Every December I try to make sense of the year that just happened in Tennessee’s security industry. Some years the story is simple. This one isn’t. Nashville boomed. Memphis got more dangerous. The rest of the state hummed along at various speeds. Technology started changing how guards work, and the labor market started making it harder to find them.
Here’s what 2016 actually looked like, by the numbers and on the ground.
Nashville: The Construction Boom Effect
Nashville’s security market had its best year in at least a decade, driven almost entirely by construction. Cranes have been a permanent fixture of the downtown skyline since 2014, and 2016 brought even more: new hotels along Broadway and Demonbreun, the mixed-use developments spreading through the Gulch and Germantown, residential towers rising in SoBro and along the Cumberland River.
Every active construction site needs security. Lumber, copper, tools, and heavy equipment disappear from unguarded sites with remarkable efficiency. Nashville PD reported a noticeable uptick in construction site theft during the first half of the year, which pushed developers to get serious about overnight guard presence and camera systems.
The numbers are hard to pin down precisely because construction security contracts are often buried in general contractor budgets. My best estimate, based on conversations with a dozen firms operating in the Nashville market: the city added between $8 million and $12 million in new security contracts directly attributable to construction activity in 2016. That’s guard services, temporary camera installations, access control for active sites, and patrol routes covering staging areas.
Beyond construction, Nashville’s growing hospitality sector created steady demand. New hotels need security. New entertainment venues along Broadway and in Midtown need door staff and crowd management. The Nashville Predators’ Bridgestone Arena continued to be one of the state’s biggest single-venue security operations.
Nashville added more new security contracts in 2016 than any other Tennessee city. Whether that pace continues into 2017 depends on whether the construction pipeline stays full, and early indicators suggest it will.
Memphis: Crime Up, Demand Up
Memphis’s story in 2016 is grimmer and more familiar. The city’s overall crime rate rose approximately 4.6% over 2015, pushing the rate to roughly 1,820 per 100,000 residents according to preliminary FBI data. Property crime and violent crime both increased. Auto theft was particularly bad, with Shelby County recording double-digit percentage increases in vehicle theft for the second consecutive year.
For the security industry, rising crime translates directly to rising demand. Memphis remained the volume leader in Tennessee for armed guard deployment throughout 2016. Commercial property owners along corridors like Lamar Avenue, Summer Avenue, and Elvis Presley Boulevard continued to be the industry’s core client base.
The Memphis market is different from Nashville in a critical way: Nashville’s growth is driven by economic expansion and optimism. Memphis’s demand is driven by necessity. Businesses in Hickory Hill or Frayser don’t hire security guards because the economy is booming. They hire guards because someone broke in last month.
That distinction shapes the type of work. Memphis contracts skew heavily toward armed guard services, overnight patrol, and alarm response. Nashville contracts are more likely to involve unarmed presence, access control, and event security. Both cities are busy, and the reasons couldn’t be more different.
Memphis also saw continued consolidation in its security market. A couple of smaller local firms either closed or merged with regional operators during 2016. The cost of doing business in Memphis, particularly insurance premiums for armed guard operations, has been rising faster than contract rates. That squeeze pushes out smaller companies that can’t absorb the margin pressure.
Chattanooga and Knoxville: Quiet Growth
Chattanooga’s security market grew in 2016 without making much noise about it. The city’s technology sector, anchored along the riverfront and in the Innovation District, generated new demand for corporate security services. EPB’s fiber optic network has attracted tech companies that expect a level of physical security more typical of Silicon Valley than southeastern Tennessee.
The Volkswagen plant in Chattanooga, along with its supplier network along I-75, continued to be a major consumer of contract security. Industrial security contracts at manufacturing facilities represent some of the steadiest revenue in the business: long-term agreements with predictable hours and minimal seasonal variation.
Knoxville held steady. The University of Tennessee’s campus security operation remains the single biggest security employer in the Knoxville metro. Beyond the university, Knoxville’s market is dominated by retail, healthcare, and a handful of larger commercial properties along Kingston Pike and in the West Town Mall area.
Neither city experienced dramatic shifts in 2016. Both grew modestly. Both represent stable, if unexciting, markets for security providers.
TDCI Licensing: Holding Steady
The Tennessee Department of Commerce and Insurance processed approximately 4,200 individual guard registrations in 2016, a number consistent with the prior two years. New company license applications held roughly flat as well.
Two observations from the licensing data. First, armed guard certifications increased slightly as a percentage of total registrations. More guards are getting armed certification, which reflects the market’s preference for armed personnel, especially in Memphis.
Second, the average processing time for a clean application stayed in the six-to-eight-week range. TDCI hasn’t added processing staff despite steady volume, and applicants continue to report frustration with the paper-based submission system. Online filing remains unavailable.
The licensing numbers tell a story of a market that’s growing at the margins rather than expanding rapidly. Tennessee isn’t seeing the kind of guard-force growth that Texas or Florida experienced in 2016. The industry here is mature, and growth comes from replacing departing guards and adding incremental positions rather than from large new contract awards.
Technology Adoption: GPS, Cameras, and the Slow March Forward
2016 was the year GPS tracking of guard patrols went from novelty to expectation in Tennessee’s contract security market. Clients increasingly demand proof that guards are actually completing their rounds, and GPS-enabled smartphones or dedicated tracking devices provide that proof.
The shift has been contentious within the industry. Guards don’t love being tracked. Company owners see it as a liability management tool. Clients see it as accountability. The clients are winning this argument, and by the end of 2016, most mid-sized and large contract security companies in Tennessee had implemented some form of GPS patrol verification.
Camera technology continued its march toward ubiquity. The price of a commercial-grade IP camera system dropped enough in 2016 that businesses which previously couldn’t justify the expense started buying in. A basic 16-camera system with cloud storage that would have cost $15,000 three years ago now runs $6,000 to $8,000 installed.
The camera boom creates an interesting dynamic for the guard industry. In theory, cameras reduce the need for physical guard presence. In practice, the opposite seems to be happening: businesses install cameras, realize they need someone to monitor and respond to the footage, and end up hiring guards to complement the technology rather than replace them.
The Guard Shortage: Early Warning Signs
If there’s a single trend from 2016 that will define the next several years, it’s the emerging guard shortage. Tennessee’s unemployment rate dropped to 4.2% by mid-year, which sounds great for workers and terrible for security companies trying to hire.
Contract security has always competed for workers at the lower end of the wage spectrum. When unemployment is high, there’s a deep pool of candidates willing to work nights and weekends for $10 an hour. When unemployment drops below 5%, that pool evaporates. Workers who might have taken a security job instead take retail positions, warehouse work, or light industrial jobs that pay similar wages without the licensing requirements and irregular schedules.
Several Tennessee security company owners I spoke with described 2016 as the year hiring went from “challenging” to “painful.” One Memphis-based operator told me he’s running 15% below his contracted guard count because he simply can’t find enough qualified applicants. Positions that used to fill within two weeks are now sitting open for six.
The wage pressure that follows is inevitable. Security companies will need to raise pay to attract and retain guards, and those increased costs will get passed to clients. Contract rates in Tennessee have been relatively flat for years. That’s unlikely to continue.
Consolidation Watch
National security firms continued acquiring smaller regional operators in 2016, a trend that’s been building for the past five years. The largest national companies are growing through acquisition rather than organic expansion, buying up local firms with established client relationships and trained workforces.
Tennessee hasn’t been the primary target of this consolidation wave (Texas, California, and Florida have absorbed more acquisitions), and the effects here are still subtle. A local Memphis firm gets bought by a regional player based in Atlanta. A Nashville company merges with a competitor from Knoxville. The brand names change on uniforms, and the contracts mostly stay in place.
The long-term effect is fewer, larger companies competing for contracts. Whether that’s good or bad for clients depends on whether the larger firms can maintain the service quality that local operators built their reputations on. History suggests they often can’t, at least during the transition period.
Looking Into 2017
Prediction is a fool’s game, and I’ve been a fool often enough to know better. That said, three things seem likely heading into 2017.
Nashville’s construction pipeline shows no signs of slowing. Security demand there will remain strong through at least mid-2017, probably longer. The city’s economic momentum is real, and every crane in the skyline represents months of future security work.
Memphis will continue to be a high-volume, high-risk market where armed guard services dominate. The crime trends driving demand haven’t reversed, and the underlying economic conditions that fuel property crime in Shelby County aren’t changing quickly.
The guard shortage will get worse before it gets better. Unemployment projections suggest Tennessee will stay below 4.5% through 2017, which means the hiring pain security companies felt in 2016 was a preview, not a peak.
Whatever happens, Tennessee’s security industry will remain one of the more interesting regional markets in the Southeast: two major cities with opposite growth stories, a steady regulatory environment, and a workforce problem that nobody has solved yet.