Smart Bazaar

Introduction

Real estate professionals who operate global real estate portfolios face an especially difficult macroeconomic environment today. To make sound budgeting and other decisions, leaders must seek out the best information and proactively engage with experts who can interpret data and provide an actionable way forward.

In that spirit, CBRE’s Strategic Investment Consulting, Global Workplace Solutions (GWS), Procurement and Facilities Management (FM) teams collaborated to create a proprietary FM Cost Index. This report describes the historical and projected movement of the index across global regions. The report enables meaningful early discussions with budget decision-makers, informed by objective data regarding changes in facilities costs. It builds on the inaugural report issued in 2022 with a few key additions:

  • Increased global coverage, including annual FM Cost Index estimates and forecasts for other important indicators for 16 global markets.
  • More detailed FM Cost Index estimates and forecasts for the U.S., including both wage and contract cost growth estimates by quarter and U.S. region.
  • Enhanced energy cost growth estimates and analysis, including forecasts for key energy commodities.

This report and our recommendations should be useful for budget planning and decision making. Should you have any questions or feedback, reach out to the contributing authors listed on the final page of this report.

Executive Summary

FM cost inflation peaked in 2022 in the U.S. and across most of the world. If it materializes, the expected recession in early 2024 will likely weaken upward pressure on contract costs (core components of FM costs), but labor markets will remain tight and wage growth will drive FM cost growth.

Inflation is expected to linger for hard services (e.g., electrical, plumbing and HVAC), where wage and input price pressures continue. Intense competition for labor in 2021-2022 challenged soft services (e.g., security, janitorial and landscaping), but general labor market softening has provided some relief.

Globally, the U.S. and other advanced economies have experienced similar cost growth trends, though some regions have had more volatility, and pressure on FM costs is expected to last longer in many European markets.

Energy prices have been volatile around the world, which impacted facilities budgets in 2022. Though oil prices are rising, natural gas and coal prices have softened substantially in most global locations in 2023, including in the U.S. Countries that rely heavily on fossil fuel from Russia should expect continued volatility.

Global supply chain rebalancing has helped drive down inflation rates in many countries, though labor shortages, especially in Europe and some parts of Asia-Pacific, will continue to pose a challenge.

The FM cost outlook will depend heavily on difficult-to-predict external factors like government policy, global conflict, the climate and supply chain resilience, but most facilities should see slowing cost growth in the next two years.

FM cost inflation in Mexico is slightly higher than the ranges above and expected to be stickier than in the U.S. and Canada, while Argentina is an extremely high outlier in the region.

Poland has had much higher FM cost inflation than Eurozone countries, while the U.K. is on the upper bound of the above ranges.

FM cost inflation in China and India is expected to be higher than the above range, while cost inflation in Japan will remain much lower.

Key U.S. Indicators

7.6%

  • Average annual growth of U.S. FM Cost Index in 2022
    (Compared to 2.5% pre-pandemic)
  • FM cost inflation peaked in 2022 at 3x the 2017-2019 average
  • See Figure 6 for additional North American markets

3.3%

  • Forecast annual growth of U.S. FM Cost Index in 2023
    (2.5% expected in 2024)
  • FM cost growth is expected to slow substantially in 2023-2024
  • See Figure 6 for additional North American markets

4.0%

  • Annualized FM Sector wage growth through Q1 2023
    (Compared to 8.5% in Q1 2022)
  • Slowing wage growth is a large driver of disinflation in early 2023
  • See Figure 24 for a U.S. breakdown by sector

29.1%

  • Change in input costs for FM service providers since 2019
    (Compared to 19.7% final cost)
  • Contracts with service providers may stay inflated for a period while they recoup excess input costs
  • See Figure 18 for a U.S. breakdown by sector

-27.1%

  • Forecast annual growth of U.S. Energy Costs in 2023
    (Compared to 47.6% in 2022)
  • Energy costs are falling and expected to be lower in 2023 which should help with total facilities budgets
  • See Figure 9 for a breakdown by commodity