The State of the Industry: Inside the Forces Reshaping Cleaning and Facility Solutions

A state-of-the-industry talk rarely puts two people from opposite ends of the same building on the same stage. That was the whole idea behind the session led by Mike Fitts and Dan Smolensky, SIOR, at the Altus Summit on Tuesday, June 9, at ISSA headquarters.

Fitts, who joined 4M Building Solutions about a decade ago, sees the market through the eyes of a commercial cleaning provider. Smolensky, who founded TMG Real Estate Advisors roughly 15 years ago and has spent about 30 years in commercial real estate, sees it through the eyes of the tenants and buyers who occupy the space that gets cleaned. They ran the room like a town hall, traded perspectives on purpose, and used the natural tension between service provider and client to get at something useful.

Labor is the whole story

Fitts opened with the numbers, and they tell a hard story. The janitorial market is roughly $112 billion and growing at about 2.7% per year. The trouble is that the number of firms competing for that work is growing faster, around 4.2%, so more players keep chasing the same dollars. With roughly 1.23 million janitorial businesses in the market and a barrier to entry low enough to clear with a bucket, a mop, and a few rags, the pressure is not letting up.

Labor is where it all lands. Wages and benefits make up the overwhelming share of a cleaning company's cost, somewhere in the range of 80% to 90%, Fitts said, and cleaner wages are climbing about 4.3% a year. The fully loaded cost of a single full-time cleaner now runs north of $35,000. Turnover only sharpens the knife. The industry churns at one of the highest rates of any major sector, and every replacement carries real, often hidden, costs in lost productivity and retraining. The net result, Fitts said, is that margins have compressed to razor-thin, and for some operators, they have slipped into the red.

When the math stops working

Then came the part Fitts warned his supplier partners would not love. Costs are spiking almost everywhere. The producer price index for non-residential cleaning is up about 9.7% year over year, one of the fastest jumps in years. Roughly 72% of facility managers say they are cutting facility costs, and cleaning is a top target. Meanwhile, 22 states are raising their minimum wage this year, with an average increase near 8.7%. Tariffs have pushed equipment costs anywhere from 3% to 26%, supplies are up around 20%, and healthcare benefit costs are forecast to rise about 6.7%.

Stack it all up and the problem is obvious. A provider asks for a 9.7% increase to cover rising costs, then watches labor, benefits, and supplies climb past it, leaving a gap of nearly 10% that no one has filled. The gap, Fitts said, is the margin.

Fear in the workforce

The conversation turned to immigration, and the mood in the room shifted with it. Much of the entry-level cleaning workforce is made up of immigrants, roughly 31% of cleaning workers by the figures Fitts cited, with far higher concentrations in some markets. His read is that the bigger problem right now is fear rather than direct disruption. Assuming a company is meeting every federal and state requirement, from E-Verify to background checks, the damage tends to show up as workers who are simply afraid to come in. Operators in the room described workforces that run as high as 70% immigrant, with real service delays in markets where enforcement actions have people staying home. Layer in delays to work authorizations, and the labor math only gets tighter. The thread underneath all of it, Fitts said, is simple: clients just want people to reliably show up.

Industrial booms, rents follow

Smolensky took the room into the buildings themselves, starting with the side that has been on fire. COVID split commercial real estate into two extremes, and industrial was the winner. In Chicago, with about 1.4 billion square feet of industrial space, vacancy historically ran near 7% and then dropped below 3% during the boom. Scarcity did what scarcity does, and industrial rents jumped 40% to 70%. Smolensky pointed to a current deal where a tenant's base rent is moving from $6.50 to about $9.15 a square foot, a 46% increase that left the client's CFO stunned. In submarkets like Bolingbrook, space that once leased for $3.50 to $4.50 now goes for $8 to $9, roughly double. Reshoring is feeding it, with manufacturing now about 20% of new leases, and AI and data centers are adding fuel. Through mid-2025, the market absorbed about 424 million square feet of industrial space, up roughly 14% year over year.

The office reckoning

Office is the mirror image. Downtown Chicago holds around 450 million square feet of office space, and by Smolensky's count something like 10 buildings sit completely empty. Vacancy that was a healthy 12% to 13% a decade ago now runs near 27%, roughly one in four buildings effectively dark. The money is chasing quality. Newer, trophy buildings, with Fulton Market in Chicago among the standouts, are pulling tenants, while older Class B and C buildings are sliding, some down more than 20%. Nationally, office vacancy sits around 18.6%, the first decline since 2019 after years of climbing, with positive net absorption of nearly 30 million square feet. Even so, Smolensky called it a tale of two markets, with Class A holding while the rest struggles.

The behavior behind the numbers is the real signal. Tenants are signing shorter terms and avoiding big commitments because they do not yet know what their own headcount will look like. Return to office peaks midweek, with Tuesday attendance around 66% and trophy buildings near 95%, and more than half of large employers now require some return, a handful demanding all five days. Space per employee has fallen to roughly 100 to 150 square feet from about 250 before the pandemic, and hoteling has gone mainstream. Smolensky estimated that close to 287 million square feet of office is permanently gone, and argued that office needs the same right-sizing retail went through, including the teardowns and conversions that have barely begun.

Where the growth is

Not everything is contracting. Healthcare stands out, growing about 7.5%, nearly three times the broader market, which is why so many providers are eyeing it. Fitts also flagged a risk hiding inside many books of business: while the average building service contractor serves roughly 191 accounts, a single corporate campus can represent 20% to 50% of monthly revenue. When that tenant downsizes, the cleaning scope shrinks with it. The bigger wave may still be ahead, too. By Fitts's figures, close to half of the large pre-COVID leases have not yet rolled over, with many 10-year deals coming due in the next two to four years.

Robots, AI, and the rollup

Technology is reshaping both sides of the table. Smolensky noted that law firms and other office tenants are leaning hard on AI tools, including platforms like Claude, ChatGPT, and Grok, to draft and pressure-test their work, which trims support headcount and the space that goes with it. On the cleaning side, roughly 67 million square feet is now being cleaned by robots, a figure growing about 22% a year, with at least one operator running more than 70 robots across 50-plus sites. Consolidation is moving just as fast. Smolensky pointed to about 152 facility-services M&A deals in the past four months alone, with private equity rolling up smaller firms that trade at four to six times EBITDA while national platforms command closer to 12.

Partner, not transaction

For all the data, both speakers kept circling back to one idea: the relationship has to be a partnership, not a transaction. Fitts deliberately cast Smolensky as the enemy early on to surface the tension operators feel with the client side, then flipped it, invoking Sun Tzu's idea of knowing your counterpart so well that you actually understand them. Smolensky made the case with stories. In one, a tenant preparing to move out faced a $25,000 cleanup bill for a warehouse restroom that, by the look and smell of it, had never been properly cleaned, an avoidable expense the right custodial plan would have erased. In another, he saved a client a five-figure HVAC charge simply by reading the lease and working the landlord relationship. The lesson he drew was the same one Fitts kept pressing: exit clauses, building condition, and employee experience are all places a provider can prove value beyond price.

Adapt or get left behind

The close was a challenge more than a summary. The fundamentals matter more than ever: showing up, solving problems, and building real relationships. What is changing is how quickly the ground moves and how many tools now exist to keep up. Smolensky relayed a line he had heard recently and clearly believed, that AI will not replace real estate brokers, but brokers who use AI will replace those who do not. The same goes for cleaning. Point an AI tool at a prospect's website, ask it to surface a couple of problems a day, and the machine will hand back more than most teams could find on their own. Businesses are not static, Fitts reminded the room. The companies that keep adapting will be the ones still standing when the next correction comes.

Be sure to watch for the next Altus Summit event!