Preparing for the Future

As a business owner or manager, are you ready for the changes that are taking place with your clients or customers to meet their needs? Many large companies are consolidating, going public and acquiring mid-size firms, and many small firms are seeing opportunities in the gaps that are being created.

Business cycles are much faster today than they have ever been in the past. The education many of our parents received was always considered to be enough to last them for a full career. This was conceivable as the total amount of knowledge in the world used to double only every 30 or 40 years until the advent of the computer and modern telecommunications. Now it is estimated that the amount of knowledge doubles every 18 months.

There is a need for continual education in today’s business environment. Our customers have access to information on almost any topic through the Internet. We need to keep up with them if we hope to communicate with them and meet their needs.
One of the most significant impacts on the operations of the commercial real estate industry has been the change in the type of ownership.

Until just a few years ago most real estate was owned by developers, privately-owned firms and closely-held public businesses. Now real estate is much more in the hands of larger public firms, pension funds and Real Estate Investment Trusts (REITs). This public ownership places real estate under the close scrutiny of investment firms and their analysts who will look closely at a company’s operations and how it is managed before recommending the stock.

These companies are in a position to access operating costs from other firms and properties through vehicles such as the Internet and, if they feel the properties are not well managed, it will impact the stock price. Many of the decisions impacting costs and operations are made by asset managers who strictly look at the numbers and, in some cases, may not see the property, which could be thousands of miles away.

The users of office space and the way they use the space is also changing. We are not seeing the whole world moving to working out of the home and office buildings becoming dinosaurs as was being predicted. What we are seeing more of is telecommuting with the office space being used as shared space for group activities such as meetings and brainstorming sessions.

Many facilities are now being used 24 hours per day, seven days per week, as tenants try to get the most value for their rent and use the space as much as possible. They are paying for 168 hours per week, so why only use it for 40 hours? As these tenants demand more flexibility in how they use space, they are looking for more flexibility from their service providers.

Another major force in the market place has been mergers and alliances. We have seen the disappearance of some of the oldest and largest janitorial firms in the country as they have been purchased or merged with other firms. Three of the oldest firms in Toronto alone have disappeared in the past six months. This has created less competition, but also greater opportunity for other firms to move in and fill the gap. Purchasers of cleaning services will still look for three to five bidders and will continue to be on the look-out for new players they can call upon.

These mergers and alliances have also been taking place in the real estate management industry creating fewer but much more sophisticated clients. These large firms are successful because they are very successful operators and know how to get maximum value from their service providers. They also look to do business with fewer firms, ones they know and trust, and will consolidate all of their business with these firms. This consolidation, plus the consolidation by other large owners of property has seen firms that may have used over 1000 different contractors reduce to less than 10.
Thousands of small firms have been significantly impacted and we expect this trend to grow stronger in the future. There are many benefits to the property manager, besides reduced cost, by doing this, such as:

·    Less invoices to process;
·    Less suppliers to deal with;
·    More uniform standards.
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Real estate companies today don’t want their property managers having lunch with their suppliers, but they do want them meeting with their customers – the tenant.
As stated earlier, many of these business changes are a result of technology and service firms in the future will have greater technological expertise. We are seeing clients looking for more information in a timely fashion such as reporting on costs per day; electronic work orders and invoices in electronic format. All of this technology costs more to implement and requires personnel with higher levels of education.

There is a bright side to all of this, however, for contractors who are prepared to recognize change and accelerate their business cycles. It has been predicted that the number of contract workers will grow in North America to over 50 per cent of the labour force. Providing janitorial services has grown from a billion dollar business to a multi-billion dollar business in a very short period of time.

Successful firms no longer position themselves as janitorial firms but as full facility maintenance firms providing mechanical maintenance and other services. This is a natural outcome as the large management companies look to reduce the number of rims they deal with and buy more services from one firm.