Margins in the facilities management sector are set to fall as more construction firms enter the market, economic forecaster Martin Hewes predicted this week.
He said that returns would fall over the next few years as contractors looked for extra income streams, but that margins would never fall as low as in traditional contracting.

Building's contractors and housebuilders' league tables, published this week, reveal that last year the average FM margin for the 25 largest contractors was 3.7% – compared with 5% in 1999. But this was still ahead of the 2% average in traditional contracting.

Hewes said: "There are a lot more companies getting involved in FM so it's more competitive. But even at 3% it is still more lucrative than contracting so the firms entering it now aren't going to grumble."

He added that margins would not fall dramatically because "the FM market is far larger than basic contracting, so there's a lot of scope to increase market share without cutting margins too much."

Stephen Rawlinson, an analyst with stockbroker Peel Hunt, said margins should not fall at all.

"There is so much work about that there is no need for firms to break ranks and offer lower margins. There is no logical reason to do so because if they don't get a contract, they will pick up the next one."