Official confirmation that the UK is in recession is due to land this Friday, as per our conversations with journalists at national newspapers and broadcasters. That’s why today marks the start of Magenta’s Building Resilience in the Built Environment campaign – a content series designed to help the industry navigate the uncertainty of current times. We have interviewed FM, property and business leaders to find out how the sector was impacted back in 2008, and what might happen this time around.
Mark Tyson, head of property operations, LGIM
Tell me what happened to the built environment sector in 2008?
Outsourcing boomed and that’s when we saw a new cycle of TFM. The first downturn forced the big guys to do proper partnerships that could stand the test of time. It wasn’t just procurement driving down costs, it was about the customer working with suppliers as part of a strategic partnership to deliver real value. There was no market for smaller businesses back then because higher investment was required for a longer-term return. The big players won.
What do you think will happen this time around?
Many things have changed since the last recession. For example, the market dynamics are very different to 2008. They are much more sophisticated. The FM sector also has a different profile post-covid. What used to be a hidden profession, only receiving attention when something went wrong, has now had a well-deserved taste of the limelight. Cleaners, security officers, engineers, facilities managers all had to keep the UK’s critical infrastructure going during the pandemic. There’s been a newfound respect for FM, so it will be difficult now to take a procurement-only view.
In addition, there’s more recognition that organisations must support the workforce from a health & wellness perspective, including financial wellbeing. That means paying a fair and decent wage. Then there’s a bigger push towards social value. FM firms in outsourced relationships are increasingly considered an extension of the brand rather than a means to an end, and today’s focus is as much about working together to drive a shared ESG agenda than the services being procured.
Finally, compared to 2008, there are more options. Whether that means there’s less outsourcing and more insourcing, or a shift from TFM to single-service line models remains to be seen. But unlike 2008, larger FM companies have lost their monopoly in the market. There’s a fairer spread of opportunity.
Value for money tends to come to the fore during recession. Do you agree?
Yes, it’s all about understanding why that pound is being spent and understanding how it all breaks down.
What can small firms offer than big firms can’t? And vice versa? What trumps what?
Smaller businesses can be nimbler, by their very nature, but it’s not so much about big versus small. It’s about relationships, and the situations and structures that work for that organisation and that service provider at a particular moment in time. And what may work for one won’t necessarily work for another. It’s like dating. The right place, the right time, the right ‘click’. Are you important enough for each other at that point in the cycle? Is there the right amount of passion, not just at the beginning but a few months, years in?
The Living Wage has increased. Even the firms that commit to RLW are concerned about whether increasing it is financially sustainable. In recession, do you think it’s likely the end user will push social value over cutting costs?
If the National Living Wage goes up, service providers can pass this up to their customers. The issue on the customer side is – at what point does this become unaffordable? So yes, there may be a tipping point, but it’s not so much the minimum wage that’s a problem, it’s what happens to the people in the middle. If everyone at the bottom is going up, what happens to the middle layer? If a supervisor is only earning a fraction more than the cleaners on their team, what’s the incentive to stay on in the profession? It makes it harder to equalise. It’s a challenge.
But one thing’s for sure. You have to pay well to compete. There are three million vacancies in the UK. Getting talent is hard because recruitment is hard – and that’s because you’ve got the likes of LIDL advertising guaranteed shifts and impressive benefits packages. This is not just about pay. It’s about working conditions and benefits, too. People are the key fabric of a well-run building. I think this recession could be a massive opportunity for individuals in FM to break the cycle of the minimum wage – but only if there’s a focus on value creation rather than a knee-jerk cut costing exercise.
Environmental sustainability is a hot topic. More firms in the built environment are committing to the cause. Going ‘green’ can be costly; investment is required and although ROI will be reaped in return, it takes time. Do you think the recession could curb or accelerate progress?
The recession doesn’t change much. There’s been a massive realisation that the built environment has a huge impact on emissions, and too many organisations are committed to environmental sustainability for this to ever backtrack, recession or no recession.
It’s a candidates’ market. The war for talent has never been fiercer. Recessions usually see a spike in unemployment. Do you think that will happen this time?
No. The economic landscape is unusual. High interest, sky-rocketing inflation, low employment. It’s not a typical recession.
How do you think the recession will impact workplace strategies?
Rather than cutting square footage, the focus is being smart with space. I don’t think that will change. Long term leases are still being taken out and vacancies are low. Organisations still want space. The office isn’t dead. But the expectation is changing. End users want buildings that save energy, reduce cost, increase value – those conversations never used to happen. For me, it’s a very exciting time to be in the industry.
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