This blog is part of our Covid series that explores a range of topics related to these issues and will naturally evolve as events unfold and facts reveal themselves. The blogs are in no way intended to provide scientific or health expertise, but rather focus on the implications and options for facilities services and workplace organisations.
These insights are based on our ongoing interactions with organizations operating in impacted areas and our expertise in facilities service growth delivery.
Clearly, the coronavirus (COVID-19) already has an impact on the global economy and broader market. Companies are cancelling conferences and events. They are closing their campuses to outsiders. Travel is restricted. And in some instances, companies impose a work-from-home policy. In the facilities services industry, decision-making is stalled, and we already see clients cancelling planned contracts.
How bad is the disruption to the services industry? It will have a negative impact on revenue growth in the next quarter (ending in June 2020) and potentially in several quarters to come. New projects will be postponed or cancelled. This is because, first, companies simply cannot buy complicated services without some form of travel. Second, any large initiatives require executive support and energy, and they won’t have time to push contracts forward during the next few months.
The best-case scenario is that the impact will last only one or two quarters, and the impact would be the postponement of projects and new initiatives and only a modest number of new contracts cancelled.
We at Baachu Rain assumed that the first half of 2020 would see demand for agile workplace technology deals. But the workplace technlogy trend for moving to large projects requires even more executive attention. Travel restrictions will significantly complicate or slow this trend, so it’s hard to believe we’ll see companies initiating large facilities and workplace technology projects in the next few months.
In addition, the ongoing uncertainties from the US elections, Brexit, and trade wars will continue to create uncertainties in the third and fourth quarters. We don’t think that will recede. Consequently, we don’t know how long the coronavirus tail will last.
But there is good news – the workplace modernisation trend will continue. The rationale for these deals is too strong. And these projects are often self-funding in that they pay for themselves through increased efficiency. But workplace modernisation projects won’t resume until we get beyond the period of travel restrictions.
The COVID-19 impact definitely will create a pause in commercial activity. Hopefully, this will pass as summer comes and a vaccine becomes available. But it’s unclear how long the pause will last.
Unfortunately, the travel, hospitality, retail and energy (oil and gas) industries face a potential existential crisis due to the COVID-19 impact. They already are experiencing huge drops in their business. In these industries, we expect companies to cancel more contracts and potentially look for discounts and help to get through a very difficult time.
Having said all that, there is a bright side. The underlying need for modernization isn’t going away, and those transactions are recession proof because they are self-funding. They will come back after the travel restrictions end and executives can commit to support them.
Bottom line: Short-term shock and potentially some tail to the problem driven by travel restrictions and lack of executive attention. It’s clear that we have this disruption now, but we will get through it. The market will return because the underlying fundamentals and nature of these deals are strong. Even in a recession, the pivot to modernisation and digital at scale will not go away. However, in case of a recession, the nature of the deals will change in that companies may need to look for funding.
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