Building Resilience in the Built Environment

In this weeks instalment of our the building resilience in the built environment campaign, we spoke to Lucy Jeynes of Larch Consulting for her perspective as a workplace and facilities consultant. Her observations of how the industry has adapted and reshaped itself to manoeuvre through difficult times provides an unparalleled perspective on the topic.

Tell me what happened to the built environment sector in 2008? 

The FM sector had been proud of its period of growth before this point, but a lot of this was due to growth of the overall UK built estate (if our sector grows because there are lots of new buildings, we can’t really claim any credit for that growth, it is automatic). In the recession, funding streams dried up so capital investment in new buildings halted. This meant no more new buildings or big-scale refits, so no “new” FM business – for FM service providers to win a contract, they had to win it away from another provider. That creates a very different dynamic in the market. FM services had been focusing on adding value, delight, and extra services – and now it was all about cost reduction. A whole generation of people in the FM market had only worked during a period of growth and investment, so there were management and experience challenges.    

What do you think will happen this time around? 

In office portfolios, organisations are looking carefully at their occupancy levels, and mapping their lease break clauses. We would expect to see organisations reducing their overall space/property footprints, and reconfiguring what is there to focus more on collaboration spaces, as people are tending to do their focused individual working at home now. There is a crisis in the rail network, with price increases, strikes and service failures (SER being brought under DFT control, Chiltern likely heading the same way).

The daily commute is less attractive than ever, which also impacts on occupancy in cities.  You’d think there would be more of a rise in neighbourhood co-working spaces (a common model in Europe) – I work in a place like this myself, but we’re not seeing it taking off. In respect of consolidated portfolios, we’ll see a flight to quality. I am not sure what will happen to poor quality, poor sustainability buildings. In good locations they would be targets for redevelopment or refit, but in secondary locations who will want them now?

In crises, what sort of trend do we see with regards to insourcing / outsourcing? And why? 

What we tend to see in times of crisis in FM, is organisations feeling they must do something different, something dramatic, to achieve a big change (sort of “less for less”). So we see a rise in first-time outsourcing, but also a rise in insourcing as well. Sometimes changing the model does in itself achieve an improvement because a completely different model of working and financial model is then expected by everyone.

The high levels of M&A activity in the FM sector are seen with some trepidation by clients – most of the FM companies are bigger than most of their clients now. These large providers are less agile, harder to deal with, slower to deal with as they require more legal due diligence from their parent organisations. There is a gap in the market now for medium sized hard service companies – there’s an opportunity for significant growth here.

Value for money tends to come to the fore during recession. Do you agree? If so, what do you think that means for the big / small service providers? 

Large providers can sell on the basis of economies of scale and expertise. They may also be able to offer capital investment in return for longer-term contracts, which may be appealing for companies who are cash poor. You would think the large companies would make more of their ability to foster and sponsor innovation and bring new technologies to the market, but they don’t seem to be doing that as much as I would have expected. Smaller firms can play on relationships, responsiveness, short chains of command, and perhaps could highlight more social value than most of them do.

The Real Living Wage increased in September. Some firms that commit to RLW have voiced concern about whether this increase is going to be financially sustainable. How can businesses in the built environment strive for a balance between fair pay and financial robustness during recession? 

This is about the end-client view isn’t it. If they are not prepared to pay the market value for their FM roles, the alternative is a reduction in service. Either by design, recognising that the decision will mean less hours for the same money, and reducing service levels to those than be met by a reduced workforce. Or by accident – because there will be churn, unfilled posts, trainees, so some things won’t get done. In the current market, employees can easily leave for more money.

What role will the end user play in all this? 

Back in the 1990s when outsourcing was first starting, companies were quite open about the fact that one of the drivers was to reduce the requirement for operational FM staff to enjoy the benefits the rest of the staff enjoyed (e.g final salary pensions, sick pay schemes, cheap mortgages if you work for a bank etc). This “second-tiering” is now being challenged, and some organisations are matching T&Cs for their outsourced staff, or even bringing them back inhouse. End users need to have a good look at themselves and ask themselves whether they have outsourced so that a tough line is taken with the FM staff, that is outside their own culture and values.

In the past, I can recall examples such as Barclays being at the time one of the most profitable companies in the UK but not paying their cleaners the London Living Wage until there was a major campaign. Similarly John Lewis Partnership declaring a bonus for all their staff but not for their contractors, and their cleaners were not paid the LLW. Obviously I would stress that these are historic examples, but both of those companies only changed their behaviour towards their FM suppliers when it became a visible public issue that was compromising their own brand. Are some organisations hiding behind outsourcing because they just don’t want to pay that much to operational staff?  

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? 

I guess a lot depends on the line taken by the government. If change is mandated, that pushes it further up the agenda. If it is supported with grants, funding and tax incentives, that will help too. If it remains a “nice to have” in some respects, organisations may decide not to have it. Institutional investors have an important role to play, as they can also be drivers for change. However over 50% of UK plc is owned by overseas shareholders/institutions, who may have different priorities. New buildings have sustainability designed-in, but 80% of the 2050 building stock is already built today, so the development of more cost-effective approaches to retrofitting will be a deciding factor.

There is a big focus on placemaking – creating cities, workplaces and environments that create a sense of belonging, purpose and unity. It’s more than building buildings, it’s making places. Do you think the recession will solidify or stifle this commitment? 

Some of the most interesting developments in this area are combining the concept of place-making with a reduction in travel. The concept of the “15 Minute City” – small scale mixed use conurbations with work, social, services and family all within a short, carbon-free travel distance – is a great idea. Some of our towns and cities are becoming more like this, and with changes in the commercial property market, coupled with the rising cost and declining quality of the commute, this change may accelerate. The pandemic gave people an opportunity to reflect on what is most important to them, how they like to work, how much time they want to spend with family. We are unlikely to see a return to the all-week 9-5 in a city office with a 1.5 hour commute each side.

Recessions usually see a spike in unemployment. That said, the UK is seeing record levels of employment. It’s a candidates’ market. The war for talent has never been fiercer. With that as a backdrop, what do you think will happen to talent attraction and retention with the dawn of the next recession? 

It’s a candidate’s market for sure – and for recruiters, some of the wider benefits/package offers become less attractive in a recession. Money in the pocket right now is the primary concern, with the cost of living increases and energy bills to pay. This makes it particularly hard for sectors like health, housing and education, where the salaries themselves are somewhat behind commercial levels, but the overall employment offer has other benefits. I can’t think of a client of Larch who isn’t struggling to fill FM posts, at all levels from basic operational to managerial lead roles. No one has ever worked in FM for the money and the glamour, but our perennial challenge of how to draw people into our sector is proving as difficult as ever.

How will the job market (whatever that looks like!) impact the industry – and workplace strategies? 

Two of the questions facing the industry are (1) how will technology help us to overcome our resourcing challenges? And (2) How will FM services (and the contracts and commercial arrangements behind them) adapt to reflect reducing and varying levels of occupancy now that hybrid working is the way forward? Will we see client companies more comfortable to pay catering subsidies to guarantee availability of a core level of service on days when it may not make sense on a purely commercial basis? Will we see different ways of engaging cleaning staff (the much-heralded but little-seen “uberisation” of labour) to map against fluctuating occupancy levels in buildings?

What can businesses in the built environment do to protect themselves from the potential economic curveballs associated with recessions? 

I’m not sure it possible to protect against a recession as such, but being prepared for a number of scenarios, and having plans for each of these, will help resilience. This recession is less unexpected than the previous one, so companies should be less likely to be caught by surprise.  

Any other comments? 

We are entering a period of significant change in the way we approach buildings, due to sustainability challenges, new working patterns and a step-change in technology. This will inevitably lead to new approaches and ways of working in the FM/workplace industry. It’s an exciting time for the profession, and with the large providers eating one another and becoming enormous, there is clear space under the mushroom-cloud of M&A for new ideas and offerings to come to the fore. We started Larch in the recession of the early nineties – adversity sparks creativity and breeds innovation. The client market is ready for some fresh offers.

Previous instalments of the building resilience series:

Mark Tyson Q&A

Rachel Basha-Franklin Q&A

Antony Law Q&A

Andy Topp Q&A

Rachel Houghton Q&A

Jeremy Campbell Q&A

Jo Sutherland