to services that are central to the operations of a company. Essentially, hard services include technical services such as upgrading and maintenance of building technologies Soft Services: These are services that are regarded as being non-core to the operations of a company. Soft services generally include cleaning, catering, gardening and security 22

23 Introduction to The South African Facilities Management Market Definitions and Acronyms (Contd ) Acronyms SAFMA: South African Facilities Management IFM: Integrated Facilities Management BIFMA: British Institute of Facilities Management IFMA: International Facilities Management Association GBCSA: Green Buildings Council of South Africa 23

24 SAFMA Table of Contents Overview of The South African Facilities Management Market Industry Overview Slide 25 Regulatory Environment Slide 28 Industry Challenges Slide 31 Market Drivers Slide 39 Market Restraints Slide 42 Market Revenues and Growth Forecast Slide 45 24

25 Overview of The South African Facilities Management Market Industry Overview The South African Facilities Management (FM) industry is characterised by both outsourced and in-house FM services The industry has enjoyed steady growth in recent years and although being a large employer of people, it lacks formal recognition and direct support from government For example, the FM industry is not recognised or tracked by Statistics South Africa Generally, functional services employ more people when compared outsourced FM services South African FM Market: Industry Segmentation, 2010 Functional Service Providers Facilities Management Services Market Outsourced FM Services Integrated FM Service Providers In-house FM Services Functional Service Providers Source: Frost & Sullivan Further, in-house FM services are much more preferred than outsourced services due to various reasons that include security concerns in some sectors The outsourced portion of the FM industry is dominated by large, well established companies and in recent years the sector s growth has attracted international players 25

26 Overview of The South African Facilities Management Market Industry Overview (Contd ) In 2010, approximately 30.0 percent of the revenues generated in this market were attributed to the outsourced FM segment. The bulk, 70.0 percent, was attributed to the in-house FM segment Currently, most end-users in this market prefer internally managing functional service providers. This is viewed as a cheaper alternative to outsourcing FM management services Hence, opportunities exist for FM companies to provide services to end-users currently utilising in-house FM services South African FM Market: Industry Overview, 2010 In-house FM Services, 70.0% Outsourced FM Services, 30.0% Note: All figures are rounded; the base year is Source: Frost & Sullivan The recent economic recession stimulated demand for FM services across all end-user segments in South Africa. Infrastructure development, concessionary agreements and the anticipated establishment of FM as an official industry are expected to continue driving demand for FM services 26

27 Overview of The South African Facilities Management Market Industry Overview (Contd ) The South African FM market segments are currently at various stages in their life cycle The commercial sector is the most advanced segment in this market, currently experiencing the highest growth and development Between 2010 and 2015, this sector is anticipated to continue experiencing high growth as most companies outsource their FM functions in order to focus on their core business operations The public and industrial sectors are currently in their early growth stages but are expected to progress into the high growth stages during the forecasted period Growth Stage South African FM Market: Life Cycle Analysis, Development Growth Mature Decline Commercial Public Industrial The adoption of the Immovable Asset Management Act in 2007 is expected to Market Age drive demand for FM services in the public sector Source: Frost & Sullivan The industrial sector is currently the least developed FM segment in South Africa. However the expansion of industrial activities is expected to drive demand for FM services in South Africa 27

28 Overview of The South African Facilities Management Market Regulatory Environment Currently, there s no specific legislation that directly regulates the FM industry in South Africa However, various pieces of legislation have an indirect impact on the market and these include: Occupational Health and Safety Act (2007) Black Economic Empowerment Act (2003) Labour Relations Act (1995) Immovable Asset Management Act (2007) Construction Industry Development Board Act (2000) The GBCSA aims to promote the development of green buildings in the commercial property sector. This is achieved by providing a forum for all participants to collaborate in promoting sustainable building and energy saving practices The adoption of green building practices is anticipated to influence demand for FM services as organisations seek specialist services for energy and environmental management The establishment of various associations such as the South African Facilities Management Association (SAFMA) and the Green Building Council of South Africa (GBCSA) has facilitated the formalisation of the industry SAFMA aims to promote the development of the FM industry by facilitating skills development and networking among industry participants 28

29 Overview of The South African Facilities Management Market Regulatory Environment (Contd ) Occupational Health and Safety Act (1993) Black Economic Empowerment (BEE) Act (2003) Labour Relations Act (1995) The Occupational Health and Safety Act (1993) aims at providing for the health and safety of persons at work in connection with the operation and maintenance of the industrial plants and machinery The need to provide for the health and safety of employees has necessitated the need for FM services The Black Economic Empowerment (BEE) Act aims at addressing historic imbalances in South African society. It includes measures such as employment equity, skills development, ownership, management, socioeconomic development and preferential procurement BEE is an important criteria for awarding tenders in South Africa as companies that possess sound BEE credentials have an advantage in the tender selection process The Labour Relations Act stipulates that every employer is required to provide employees with written contracts of employment, which regulate the terms and conditions of employment Often, this piece of legislation acts as a barrier under circumstances where an organisation decides to outsources its services, resulting in the retrenchment of some employees 29

30 Overview of The South African Facilities Management Market Regulatory Environment (Contd ) Immovable Asset Management Act (2007) Construction Industry Development Board Act (2000) The Immovable Asset Management Act provides for a framework for the management of assets that are owned and operated by government departments The act aims at ensuring the alignment of immovable asset operations with service delivery objectives This aim is achieved through various objects that include: Ensuring accountability for capital and current works Monitoring the acquisition, reuse and disposal of immovable assets Proper maintenance of current immovable assets The protection of the environment and South Africa s cultural heritage through proper utilisation of immovable assets The act is anticipated to create numerous opportunities for FM companies operating in the public sector The Construction Industry Development Board Act (CIDB) was established through an act of Parliament (Act 38 of 2000), with the aim of providing strategic leadership and promoting sustainable growth in the construction industry This act stipulates the standards that FM companies operating in this industry need to comply with 30

31 Overview of The South African Facilities Management Market Industry Challenges The South African FM market is characterised by various challenges that are currently affecting the development of the industry South African FM Market: Overview of Industry Challenges, 2010 Industry challenges are viewed as obstacles that all companies experience and which they need to overcome in order to attain a competitive advantage in this industry Major challenges that currently exist include the critical shortage of skilled personnel and the limited recognition of the FM industry in South Africa. These challenges are anticipated to have the greatest impact on the market in the medium to long term Other challenges that include limited interaction between FM companies and end-users are expected to have a low impact in the medium to long term. The need to formalise the industry will necessitate stakeholder interaction and collaboration among various participants 1. Critical shortage of skilled personnel 6. Limited interaction between FM companies and endusers 5.Lack of competition within the market 2. Limited recognition of the FM industry in South Africa 4. Lack of appreciation of FM services by end-users 3. Lack of adequate BEE partners Source: Frost & Sullivan 31

32 Overview of The South African Facilities Management Market Industry Challenges (Contd ) Total Facilities Management Market: Impact of Top Six Industry Challenges (South Africa), Challenge 1-2 Years 3-4 Years 5-7 Years Critical shortage of skilled personnel Low High Low High Low High Limited recognition of the FM industry in South Africa Low High Low High Low High Lack of adequate BEE partners Low High Low High Low High Lack of appreciation of FM services by end-users Low High Low High Low High Lack of competition within the market Low High Low High Low High Limited interaction between companies and end-users Low High Low High Low High Key : Low High 32

33 Overview of The South African Facilities Management Market Industry Challenges (Contd ) Total Facilities Management Market: Impact of Top Six Industry Challenges (South Africa), Critical shortage of skilled personnel Currently, there is a critical shortage of skilled professionals in the South African FM market The FM market lacks skills that are most pertinent in management and those positions that require technical skills There are few people in FM management who possess the diverse set of skills required to perform the role effectively and efficiently. This is exacerbated by the lack of accredited FM management training courses Technical skills in building maintenance and repair, electrical and lighting, plumbing, IT support and HVAC are severely lacking. The lack of skills in these roles is not particular to FM, but to the entire country Lack of competition within the market Limited interaction between companies and end-users Lack of appreciation of FM services by end-users Critical shortage of skilled personnel Lack of adequate BEE partners Limited recognition of the FM industry in South Africa 33

34 Overview of The South African Facilities Management Market Industry Challenges (Contd ) Total Facilities Management Market: Impact of Top Six Industry Challenges (South Africa), Limited recognition of the FM industry in South Africa The FM industry has not been formally recognised by the South African Government as a key source of employment for thousands of South Africans Industry participants perceive this to be a key contributor to the lack of development of accredited training courses Further, the concept of outsourcing FM services is often misunderstood as implying a loss in control of key functions within an organisation Most institutional property owners value the relationships they have with their customers hence they prefer directly interacting with these clients through managing the FM services themselves Lack of competition within the market Limited interaction between companies and end-users Lack of appreciation of FM services by end-users Lack of adequate BEE partners Critical shortage of skilled personnel Limited recognition of the FM industry in South Africa 34

35 Overview of The South African Facilities Management Market Industry Challenges (Contd ) Total Facilities Management Market: Impact of Top Six Industry Challenges (South Africa), Lack of adequate BEE partners The formation of strategic BEE partnerships is critical when bidding for government contracts in this industry These partnerships with black-owned companies is an important consideration when companies are awarded tenders Currently, some of the major FM corporations are struggling to form partnerships with local BEE companies due to the limited number of major operators of this nature Lack of competition within the market Limited interaction between companies and end-users Lack of appreciation of FM services by end-users Lack of adequate BEE partners Critical shortage of skilled personnel Limited recognition of the FM industry in South Africa 35

36 Overview of The South African Facilities Management Market Industry Challenges (Contd ) Total Facilities Management Market: Impact of Top Six Industry Challenges (South Africa), Lack of appreciation of FM services by end-users Most end-users simply regard FM services as cost cutting initiatives. FM is mostly viewed as a method of reducing operating costs rather than a strategic function within an organisation Often they do not recognise FM services such as building maintenance and repairs as an investment that ensures the long term viability and reliability of machinery and infrastructure This results in such services being allocated insufficient funds from the total budgets and eventually receiving limited attention However, research has shown that having a sound FM system enhances corporate performance and development Lack of competition within the market Limited interaction between companies and end-users Lack of appreciation of FM services by end-users Lack of adequate BEE partners Critical shortage of skilled personnel Limited recognition of the FM industry in South Africa 36

37 Overview of The South African Facilities Management Market Industry Challenges (Contd ) Total Facilities Management Market: Impact of Top Six Industry Challenges (South Africa), Lack of competition within the market The South African outsourced FM market is dominated by a few major companies that offer their services to major end-users in the commercial and industrial sectors Approximately 47.6 percent of the entire outsourced market is controlled by the top three FM service providers High levels of dominance by major companies have limited the degree of competition within this market The presence of large companies inhibits market penetration by smaller FM operators Lack of competition within the market Limited interaction between companies and end-users Lack of appreciation of FM services by end-users Lack of adequate BEE partners Critical shortage of skilled personnel Limited recognition of the FM industry in South Africa 37

38 Overview of The South African Facilities Management Market Industry Challenges (Contd ) Total Facilities Management Market: Impact of Top Six Industry Challenges (South Africa), Limited interaction between companies and end-users The outsourced FM market is characterised by limited interaction between FM companies and end-users Most FM companies do not fully understand end-user requirements and concerns. This is the reason why most end-users prefer inhouse solutions when compared to outsourced FM services Most end-users do not fully understand the level of skills possessed by some FM companies. This has resulted in a general perception that most companies do not have the relevant skills to effectively provide FM solutions Lack of competition within the market Limited interaction between companies and end-users Lack of appreciation of FM services by end-users Lack of adequate BEE partners Critical shortage of skilled personnel Limited recognition of the FM industry in South Africa 38

39 Overview of The South African Facilities Management Market Market Drivers The South African FM market is currently driven by various factors that include the need to minimise operational costs by outsourcing FM services to professional FM companies South African FM Market: Key Market Drivers, Drivers 1-2 years 3-4 years 5-7 years Other factors that are anticipated to be major drivers of growth include: The need for companies to focus on core operations through outsourcing the asset management function Infrastructure development in the commercial and public sectors Increased focus on energy management and green buildings Market drivers are anticipated to have various impacts on the market. The increased focus on energy management is expected to have a significant impact on the market in the long-term Cost benefits of outsourcing FM services The need for companies to focus on core operations through outsourcing the asset management function Infrastructure development in the commercial and public sectors Increased focus on energy management and green buildings Impact Source: Frost & Sullivan Analysis High Medium Low 39

40 Overview of The South African Facilities Management Market Market Drivers Explained Cost benefits of outsourcing FM services FM services present cost benefits to companies that outsource such services The outsourcing of FM services is viewed by some companies as a viable option to manage their facilities rather than undertaking the function themselves The recent economic recession resulted in companies opting to outsource their FM services in order to reduce operational expenditure The need for companies to focus on core operations through outsourcing the asset management function The outsourcing of FM services enables companies to focus on their core operations This allows such companies to increase their productivity by strategically aligning their FM functions with their corporate objectives in order to focus on their core operations Further, companies require effective management of their assets by outsourcing their FM services Source: Frost & Sullivan Analysis 40

41 Overview of The South African Facilities Management Market Market Drivers Explained (Contd ) Infrastructure development in the commercial and public sectors Increased focus on energy management and green buildings Infrastructure development has resulted in the increased need for FM services in South Africa The public sector, which is mostly funded by the government is currently undertaking extensive infrastructure development projects to boost the current public infrastructure in South Africa Increased construction activity in the public sector, specifically in the healthcare and educational sectors are expected to drive demand for FM services The increased focus on energy management and green buildings has been a major driver of FM services in South Africa The Green Buildings Council of South Africa (GBCSA) was established with the aim of promoting energy saving in the property sector Green buildings is a developing initiative in South Africa and most companies are aligning facilities management with energy saving by making their facilities managers undertake sustainability management functions as well Hence professional input is required from FM providers on the effective installation and maintenance of green technologies and practices in buildings Source: Frost & Sullivan Analysis 41

42 Overview of The South African Facilities Management Market Market Restraints The South African FM market is also characterised by various factors that restrain market growth. These market restraints include: Stiff opposition to outsourcing FM services in the industrial and public sectors Perception that FM services can be managed more cost effectively in-house Delayed approval of government contracts The stiff opposition to the outsourcing of FM services in the public sector is anticipated to have a continuous impact on the market. This is mainly due to the reluctance by most industries to outsource maintenance and repair services from FM companies Further the high levels of unemployment in South Africa have resulted in stiff opposition to outsourced services by labour unions in the public sector South African FM Market: Key Market Restraints, Stiff opposition to outsourcing FM services in the industrial and public sectors Perception that FM services can be managed more cost effectively in-house Delayed approval of government contracts Impact High Medium Low Restraints 1-2 years 3-4 years 5-7 years Source: Frost & Sullivan Analysis 42

43 Overview of The South African Facilities Management Market Market Restraints Explained Stiff opposition to outsourcing FM services in the industrial and public sectors Currently there is stiff opposition to the outsourcing of FM services in the industrial and public sectors The outsourcing of FM functions to private companies is often viewed as a threat to job creation by labour unions such as COSATU Unemployment, which is estimated at approximately 26.0 percent, remains one of South Africa s biggest challenges Most labour organisations are fundamentally opposed to the outsourcing of contracts to private companies because of their ideological views Perception that FM services can be managed more cost effectively inhouse The FM industry is restrained by the perception that FM services can be managed more cost effectively in-house End-users are therefore highly reluctant to outsource their FM functions in order to minimise operational costs Source: Frost & Sullivan Analysis 43

44 Overview of The South African Facilities Management Market Market Restraints Explained (Contd ) Delayed approval of government contracts Most contracts in the public sector are awarded through a competitive bidding process Often this process involves various parties and numerous stages that are rigorous and time consuming. The tendering process for government projects is prolonged and tedious and can be an expensive exercise at times Further, the evaluation and awarding of contracts is often poorly managed and this results in the delayed approval of government tenders Source: Frost & Sullivan Analysis. 44

45 Overview of The South African Facilities Management Market Market Revenues and Growth Forecast Total FM Market: Market Revenues and Growth Rates, Revenues (ZAR Million) Revenue Growth (%) 40, Revenues (ZAR Million) 35,000 30,000 25,000 20,000 15,000 10, Revenue Growth (%) 5, Revenues (ZAR Million) 24, , , , , ,428.4 Revenue Growth (%) Total FM Market 5.8 Note: All figures are rounded; the base year is Source: Frost & Sullivan In 2010 the South Africa FM market was valued at ZAR 24,814.4 million. This market is anticipated to achieve a growth rate of 6.3 percent in 2011 and a CAGR of 6.8 percent between 2010 and

46 Overview of The South African Facilities Management Market Market Revenues and Growth Forecast (Contd ) Total FM Market (Cont ) The South African FM market is mostly dominated by the commercial sector. This sector was valued at ZAR 17,411.6 million in 2010 and contributed 70.2 percent of total revenues The public sector was the second biggest market segment with revenue contribution of approximately 19.8 percent The industrial sector remained the smallest segment and contributed 10.0 percent to market revenues South African FM Market: Percentage Breakdown of Market Revenues, 2010 Public Sector, 19.8% Industrial Sector, 10.0% Commercial Sector, 70.2% Sector South African FM Market: Overview of Market Revenues, 2010 Revenues (ZAR Million) Commercial 17,411.6 Public 4,917.9 Industrial 2,484.9 Total 24,814.4 Note: All figures are rounded; the base year is Source: Frost & Sullivan Note: All figures are rounded; the base year is Source: Frost & Sullivan Growth in this market is anticipated to increase constantly during the forecast period and achieve a growth rate of approximately 7.2 percent in 2015 Market growth is expected to be mainly driven by the uptake of outsourced FM services in the commercial sector 46

47 SAFMA Table of Contents Outsourced Facilities Management Market Market Overview Slide 48 Market Revenues and Growth Forecast Slide 51 Employment Analysis Slide 60 Competitor Analysis Slide 62 47

48 Outsourced Facilities Management Market Market Overview Overview The South African outsourced FM market is characterised by integrated facilities management companies that manage a selection of contracted service providers with the aim of providing maintenance and operational services to business facilities Outsourced FM services are divided into three distinct end-user segments namely: Commercial Public Industrial The commercial sector is characterised by endusers in corporate, financial, retail, tourism and hospitality industries The public sector is characterised by both government services and parastals The industrial segment includes all major endusers in the manufacturing and mining sectors Outsourced FM Market: Market Segmentation, 2010 FM Market Public Industrial Commercial Source: Frost and Sullivan The concept of outsourced FM solutions is fairly new to South Africa when compared to the European markets. This is the reason why most end-users still prefer in-house FM solutions However, a significant number end-users are gradually embracing outsourced FM services as they seek to focus on their core business operations 48

49 Outsourced Facilities Management Market Market Overview (Contd ) Outsourced FM Market: Services Offerings, 2010 Outsourced FM Solutions Soft Services Hard Services Business Services Cleaning Catering Gardening Security Landscaping Repairs and maintenance management Hygiene and pest control Storage Health and safety Asset management Procurement services Work-place needs analysis Property maintenance Plumbing Access control HVAC maintenance Technical support IT support Building management System development Strategy implementation Service evaluation Tender management Utilities management Office installations Admin and finance HR management Risk management Supply chain management Regulatory compliance Help desk services Office filing and document management Relocation management Services and product management Structured procurement and logistics Source: Frost & Sullivan 49

50 Outsourced Facilities Management Market Market Overview (Contd ) Overview (Contd ) South African FM companies offer a range of technical and non-technical services Technical services typically include access control and energy management services Non-technical services are the less complex services that include cleaning, catering and gardening services Some FM operators offer full turkey solutions to end-users in this market. These include the management of all aspects of the contract, from initial feasibility to procurement and vendor payments Other operators tend to outsource most of their soft service requirements. However, most of their hard services are provided in-house On the other hand, some FM companies outsource services that are governed by legislation in order to avoid any legal implications The provision of remote monitoring and building management systems is fast becoming a popular service offering in this market Such services are considered to be highly convenient and much more efficient than physical monitoring of facilities 50

51 Outsourced Facilities Management Market Market Revenues and Growth Forecast Total Outsourced FM Market: Market Revenues and Growth Rates, , Revenue (ZAR Million) 8, , , , , , , Revenue Growth (%) 1, Revenues (ZAR Million) 5, , , , , ,003.7 Revenue Growth (%) Total Outsourced Market Note: All figures are rounded; the base year is Source: Frost & Sullivan In 2010 the outsourced FM market was valued at ZAR 5,774.9 million. This market is anticipated to achieve a growth rate of 6.2 percent in 2011 and a CAGR of 6.7 percent between 2010 and

52 Outsourced Facilities Management Market Market Revenues and Growth Forecast (Contd ) Total Outsourced Market (Contd ) Growth in this market is anticipated to be mainly driven by the need to reduce operating costs by endusers FM services are viewed as viable options to reduce costs associated with the management of facilities Further, end-users can focus on core operations while FM companies manage their FM functions. This enhances the level of productivity within companies The construction of new infrastructure across all the major sectors is expected to have a positive impact on the FM market. Currently, the government of South Africa has developed plans to ensure drastic improvements in the level and quality of infrastructure in the country This infrastructure will require frequent maintenance and repairs, which will create opportunities for FM companies In addition the public sector and government parastatals are slowly realising and appreciating the benefits of outsourcing FM services Major organisations such as Telkom currently outsource their FM functions in order to improve on productivity and achieve cost savings through outsourcing 52

53 Outsourced Facilities Management Market Market Revenues and Growth Forecast (Contd ) Total Outsourced Market (Contd ) The outsourced FM market is mainly dominated by the commercial sector. This segment contributed 69.9 percent to total revenues generated in 2010 End-users in the commercial segment mainly include corporate offices, retail stores and hospitality buildings The public segment contributed 20.5 percent to total market revenues in This segment is mainly characterised by end-users in the education, transport and health sectors The industrial segment contributed the smallest proportion to total revenues. This segment is charactarised by major companies in the manufacturing and mining sectors Total Outsourced Market: Market Segmentation, 2010 Public, 20.5% Industrial, 9.6% Commercial, 69.9% Note: All figures are rounded; the base year is Source: Frost & Sullivan 53

54 Outsourced Facilities Management Market Market Revenues and Growth Forecast (Contd ) Commercial Sector Outsourced FM Market: Market Revenues and Growth Rates, Revenue (ZAR Million) 7, , , , , , , Revenues (ZAR Million) 4, , , , , ,777.2 Revenue Growth (%) Revenue Growth (%) Commercial Sector Note: All figures are rounded; the base year is Source: Frost & Sullivan In 2010 the commercial sector FM market was valued at ZAR 4,035.5 million. This market is expected to achieve a growth rate of 6.8 percent in 2011 and a CAGR of 7.4 percent between 2010 and

55 Outsourced Facilities Management Market Market Revenues and Growth Forecast (Contd ) Commercial Sector (Contd ) The commercial sector remains the dominant segment in the outsourced FM market. Growth in this market is expected to be mainly driven by the construction of new office buildings, retails stores and shopping centres Currently, there is a high demand for security and janitorial services in the retail sector Janitorial services include the cleaning of parking areas, toilets, and common areas in large shopping centres and malls Due to the high crime levels in South Africa, security services are expected to continue in high demand in the commercial sector The commercial and residential sectors are the primary target of crime in South Africa. Security services such as advanced access control are expected to continue experiencing sustained demand in the medium to long term Mechanical and electrical services are also expected to drive growth in this sector. These services mainly include plumbing, heating, lighting, HVAC, and general maintenance services Demand for such services is expected to be driven by all end-users within this market as these are technical services that require specialised skills 55

56 Outsourced Facilities Management Market Market Revenues and Growth Forecast (Contd ) Public Sector Outsourced FM Market: Market Revenues and Growth Rates, , Revenue (ZAR Million) 1, , , Revenue Growth (%) Revenues (ZAR Million) 1, , , , , ,474.0 Revenue Growth (%) Note: All figures are rounded; the base year is Source: Frost & Sullivan Public Sector In 2010 the public sector FM market was valued at ZAR 1,182.8 million. It is expected to achieve a growth rate 4.2 percent in 2011 and a CAGR of 4.5 percent between 2010 and

57 Outsourced Facilities Management Market Market Revenues and Growth Forecast (Contd ) Public Sector (Contd ) The public sector contributed the second largest revenue proportion in the outsourced FM market. Growth in this market is expected to be mainly driven by the need to manage and maintain public infrastructure The Immovable Asset Management Act of 2007 resulted in many government departments outsourcing their FM services to private companies. The act aims at ensuring the proper maintenance of current immovable assets that are owned by the government However, most government departments lack the relevant expertise to effectively manage and maintain their infrastructure. This has necessitated the need to outsource some of the FM services Public hospitals and educational institutions are also expected to drive demand for FM services in the public sector. Currently, FM in the healthcare sector is highly fragmented and in urgent need of consolidation Most FM services in the healthcare sector are provided by multiple service providers and this leads to inefficiencies due to the difficulties in managing a number of service providers 57

58 Outsourced Facilities Management Market Market Revenues and Growth Forecast (Contd ) Industrial Sector Outsourced FM Market: Market Revenues and Growth Rates, Revenue (ZAR Million) Revenue Growth (%) Revenues (ZAR Million) Revenue Growth (%) Industrial Sector Note: All figures are rounded; the base year is Source: Frost & Sullivan In 2010 the industrial sector FM market was valued at ZAR million. This market is expected to achieve a growth rate 5.8 percent in 2011 and a CAGR of 6.2 percent between 2010 and

59 Outsourced Facilities Management Market Market Revenues and Growth Forecast (Contd ) Industrial Sector (Contd ) In 2010, the industrial sector contributed the least amount to total revenues generated in this market The need for specialist services such as the maintenance and repairs of machinery were a major driver of growth in this sector The industrial sector utilises heavy machinery extensively. These include heavy cranes and excavators used in the mining industry that require regular maintenance and repairs However, most companies currently prefer to keep the operation and maintenance of their plant(s) and equipment in-house in order to maintain control over these assets Further, there s limited demand for other FM services such as gardening, catering and pest-control due to the nature of the industry However the prevailing conditions are expected to change as the industrial companies become increasingly aware on the need to outsource some of their FM functions Security and cleaning services are expected to increase in demand by industrial end-users and this will be necessitated by the need for business to focus on their core operations in order to increase productivity 59

60 Outsourced Facilities Management Market Employment Analysis Analysis of Employment In 2010 approximately 6,395 people were employed by FM companies in the outsourced FM market South Africa The industry employed approximately 430 facilities managers in This represented approximately 6.7 percent of the total number of people employed in this sector Outsourced FM Market: Percentage Breakdown of Number of Employees, 2010 FM Managers, 6.7% Outsourced FM Market: Percentage Breakdown of Number of Employees by End-user Segments, 2010 Public, 19.9% Industrial, 10.0% Commercial, 70.1% Note: All figures are rounded; the base year is Source: Frost & Sullivan Functional (In-house), 93.3% Note: All figures are rounded; the base year is Source: Frost & Sullivan The majority of employees in the FM industry offered the services to end-users in the commercial sector. This was due to the high demand for FM services in this market segment 60

61 Outsourced Facilities Management Market Employment Analysis (Contd ) Outsourced FM Services: Employment Levels and Growth Rates, Number of Employees Employment Growth (%) Number of Employees 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, Number of Employees 6,395 6,625 6,877 7,159 7,460 7,788 Employment Growth (%) Employment Growth (%) Analysis of Employment (Contd ) Note: All figures are rounded; the base year is Source: Frost & Sullivan The number of people employed to undertake FM services is expected to increase from 6,395 in 2010 to 7,788 in The level of employment is expected to achieve a CAGR of 4.0 percent between 2010 and Growth in the employment level is expected to be mainly driven by the anticipated demand for FM services in South Africa 61

62 Outsourced Facilities Management Market Competitor Analysis Outsourced FM Market: Tier Structure Analysis (South Africa), 2010 Tier 1 Drake and Scull, Johnson Controls International, TFMC Competitive Overview The South African outsourced FM market is characterised by approximately 14 major companies Key FM Companies Tier 2 Broll, Colliers International, ESS, Motseng, WSP Tier 3 Others* *Others include a number small FM operators Source: Frost & Sullivan 62

63 Outsourced Facilities Management Market Competitor Analysis (Contd ) Tier 1 The 1 st tier is characterised by the top three companies namely Drake & Scull, Tier I Johnson Controls International (JCI) and TFMC, These three companies contributed 47.6 percent to total market revenues in 2010 Tier II Drake and Scull Drake & Scull is a division of Tsebo Outsourcing Group, a consortium comprising Tsebo management, ABSA Capital, Lereko Holdings, Nozala Investments and a Trust fund It started its South African operations in Tier III 1996, as a joint venture between Drake & Scull UK (now EMCOR plc) and the Tsebo Outsourcing Group It was the first facilities management company in South Africa to be ISO accredited Since 1996, the company managed to gained market share through penetrating all sectors of the economy in the commercial, industrial and public sectors Johnson Controls International (JCI) Johnson Controls began offering FM solutions to South African companies in1996 after securing a contract with IBM The company has gradually secured more contracts from major telecommunication operators and retail companies in South Africa Currently Johnson controls has a major contract with ABSA Corporate Real Estate Services. This contract mainly involves the provision of hard and soft services 63

64 Outsourced Facilities Management Market Competitor Analysis (Contd ) TFMC TFMC is a major IFM company that offers its services to end-users in the Tier I commercial, industrial and public sectors This company was formed in 2000 through a UK/SA joint venture between Atkins plc and Rebserve (Pty) Ltd Initially, TFMC managed to secure Tier II this leading position through its strategic partnership with Telkom SA (Telkom). This partnership was aimed at providing Telkom with IFM services on a ten-year contract valued at approximately ZAR 15.0 billion Further TFMC was involved in the acquisition of LGM SA in 2007 Tier III LGM SA was one of South Africa s leading FM companies with long-term contracts with South African Airways, Daimler Chrysler and South African Bureau of Standard Subsequently, TFMC acquired more contracts from mining companies and this consolidated its position as the market leader Currently, TFMC delivers fully integrated property and facilities management (FM) solutions to a diverse portfolio of companies Tier 2 The 2 nd tier is characterised by the five major namely: Broll FM (Pty) Ltd Colliers South Africa ESS Motseng WSP Africa (WSP) These companies contributed 18.2 percent to total market revenues in

65 Outsourced Facilities Management Market Competitor Analysis (Contd ) Broll FM (Pty) Ltd Broll FM (Pty) Ltd (Broll) is a subsidiary of the Broll Property Group, which was Tier founded I in South Africa in 1974 Broll offers a full spectrum of FM services particularly to educational institutions in KwaZulu-Natal Tier II Colliers South Africa Colliers South Africa (Colliers) began its operations in 1995, serving the retail, commercial and industrial markets The company s FM service offering includes hard, soft and management services Soft services are largely outsourced Tier III while hard services are provided in-house ESS ESS in the facilities management division of Compass Group, an international provider of catering and selected support services The company offers a range of hard and soft FM services, with a core focus on catering services Most of its clients include commercial and blue-chip mining companies Motseng Facilities Management (Pty) Ltd Motseng Facilities Management (Pty) Ltd (Motseng) is a subsidiary of Motseng Property Group (Pty) Ltd It offers both hard and soft services to endusers in the public and private sectors 65

66 Outsourced Facilities Management Market Competitor Analysis (Contd ) WSP WSP (Africa) is the operating arm of WSP Group plc based in the UK. This is a multidisciplined engineering and consulting firm Tier I WSP offers its services to end-users in the commercial, industrial, retail and education sectors It is well know for its environmental Tier II management services, focusing mainly on energy and waste management Tier 3 The 3 rd Tier is characterised by various small operators that operate across all the major sectors in South Africa Tier 3 companies contributed a combined 34.2 percent of total market revenues in

67 SAFMA Table of Contents In-house Facilities Management Market Market Overview Slide 68 Market Revenues and Growth Forecast Slide 71 Employment Analysis Slide 79 67

68 In-house Facilities Management Market Market Overview Overview The in-house FM services market involves the management of all functional services providers by a person or division under the direct employ of the company for whom the management is undertaken In-house FM services are more common in South Africa when compared out-sourced services. In 2010 these services contributed 70.0 percent to the total FM market in South Africa Currently, most corporations prefer managing this function in-house compared to outsourcing it due to the cost-savings realised Further, there are security concerns particularly in the commercial sector that drive companies to consider in-house services Outsourced FM Market: Percentage Breakdown of In-house and Outsourced FM Services In-house FM Services, 70.0% Outsourced FM Services, 30.0% Source: Frost & Sullivan Quote: The human element changes things. Entrusting things to people will never be as good as a machine. - Facilities Manager, Primedia 68

69 In-house Facilities Management Market Market Overview (Contd ) Overview (Contd ) Services that are mostly utilised by in-house FM end-users include: FM management Cleaning Catering Security Building maintenance and repair Gardening Hygiene services Electrical and lighting IT support Access control Couriers/mailroom Currently, FM management is regarded as the most important service in this market by endusers. However this element only managed an average service rating of 6.8 In-house FM Market: Service Perception Rating (1-low, 10-high) Key Electrical and lighting Gardening 6.9 Building repair and maintenance 1 Least Important 10 Most Important FM Management Security 7.3 Cleaning 7.3 Catering Hygiene services Note: All figures are rounded; the base year is Source: Frost & Sullivan Catering and hygiene services received the highest average service ratings of 7.3. These services are less technical and easily carried out by functional service providers 69

70 In-house Facilities Management Market Market Overview (Contd ) Institutional Property Owners Perception Most institutional property owners in South Africa prefer in-house FM services rather than outsourcing to third parties These property owners include amongst others Old Mutual Property, Growthpoint, Cape Quarter Property Management, Pyramid Property Management and Century City Property Management Institutional property owners prefer a hands-on approach to facilities management, which is why they prefer to manage functional service providers in-house This gives the property owners more control over the outcome of the FM services Further, the property owners believe in maintaining close relationships with their clients through managing their FM services Hence, by utilising in-house services, most property owners are able to maintain direct contact with their clients and exercise control over the quality of service delivered However, some institutional property owners prefer contracting to a variety of service providers This reduces the risk of the negative impact from a possible fall-out with a single service provider Larger institutional property owners have the advantage of leveraging their buying power to negotiate favourable contracts directly from functional service providers However, these property owners believe that contracting to an outsourcing company limits the freedom to negotiate such favourable contacts 70

71 In-house Facilities Management Market Market Revenues and Growth Forecast Total In-house Services: Market Revenues and Growth Rates, , Revenues (ZAR Million) 25, , , , , Revenue Growth (%) Revenues (ZAR Million) 19, , , , , ,486.1 Revenue Growth (%) Total In-house FM Market Note: All figures are rounded; the base year is Source: Frost & Sullivan In 2010 the in-house services market was valued at ZAR 19,088.0 million. This market is anticipated to achieve a growth rate of 6.4 percent in 2011 Between 2010 and 2015 the market is anticipated to experience a CAGR of 6.8 percent and achieve a growth rate of 7.2 percent by

72 In-house Facilities Management Market Market Revenues and Growth Forecast (Contd ) Total In-house FM Market(Contd ) Growth in the in-house services market is expected to be mainly driven by the need to reduce the costs of outsourcing FM services End-users thrive to minimise costs by managing functional service providers instead of outsourcing such services In 2010, the commercial FM market segment contributed 70.1 percent to the total revenues generated This segment, which is characterised by retail buildings and corporate offices, is highly reluctant to outsource FM functions to third parties The main reason being that these market participants prefer to maintain control over their FM functions The sensitive nature of operations and security requirements in the financial sector necessitates the need for in-house FM solutions In-house FM Market: Market Segmentation (2010) Public, 19.8% Industrial, 10.1% Commercial, 70.1% Note: All figures are rounded; the base year is Source: Frost & Sullivan Some organisations such as banks have strict access control for employees. These processes require strict monitoring of external employees These procedures mean that banks are compelled to internally manage and monitor all functional service providers 72

73 In-house Facilities Management Market Market Revenues and Growth Forecast (Contd ) Commercial In-house Services: Market Revenues and Growth Rates, 2010 Revenues (ZAR Million) 25,000 20,000 15,000 10,000 5, Revenue Growth (%) Revenues (ZAR Million) 13, , , , , ,102.3 Revenue Growth (%) Note: All figures are rounded; the base year is Source: Frost & Sullivan Commercial Sector In 2010 the commercial in-house services market was valued at ZAR 13,380.7 million. This market is anticipated to achieve a growth rate of 7.0 percent in 2011 Between 2010 and 2015 this market is anticipated to experience a CAGR of 7.4 percent and achieve an annual growth rate of 7.8 percent by

74 In-house Facilities Management Market Market Revenues and Growth Forecast (Contd ) Commercial Sector (Contd ) The commercial sector is anticipated to experience steady growth during the forecast period. Most financial institutions are anticipated to continue managing their functional service providers in order to maintain control over FM functions Banking institutions, and particularly the retail banking sector have strict security procedures and these compel them to utilise in-house FM solutions Such institutions are anticipated to continue managing their FM services internally The retail sector is also expected to internally manage most of its FM functions that include cleaning and security services These services are less technical and are easily managed in-house. End-users in the commercial sector have a perception that FM companies lack the technical capabilities to adequately manage their facilities. These end-users believe that they are equally capable of managing the functional service providers themselves instead of outsourcing to FM companies Such perceptions are anticipated to prevail during the forecasting period and this is expected to drive demand for in-house FM services during the forecasting period 74

75 In-house Facilities Management Market Market Revenues and Growth Forecast (Contd ) Public In-house Services: Market Revenues and Growth Rates, 2010 Revenues (ZAR Million) 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Revenue Growth (%) Revenues (ZAR Million) 3, , , , , ,759.6 Revenue Growth (%) Public Sector In 2010 the public sector in-house services market was valued at ZAR 3,779.4 million. This market is anticipated to achieve a growth of 4.5 percent percent in 2011 and a CAGR of 4.7 percent between 2010 and 2015 Note: All figures are rounded; the base year is Source: Frost & Sullivan 75

76 In-house Facilities Management Market Market Revenues and Growth Forecast (Contd ) Public Sector (Contd ) The public sector is mainly characterised by government and other public buildings. The demand for in-house FM services in this market is expected to remain fairly constant throughout the forecasting period. Market growth for FM services is expected to increase gradually from 4.5 percent to 5.0 percent during this period Government offices are expected to continue driving demand for in-house FM services such as cleaning, catering and security services However, The Parliament Building and other government offices have resorted to outsourcing some of their cleaning and catering activities Educational institutions such as Universities and Technikons extensively utilise in-house FM services for cleaning and catering purposes Services such as repairs and maintenance of campus buildings and student housing are generally outsourced to FM companies Healthcare institutions and government hospitals are also expected to drive growth and the development in this market The South African government is transforming its public health system and currently there s a shift towards supporting private health and public private partnerships (PPPs). This is anticipated to improve of the level of service delivery and drive demand for cleaning, catering and maintenance services 76

77 In-house Facilities Management Market Market Revenues and Growth Forecast (Contd ) Industrial In-house Services: Market Revenues and Growth Rates, Revenues (ZAR Million) 3,000 2,500 2,000 1,500 1, Revenue Growth (%) Revenues (ZAR Million) 1, , , , , ,624.0 Revenue Growth (%) Industrial Sector Note: All figures are rounded; the base year is Source: Frost & Sullivan In 2010 the industrial in-house services market was valued at ZAR 1,927.9 million. This market is anticipated to achieve a growth of 6.1 percent in 2011 Between 2010 and 2015 the market is anticipated to achieve a CAGR of 6.4 percent 77

78 In-house Facilities Management Market Market Revenues and Growth Forecast (Contd ) Industrial Sector (Contd ) South Africa s industrial sector is the smallest market segment in the in-house FM market. This sector which is characterised by manufacturing, mining, textile, and food and beverage sectors is expected to increase constantly during the forecasting period South Africa s industrial sector is slowly recovering from the economic recession experienced during This is expected to result in increased production and subsequent demand for FM services Cleaning, catering, hygiene, pest control, waste disposal and gardening services are some of the services that are in high demand in this sector 78

79 In-house Facilities Management Market Employment Analysis Analysis of Employment The total number of employees in the in-house FM market proved difficult to quantify. However, in 2010 approximately 12.6 percent of the total number of employees in most organisations were involved in the provision of FM services These services mainly include: cleaning, security, catering and gardening services In-house FM Market: Percentage Breakdown of Number of Employees FM Employees, 12.6% Gardening, 10.6% Building repair and maintenance, 5.4% In-house FM Market Percentage Breakdown of Number of Employees Security, 24.4% Electrical and lighting, 1.7% Catering, 12.4% FM Management, 8.4% Hygiene services, 0.9% Cleaning, 36.2% Other functions, 87.4% Note: All figures are rounded; the base year is Source: Frost & Sullivan Note: All figures are rounded; the base year is Source: Frost & Sullivan On average, cleaning, security and catering services employed 73.0 percent of the total number of people in this industry These services are less technical and easily managed in-house 79

80 In-house Facilities Management Market Employment Analysis (Contd ) Analysis of Employment (Contd ) Even though cleaning and security services employed a combined 60.6 percent of the total number of employees in this industry, they were the least rated services by end-users These services receive minimal attention with regards to the training of employees. Particular attention is given to certain functions that are considered to be highly technical such as FM management, building repair and maintenance, and electrical and lighting However most end-users feel that the less technical services are being neglected and in urgent need of attention Quote: People think that Grade 10 schooling is sufficient to perform FM services like cleaning or catering. These services do require skills. People think that you don t need skills to do these jobs. - Facilities Manager, Allan Gray In-house FM Services: Comparison of Service Rating and Number of People Employed FM Service Service Rating (out of 10) Number of People Employed (%) Catering Hygiene Building repair and maintenance Electrical and lighting Gardening FM management Security Cleaning Average/Total Note: All figures are rounded; the base year is Source: Frost & Sullivan 80

81 SAFMA Table of Contents Service Perception and Skills Analysis Service Perception Analysis Slide 82 Skills Analysis Slide 85 81

82 Service Perception and Skills Analysis Service Perception Analysis Perception of FM Services Currently most organisations in South Africa view FM services as costs that negatively impact on profits These services are perceived to be secondary requirements that do not form part of the company s core operations. Hence most companies aim to minimise any costs related to FM services Generally, market participants agree that there s a lack of knowledge on the proper management of facilities in South Africa. This is attributed to the skills shortage currently affecting this market However, a clear lack of understanding of enduser requirements has contributed significantly to poor performance in this market FM managers are also perceived to frequently make inappropriate decisions due to the poor interpretation of end-users requirements South African FM Market: Service Perceptions, 2010 Key Service Perceptions Unnecessary cost negatively affecting revenues Lack of proper management skills by FM companies Lack of knowledge on end-user requirements Low quality standards Source: Frost & Sullivan Quote: Previously FM service management was outsourced, but they found that the FM company began to lose touch with what the company actually needed. Senior Facilities Manager, Barloworld 82

83 Service Perception and Skills Analysis Service Perception Analysis (Contd ) Perception of FM Services (Contd ) Technical services are currently in short supply in the South African FM market. These services include: FM management Building maintenance and repair Technical Support FM management is considered to be the most important service in the FM market. Management skills are severely lacking in the market due to the lack of training facilities and industry qualifications People qualified in other disciplines often end up undertaking FM management functions despite lacking adequate training The lack of an accredited qualification in the South African FM market has been the main factor behind the current skills shortage South African FM Market: Service Importance, 2010 Rank Attribute 1 FM Management 2 Building Maintenance and Repair 3 Technical Support 4 Security 5 Cleaning 6 Catering 7 Gardening 8 Administrative Source: Frost & Sullivan 83

84 Service Perception and Skills Analysis Service Perception Analysis (Contd ) Perception of FM Services (Contd ) The maintenance and repairs of buildings is considered to be the second most important element in the FM market Building maintenance and repairs are mostly undertaken by engineers and electricians. These include the maintenance of heating, ventilation and air-conditioning (HVAC) systems as well as lighting and security systems Technical support regarding the operation of machinery in the industrial sector is a major element of FM services. This service element is currently the third most important in this market Non-technical services such as security, cleaning, catering, gardening and administrative functions are some of the other functions that are of importance to end-users within this market Key Quotes: Health and safety are largely important. However there isn t sufficient capacity in the country to cater for such services Facilities Manager, ABSA FM companies were not proactive enough when it came to the provision of service and resolving issues and problems, so we now manage FM services internally. - Office Manager, Accenture South African FM Market: Importance of FM Services (1- low, 10-high),, 2010 Administrative 5.0 Gardening Catering 1 Least Important 10 Most Important FM Management Cleaning Building Maintanance and Repair 9.0 Security Technical Support Source: Frost & Sullivan 84

85 Service Perception and Skills Analysis Skills Analysis Current Skills in the FM Market The most important FM skills such as FM management are currently in short supply in South Africa Other critical skills that are currently in short supply include: Technical knowledge Coordination of FM services People management Tender processing FM management skills are considered to be severely lacking in the South African market. The main reason being that currently the industry lacks an accredited qualification for FM managers FM managers are required to possess a combination of skills that include finance, HR, technical and customer service amongst others South African FM Market :Important Skills in FM Industry (1-low, 10-high), 2010 Key Numeracy Computer Literacy Training 1 Least Important 10 Most Important FM Management Tender Processing Technical Knowledge 9.0 Coordination 8.0 People Skills Source: Frost and Sullivan This makes such individuals difficult to find. Further, skilled personnel currently available in the market are expensive to employ Technical knowledge and coordination skills are also considered critical in this market 85

86 Service Perception and Skills Analysis Skills Analysis (Contd ) Current Skills in the FM Market (Contd ) Technical knowledge requires a practical knowledge about the machinery that can is used for different functions. Such skills require training on the operation and maintenance of various machinery The coordination of various functions within the FM spectrum in considered critical in this market. FM managers are required to be able to coordinate various duties such as security, cleaning, catering and administrative functions The ability to process tender documents is also considered a critical skill in this market. Most FM companies lack the required skills to compile and process tender documents for public and private sector projects Quotes: People qualified in interior design and office layout become FM managers even though they lack the management and administrative skills to perform the role adequately. Facilities Manager, Hollard Insurance Currently the skills of FM managers in only at an operational level. - Facilities Manager, Edcon Specialist skills are lacking in the market. There are a few people entering the FM market so the same skills are circulated. - Senior Properties Manager, Aberdare Cables Employees need to have knowledge about the equipment that they use to be able to do their work properly. - Properties Manager, Hospice There is a lack of skills across the board. Specifically, technical and FM management skills are in short supply. - Building and Facilities Manager, Home Choice 86

87 Service Perception and Skills Analysis Skills Analysis (Contd ) Skills Development in the FM Market Due to the critical skills shortage in this market most companies have resorted to internally training their employees Currently, some of the skills development initiatives include courses covering: Computer literacy Management and communication Maintenance and operation HR, technical and customer service The market is also in urgent need of standard qualifications for employees. This is necessary in order for companies to determine the skills set required by employees for effective service delivery Companies have established training academies to ensure that best practices are upheld when providing services to clients Quotes: We need people with FM expertise to draw up the standards required for FM service qualifications. - Facilities Manager, Homechoice Internal training is currently being undertaken to ensure skills are at the required standard Properties Manager, Barloworld Employees need to have the knowledge on the equipment that the use to be able to do their job well. Properties Manager, ABSA General management courses are available through the company, but this is not enough to serve as a FM management qualification Facilities Manager, Vodacom The FM industry in SA needs to be aware of the current global standards. We need to equal or better these. Then we need BIFMA and IFMA to recognise our. Properties Manager, Anglo Gold 87

88 SAFMA Table of Contents Strategic Conclusion Key Market Issues Slide 89 Current Initiatives Slide 91 Conclusion Slide 93 88

89 Strategic Conclusion Key Market Issues South African FM Market: Key Market Issues, 2010 Key issues in the FM industry Critical shortage of skilled personnel Lack of training and industry qualification Limited recognition of the FM Industry Lack of adequate BEE partners The South African FM The FM industry is The South African FM Strategic partnerships with market is currently characterised by the lack of industry receives limited BEE companies are key to experiencing a critical training of relevant recognition from the consideration for awarding shortage of skilled personnel personnel government tenders in this industry This is having a negative This has further resulted in StatsSA barely keep track of However, there is a limited impact on the development the lack of an accredited industry development number of BBE companies of this market qualification Further, there is no operating in this industry. legislation that regulates this This negatively impacts on industry the companies ability to bid for government contracts Source: Frost and Sullivan 89

90 Strategic Conclusion Key Market Issues (Contd ) Key issues that are currently affecting the development of this industry include: The critical shortage of skilled personnel Lack of training and industry qualification Limited recognition of the FM Industry Lack of adequate BEE partners These critical elements have negatively affected the development of the FM industry in South Africa There is an urgent need to address the skills shortage that is present in this market. People with FM expertise are required to develop the relevant standards necessary for FM service qualifications The limited recognition of the FM industry is mainly as a result of the lack of a proper market structure The market lacks comprehensive data with regards to the annual revenues generated by the industry, market growth rates and levels of employment This is due to the limited interaction amongst FM companies and lack of formal recognition by government organisations such as Statistics SA The lack of adequate BEE partners characterises this industry. Most government projects are awarded through a competitive bidding process Strategic BBE partnerships are a key consideration in the awarding of such government projects. Hence the government needs to encourage increased participation of BBE companies in this industry The lack of training and critical shortage of skilled personnel is negatively affecting market development 90

91 Strategic Conclusion Current Initiatives Internal skills development Due to the critical shortage of skilled personnel, some FM companies are currently undertaking internal skills development programmes for both employees and end-users Such initiatives are meant to improve on the level of skills in the industry and ensure that best practices are upheld Most programmes only involve short training courses conducted over a duration of three days. These are aimed at improving on the knowledge and understanding of the FM industry by FM managers However, these courses are considered to be insufficient to adequately enhancing skills development in this industry South African FM Market: Key Initiatives, 2010 Key initiatives by market participants Internal skills development Increased engagement amongst FM companies Adherence to international best practices Provision of valueadded services Source: Frost and Sullivan FM companies are currently addressing the skills shortage by undertaking internal skills development 91

92 Strategic Conclusion Current Initiatives (Contd ) Increased engagement amongst FM companies FM companies are beginning to engage more often in order to share knowledge critical to market development This is being undertaken through SAFMA and other organisations, with the aim of promoting growth of the FM industry The increased interaction amongst FM companies is anticipated to enhance the development of the industry through sharing ideas Adherence to international best practices FM companies are striving to meet international best practices in order to win contracts from major corporations A number of companies have received ISO 9001/9002 accreditation since inception, a demonstration of commitment to quality service provision Further, companies have also adopted international operating standards frameworks that incorporate: Service management models Operating service procedures Computer-aided FM solutions Provision of value-added services Due to the limited availability of skilled personnel, FM companies are thriving to provide value-added service through technological development Some companies currently offer building information management systems (BIMS) as part of their FM offering 92

93 Strategic Conclusion Conclusion The South African FM market is currently experiencing steady growth due to the increased need for FM services by end-users This market is anticipated to achieve a CAGR of 6.8 percent between 2010 and 2015 Growth in this market is mainly driven by the cost benefit of outsourcing FM services and the increased need for companies to focus on their core operations However, challenges still remain in this market and these include the critical shortage of skilled personnel as well as the limited recognition of the industry in South Africa The lack of an accredited industry qualification has been the main obstacle to market development as employers are unable to determine the correct skills set required for competent employees Further, most market participants agree that generally there s a lack of knowledge on the proper management of facilities in South Africa This has been the main reason for the reluctance by some end-users to outsource their FM services In response to the skills shortage currently prevalent in this market, most companies have resorted to internally training their employees This is critical to ensure high quality service and the maintenance of best practices in this market Despite the current challenges the market remains a significant source of employment in South Africa In 2010 the outsourced FM market employed approximately 6,395 FM managers and functional service providers. This is anticipated to increase to 7,788 by

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