Download the PDF of the report, which includes the proprietary FM Cost Index
Business and financial leaders are keenly aware of global inflationary pressures and need to understand how these factors will impact facilities management costs in 2022 and beyond.
To shed light on these challenges, CBRE Strategic Investment Consulting partnered with our Procurement and Facilities Management (FM) experts to develop this report, which includes a proprietary FM Cost Index for the industry.
This detailed research is intended to enable meaningful early discussions with budget decision makers, informed by objective data regarding facilities costs.
Facilities management is a complex discipline with four major cost inputs:
Given the multifaceted nature of FM, the data was distilled into a proprietary Cost Index to provide enhanced visibility around how macroeconomic factors will impact annual operating costs for building operations, services and maintenance. This topic is especially important, as 2023 budget planning is already underway. The Index can be found in the PDF version of the report.
Below you will find the data used to build the proprietary Cost Index. We have also included information to provide context for interpreting recent index movement and planning for the future, including an economic outlook section, an assessment of current energy costs and five key recommendations for mitigating rising FM costs. The report also includes additional "deep-dive" sections analyzing labor, supply chain and inflation trends in the broader economy and for the FM industry specifically.
This research is focused on the United States, where detailed third-party and public data are readily available. The trends described herein are similarly impacting other countries across the globe. They are also impacting construction costs (note that CBRE will be issuing a separate construction cost report in H2 2022). We hope this report, the FM Cost Index and our recommendations prove timely and useful to our valued client decision makers, and we invite your suggestions and feedback.
Enterprise Facilities Management
Global Workplace Solutions
Employers across sectors in the U.S. are combatting a historically tight labor market. Demand for workers has risen dramatically since the early months of the pandemic, but workers have been slow to return. Labor shortages have put significant pressure on employees trying to make up for unfilled positions, and productivity has flattened.
Intense competition for workers is driving up the cost of labor, especially for certain FM jobs with low barriers to entry. Hard services (e.g., electrical, plumbing and HVAC) wages have increased moderately, but the required skills and training present challenges to sustaining this workforce. Soft services (e.g., security, janitorial and landscaping) wages have risen significantly and face added pressure from strong growth in competing sectors like warehousing and retail with similarly low barriers to entry.
Materials costs have also risen dramatically since the onset of the pandemic. Demand for certain commodities has outpaced the ability of producers to manufacture and distribute supplies, largely due to labor shortages that have disrupted supply chains. Input costs for FM services are rising faster than the current prices received by FM suppliers, indicating more cost increases should be expected in 2022. Skyrocketing energy prices are compounding the issues facing facilities management.
Wages are the largest driver of FM costs and will not reset, especially given high inflation, meaning costs are unlikely to decrease even after labor and logistics challenges resolve. The pace of inflation is not likely to decelerate until 2023 with manufacturers beginning to catch up to demand in late 2022 and supply chains largely unclogged by late-2023.
Economic outlook points to further FM cost escalation in 2022-2023
While the U.S. economy is expected to gradually normalize towards pre-pandemic conditions over the next 18 months, lingering challenges will sustain many cost pressures.
CBRE’s baseline view is that supply bottlenecks will begin to ease in H2 2022, but war in Ukraine and COVID lockdowns in China may stretch recovery into 2023. We expect the pace of inflation to peak this summer but remain roughly on par with 2021 levels by year-end and not return to the low-2% range until Q4 2023.
Overall, the labor market is expected to remain tight in coming years as labor force participation remains historically low, though rising interest rates as the Fed attempts to tamp down inflation are a headwind. For industries like FM that face added hiring challenges (e.g., a limited pool of workers with specialized skillsets, higher likelihood of talent poaching, etc.), wage growth is likely to increase in 2022 and remain above pre-pandemic averages in 2023 unless economic growth surprises on the downside next year.
FM budgets will see the full run-rate impact of rising costs in 2023, since mid-year increases are felt for a full 12 months. In addition, 2023 budgets will see the expected above-average increases.
Figure 5: Year-End Outlook for Key U.S. Economic Indicators
Source: Oxford Economics, CBRE Econometric Advisors, CBRE Strategic Investment Consulting, May 2022.
Energy prices of all types are impacting operators significantly
Skyrocketing prices are driving up costs across the commodity market, but natural gas, coal and electricity prices have also risen significantly in recent months. Geopolitical factors pose a significant risk, as well.
Commercial natural gas is up 42% over a two-year period, hurting the bottom line of many operators and facilities managers. Commercial electricity, while not as dramatic, is still up 15% in two years and has increased significantly in recent months. The major spike in prices for natural gas used in electricity production may also indicate higher electric bills coming soon.
Managing energy costs will be a critical component of facilities management in the next two years, including utilities for the facilities themselves and the gasoline required to mobilize necessary components, equipment and personnel.
Note: Global energy CPI includes electricity, gas, and other fuels for both commercial uses and personal transport.
Macro Labor Trends
Significant imbalance in labor supply and demand continues
The rapid rise in both job openings and quit rates highlight a labor shortage coupled with high turnover. Before the pandemic, job openings outnumbered hires and separations, indicating an already tight labor market.
After falling at the onset of the pandemic, job openings recovered by year-end 2020. Openings then rose sharply in 2021 due to a spike in post-reopening demand for services, as well as a need to replace workers who were laid off during the pandemic or who quit in recent months.
But as voluntary quits, retirements and other job separations have also increased, employers have not been able to hire fast enough to replace these workers, keeping job openings high.
Figure 8: Job Opening, Hiring & Separation Levels, Total Private Sector
Source: Bureau of Labor Statistics, Job Openings and Labor Turnover Survey (JOLTS), through March 2022.
The shortage is pervasive throughout the economy
The labor shortage is impacting most sectors of the economy, including facilities management.
While accommodation, food and retail service sectors were most affected by the initial spike in layoffs, professional, business and other services are feeling a similar impact at this stage of the recovery.
As of March 2022, job openings are far exceeding hires, which are barely above replacement (hires = separations), indicating a significant shortage across many sectors of the economy.
Figure 9: Job Opening, Separation and Hire Rates by Major Sector
Source: Bureau of Labor Statistics, Job Openings and Labor Turnover Survey (JOLTS), through March 2022.
Labor crunch is pushing employers to offer workers more compensation
To recruit and retain workers amid the current labor shortage, employers are increasing wages, benefits and incentives.
According to a November 2021 Conference Board survey of compensation executives, budgets for wage hikes are projected to increase 3.9% in 2022, the largest annual jump since 2008.
Beyond baseline wages, employers are increasingly looking at other ways to attract workers:
- Sign-on bonuses
- Increasing shift-differential pay
- Health benefits
- Educational/tuition support
- Increasing pay frequency
- Relocation reimbursements
Growth in wages and other incentives has varied geographically, with greater compensation in markets with more pronounced labor competition and higher living costs.
Figure 10: Wage Increases and Other Incentives Announced in 2021, Anonymous Sample Corporations
Source: Company statements and other press materials, January 2022.
Long-term demographic trends are behind the shrinking workforce
Both structural demographic changes and COVID-related factors are creating an increasingly difficult environment for employers seeking to fill open positions.
Although some COVID-related challenges may reverse once the pandemic is brought under control, other changes, such as the aging population and low birth rates, are likely to persist through the long term.
Figure 11: Key Factors Contributing to a Shrinking Workforce
Note: Latest data as of 2019.
Note: Latest data as of November 2021.
Note: Latest data as of November 2021.
The pandemic further depressed the labor supply
The pandemic has led to significant illness and death among U.S. workers and contributed to a sharp decline in immigration.
The tens of millions of U.S. COVID-19 cases have decreased work hours and will have a lasting impact on U.S. labor, particularly in positions with more physical requirements.
With labor force participation falling across the U.S. even prior to the pandemic, immigration is increasingly critical in filling the labor gap, especially for low-barrier-to-entry industries like landscaping, janitorial and food service. However, U.S. net migration began falling in 2017 due to federal policy changes, then hit a record low in 2020 amid pandemic conditions.
Immigration is likely to remain well below the levels of the previous 30 years until the latter half of the 2020s.
Figure 12: Net Migration to U.S.
Source: Oxford Economics derived from US Census Bureau data, December 2021.
Figure 13: Key COVID-19 Mortality & Chronic Illness Statistics
Pandemic-related stress on workers and systems continues to keep people from seeking employment
Exacerbating demographic challenges, workers are exiting the labor force at record rates.
As the pandemic lingers, several factors are prompting people to leave or remain out of the workforce, including concerns about contracting COVID-19, lack of childcare, burnout, reevaluation of career choices and discouragement over hiring prospects. The labor force participation rate (which includes the employed and those currently unemployed but looking for work), remains near historic lows, having rebounded only slightly after a significant decline during the pandemic.
Initially, federal government stimulus and expanded unemployment benefits may have allowed some to temporarily delay job-seeking efforts, but this factor alone does not appear to have significantly impacted decision making for most workers.
Figure 14: Key Pandemic-related Factors Impacting the Labor Force
Note: Latest data as of Dec. 13, 2021.
Note: Latest data as of Dec. 13, 2021.
Note: Latest data as of Nov-21.
Both job openings and quits have risen to record highs
People are quitting their jobs at an unprecedented rate, while job opportunities are historically abundant.
The number of unemployed and new weekly unemployment claims are near pre-pandemic levels, underscoring an increasingly limited pool of available workers. Moreover, the fact that the labor force participation rate remains stubbornly low as unemployment improves suggests that part of the problem is a rise in labor force exits among previously employed people.
As of March 2022, total job openings were at 11.5 million, 94% higher than the number of people who were unemployed. Meanwhile, private sector quits reached a record high of 4.3 million in March 2022, and have accounted for more than 70% of total separations since July 2021.
The rise in quits is likely an indication of both optimism and pessimism among workers. Some people are quitting because they have increased confidence about finding a better or higher-paying job amid the flurry of new openings. At the same time, some portion of quits represent people continuing to exit the labor force as pandemic-era challenges persist.
Labor shortage has caused productivity to flatten and compensation to soar
Despite wage inflation, productivity is unlikely to rise (and may decrease) without a substantial increase in hours worked (i.e., hiring).
Hours finally rebounded to pre-pandemic levels, in Q4 2021, but still lags far below the pace of growth in output. This dynamic initially drove up labor productivity, as workers were able to produce more with less labor, but productivity has now plateaued.
This dynamic is not sustainable and is contributing to the rising quits rate. Even with increased compensation, attempting to boost output without an increase in staffing (hours worked) will lead to burnout and corner-cutting, risking both worker safety and output quality. The fact that growth in labor costs (the ratio between the compensation paid to workers and the value of the output they produced) did not catch up to the pace of productivity growth until Q4 2021 suggests that further growth in compensation will be needed to help resolve the current imbalance.
Figure 17: Labor Productivity Metrics, Nonfinancial Corporations Sector
Source: Bureau of Labor Statistics, Productivity and Costs, Q4 2021.
Note: Q4 2019 = 100.
Supply Chain and Inflation
Producers are paying more for inputs but have kept final prices low for now
Prices for services related to facilities management are likely to increase to keep up with rising costs.
Commodities pricing has increased dramatically through the pandemic, up 20.6% year over year in March 2022.
The overall figure is driven primarily by the rapid rise of metal, fuel, lumber and food prices—in part a result of supply chain disruption.
Prices for core services related to facilities management have increased, but not as much as commodities. However, inputs to maintenance and repair services (i.e., materials, supplies) have increased dramatically, indicating that final services pricing is likely to increase to cover rising costs.
In a survey of CBRE's major FM suppliers conducted in December 2021, firms reliant on metals, chemicals and electrical components (particularly computer chips)—such as waste management and elevator specialists—reported the highest increases (up to 200%) in materials and component costs in 2021.
Figure 18: Producer Price Index % Change - Select Commodities - 2020-2022
Source: Bureau of Labor Statistics, Producer Price Index, CBRE Strategic Investment Consulting, through March 2022.
Inflation is now rising faster than wages
Workers are facing rapidly rising consumer prices, but wage growth has not kept up before or during the pandemic.
The CPI has been rapidly increasing, reaching a 40-year high for year-over-year growth in March 2022 at 8.6%.
While total private wage growth has accelerated since the onset of the pandemic (albeit with some volatility), it has fallen behind growth in consumer prices, putting immense pressure on low-to-middle-wage workers.
An aggregate of wages across key FM industries has grown more quickly than overall wages in recent years and remained somewhat steady since the onset of the pandemic. However, this aggregate also lagged inflation for most of 2021.
Figure 19: Year-over-Year % Change - CPI vs Average Hourly Wage by Sector
Source: Bureau of Labor Statistics, Consumer Price Index, CES, CBRE Strategic Investment Consulting, through March 2022.
Note: All measures are seasonally adjusted. FM Aggregate includes the janitorial, landscaping, security, electrical, plumbing & HVAC, and food contractor industries.
Low-wage workers are the most impacted by inflation
Seventy-eight percent of low-income household spending goes to the five items with high increases in CPI in March.
Transportation prices are the primary driver of the non-energy/food increase, which is mostly due to the rapid rise of supply chain disruptions in the automotive industry and the rising cost of metals.
Housing and apparel prices have also risen sharply in recent months. Housing prices are increasing due in part to the cost of materials limiting new supply. Apparel prices are up due to a mix of materials costs and global supply chain disruptions.
Labor and logistics issues are causing major delays across the supply chain.
Shipping delays at the largest seaports in the U.S. combined with a backlog of domestic freight operations caused a shortage of goods and materials that also had an inflation effect on services.
While many ports, like Los Angeles, are increasing their operations to address delays, the labor shortage impacted their ability to scale operations. Issues were mostly resolved by the end of 2021, but impacts have lingered.
Labor shortages for rail yards, manufacturing plants, warehouses and trucking companies are exacerbating the issue. The American Trucking Association reported in October 2021 that the industry is short about 80,000 drivers and they expect that to increase to 160,000 by 2030.
To attract more drivers, the sector has boosted wages, but the recent increase in demand for transportation services has meant the need for even more drivers. Barriers to entry for new drivers (i.e., licensing) are making it more difficult for the industry to respond quickly to demand.
Note: Jan. 2015=100. Freight Transportation Index does not include international or coastal steamships, private trucking, courier services or the USPS.
Firms are struggling to fill orders due to supply chain issues
Supply chain and labor issues are causing a backlog of orders and an inventory shortage, indicating a supply-demand imbalance that will result in higher-priced goods and services.
The Institute for Supply Management (ISM) Report On Business® shows that producers and service-providers are increasingly unable to fill orders due to shortages of necessary inputs, resulting in a backlog and delay of service.
As of March 2022, nearly one-third of service-providers noted that their inventory was “too low” for current business activity levels, which is at an all-time high according to the same report.
Reflecting these pressures, 77% of all work order delays across CBRE’s facilities management business over the past 12 months stem from backordered materials and other supply chain challenges, nearly triple the pre-pandemic average share, which has also driven average wait times up 27%.
Different views and data sources required to understand FM costs
Within the facilities management industry, both hard services and soft services are facing labor shortages and accompanying wage inflation, but the underlying dynamics differ for the two segments.
Because these are not jobs that can be done remotely, both segments are also dealing with the persistent threat of COVID-19, either due to workers contracting the illness or choosing to leave jobs out of anxiety over their health.
e.g., electric, plumbing, HVAC
- High barriers to entry. Specialized skill sets mean it takes a long time to train new workers
- Talent pipeline has plateaued.
- High degree of unionization. Baseline wages for union labor typically higher but less likely to inflate rapidly
- Younger retirement age. Workers tend to leave the labor force earlier (and stay retired) due to greater access to pensions/retirement plans
e.g., security, janitorial, landscaping
- Low barriers to entry. Workers have not invested in a unique skill set, so there is less incentive to stay in a position
- High turnover. Jobs tend to be less gratifying and more injury-prone
- Competition. Other industries with low-barrier-to-entry positions can pull from this labor pool
- Lack of immigration. Slowdown in recent years has had an outsized impact on these industries
Hard services FM positions have significantly higher barriers to entry
The skilled trades needed for hard services—like electrical, plumbing and HVAC—all require either certification or apprenticeship, plus 2-4 years of experience, making these roles difficult to fill when vacated.
Security, landscaping and janitorial positions require less work experience and little to no education or on-the-job training, making them much easier to replace.
However, this comes with its own challenges, as employers of these soft services occupations must compete with a wide array of rapidly growing industries, like warehousing and transportation, which have similarly low barriers to entry.
The competition challenges differ for hard services. These workers are less likely to jump to a new occupation, given the time and effort invested in their specialized skills. However, with a limited pool of labor in these specialties, FM employers may find it more difficult to retain these workers during periods of strong construction activity when demand for these hard services is high.
Figure 26: Mean Years of Work Experience Required for Position, Education and Training, 2021
Source: Bureau of Labor Statistics, Occupational Requirements Survey, December 2021.
The talent pipeline for skilled trades has plateaued since 2010
After a surge in trade-degree conferment during the Great Recession, degrees awarded in FM-related hard services were flat over the last decade.
However, there is some evidence that interest in trade schools is rebounding, as enrollment in special-focus, two-year technical programs increased 5.4% year over year in 2020, reaching the highest level in 10 years.
Apprenticeships are another critical component of the talent pipeline, and some companies have been expanding their efforts in this area to help bring in more labor at entry-level wages.
CBRE launched a new apprentice program in 2020 to target building engineers, which ramped up to more than 60 apprentices across 26 states by year-end 2021.
Figure 27: Degrees/Certificates Awarded by Trade Skill
Source: National Center for Education Statistics, Integrated Postsecondary Education Data System, December 2021.
Note: Degree categories not limited exclusively to FM trades (e.g. automotive is included in Mechanic & Repair Technicians).
FM workforces are aging
Across all FM occupations, the oldest workers make up significantly larger shares of total workforces than they did 20 years ago.
While age distributions skew younger for hard services than soft, hard services have also experienced more pronounced aging, with shares of workers over 55 roughly doubling since 2000.
The share of young workers in hard services has also risen over the past decade, but so far has only made up for the exodus from construction-adjacent occupations following the Great Recession. The younger-than-25 share must rise more quickly to keep up with retiring workers.
Soft services over-55 shares have increased nearly as much, despite having older work forces to begin with. Twenty-seven percent of soft services employees is currently 55 or older, and there is little relief in sight, as shares of the youngest workers have fallen.
Figure 28: Age Distribution by Occupation & Year
Source: Bureau of Labor Statistics, IPUMS, December 2021.
*Non-restaurant food service occupations. Comparable data not available for 2000.
Labor characteristics differ across hard and soft services
Hard services have significantly more unionization and less foreign-born labor than soft services, which impacts earnings and age distributions.
A primary reason hard services occupations skew younger than soft is that workers in these occupations are better able to afford retirement at younger ages due to higher wages and access to pension and retirement programs. These benefits are related partially to a high degree of union affiliation—on average, hard services occupations are unionized at double the national average.
In contrast, low union coverage (except for janitorial) and high shares of immigrant workers (except for security) in the soft services means these occupations have less access to both employer- and government-sponsored retirement plans.
Union wages tend to be higher than non-union wages, but they also typically grow at a slower and steadier pace. Between 2017 and 2020, median weekly earnings for FM-related occupations increased by 7% for union members and 14% for non-union.
Figure 29: Union Representation and Foreign-Born Status by FM Sector
Source: Bureau of Labor Statistics, IPUMS, December 2021.
*Non-restaurant food service occupations.
Hard services are more stable, while soft services roles have been harder to fill
The onset of COVID-19 caused swift and significant job losses, particularly in early 2020, though many FM industries were more resilient than overall employment.
The hard services were growing more rapidly than the overall economy leading up to the pandemic and have also been the fastest growing since, despite having high barriers to entry. This highlights the essential nature of these trades, as well as employers’ greater ability to fill positions (relative to soft services) due to both higher wage levels and the switching costs associated with these specialized skill sets.
In contrast, except for landscaping, soft services industries have not yet recovered to pre-pandemic employment, and security and janitorial were also lagging the national average leading up to the pandemic. However, these sectors have also had the highest wage growth since the onset of the pandemic, indicating there is high demand for these occupations (with employers hoping to entice workers with better pay) but an inability to find and retain the labor.
Figure 30: FM-Related Industry Employment Change by Period, 2017-2022
Source: Bureau of Labor Statistics, CBRE Strategic Investment Consulting, March 2022.
Wages are growing fastest in industries still struggling to reach pre-pandemic employment
Wages have grown in most industries related to facilities management at a faster pace than the overall private sector over the course of the pandemic.
Soft services wages have had more significant growth than hard services and the overall economy, likely a result of high pandemic-related demand for these services combined with a limited supply of labor. These jobs also have a low barrier to entry relative to hard services, meaning FM firms are competing with an array of other types of companies (e.g., warehousing, logistics) for the same talent. Hard services wages are also starting at much higher levels than soft services, so significant shifts in percentage terms are less likely.
Most major CBRE FM suppliers have reported that they expect wage growth will stay at or above 2021 increases this year, indicating that these patterns will likely continue through the near term.
Figure 31: Inflation vs. Average Annual Hourly Wage Increase by Period, FM-related Industries
Source: Bureau of Labor Statistics, Current Employment Statistics (CES), through March 2022.
Provide early budget planning input for FY 2023Creating your FM budget for 2023 will be a complex exercise, incorporating return-to-office, cost inflation and the normal cycle of operating and service-level changes. Set revised expectations early and share this information with business and financial decision makers. Rising FM costs are here and likely to continue through 2023.
Take steps to better attract and retain facilities workers and vendorsWhile the pressures described in this report will drive increased wages and supplier unit costs, they also have potential to accelerate turnover in trades positions that are important to business continuity and operations. Plan for increased labor costs, but also focus on your operating environment and how it impacts your direct and indirect employees. Support apprentice programs offered by your supplier or local trade schools. Talent will go where it is welcome, safe and valued.
Get energy into the equation for cost management and potential cost reliefEnergy costs are an untapped area of cost savings and offset for many clients. A robust asset management program coupled with decarbonization planning will present opportunities to modernize your existing building equipment, introduce on-site renewables, and apply new technologies like heat pumps. External capital is available to fund improvements if your organization is not able or prepared to act in a timely manner. Properly implemented, these tried-and-true solutions will reduce cost.
Embrace labor-saving building technologiesService providers in hard and soft services are innovating with building controls, sensors and IoT to find creative ways to reduce manual tasks and focus labor resources on value-added work. Resist the temptation to “build your own” smart buildings technologies, and instead tie the implementation of these technologies to service contracts where the supplier will guarantee savings, reliability and other productivity improvements in a bundled package. Seek portfolio-wide solutions rather than single-building answers for material improvement.
Proactively manage ongoing supply chain riskCurrently, 77% of work order delays are attributable to unavailable materials. Standardize purchasing and your equipment configuration. Forward-buy critical spares and manage inventory. Engage with your suppliers to understand their dependencies and delivery risks.
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