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With the rise of multi-storey, multiuse skyscrapers, large-scale community developments and other groundbreaking property developments, the facilities management (FM) industry is taking on new and bigger challenges in the UAE.
While the FM sector is relatively new to the GCC, it has developed quickly on the back of significant real estate and infrastructure investment over the past decade.
According to Credo, a facilities management strategy consultancy, total spend on FM in the GCC was estimated at $21.8 billion (Dh80.07 billion) in 2012, the majority of which was in the UAE, Saudi Arabia and Qatar.
Alistair Stranack, a Partner at Credo's Dubai office, says the total outsourced FM market in the UAE is estimated at $4.7 billion, with a strong annual growth of 10-20 per cent per year expected over the next four to five years. Stranack says this is supportedby a number of growth drivers, including an increase in floor space as the construction market recovers, growing customer awareness of the importance of FM and increasing outsourcing rates.
The construction boom and the sudden surge in the number of high-rise structures in Dubai fuelled the rise in demand for FM services and pushed the market away from segmented services towards integrated FM (IFM) solutions.
''The UAE is leading the market,'' says Ali Al Suwaidi, Board Member of the Middle East Facility Management Association (Mefma). ''We gained experience during the construction boom in 2006, when we were pushed to go for outsourcing options in facilities management.''
The sector has not only grown in size over the past decade, but also in scope, with companies growing from small, specialised entities to large, multifaceted corporations. FM providers now offer a whole gamut of services, including housekeeping, security, maintenance, technical support, concierge, front desk, pest control, elevator maintenance and CCTV.
''There has been more movement from vertical management to horizontal management,'' says Tariq Chauhan, CEO of EFS, an IFM service provider. ''In horizontal management, people are looking to outsource to noncore areas of their business. More corporates are looking to outsource to non-FM areas such as office cleaning, receptionist work and replenishment of cafeteria items.
''FM is evolving in many ways while it's growing. EFS has shown more than 50 per cent growth in nontraditional FM areas.''
Along with more local FM companies, international FM giants such as OCS and ISS are now eyeing the UAE.
''We have seen significant changes in the industry. It's evolving to a mature stage,'' says Chauhan. ''In the second construction boom, they are realising that FM is a tool. What I'm seeing is the industry settling down and maturing while there is growth.''
According to Mefma's GCC FM Briefing 2013 report, while supplier contract margins are down from a pre-recession high of 15 per cent to about 10 per cent, higher margin opportunities are more likely to exist in specialized sectors such as health care.
''Because of the construction boom, the FM industry has been trying to specialize in different sectors such as airports, hospitals and schools. The residential and commercial segments have become a norm, while the biggest chunk of the market are airports and infrastructure,'' says Al Suwaidi.
With the government pushing towards an energy efficiency target of 20 per cent by 2020 and forthcoming retrofit regulations being put in place, energy management will be one of the key trends in the FM industry.
The government has established a green building code to ensure buildings are designed with sustainability in mind. As such, new buildings are now more energy efficient than those built five years ago. However, the existing building stock will be responsible for the majority of consumption for some time into future.
According to another report by Mefma and Credo on energy management, energy and FM typically represent 50 per cent and 40 per cent of a building's costs respectively.
''This presents an opportunity to leading players who can react, though greater competition from energy service companies and technology companies can impact those slow to react,'' says Stranack. ''However, in spite of growing interest, the market has been limited to date, with a number of obstacles preventing it from taking off.
''Landlords are concerned that they would struggle to capture the benefits of energy-saving investments. They are sceptical that improving energy performance will have any impact on rental yields.''
Looking ahead, the UAE's IFM industry is set to benefit from a number of big-ticket projects spurred by the World Expo 2020 set to take place in Dubai.
''Expo 2020 is stimulating activity across all sectors and is set to have a positive impact on the FM industry,'' says Stranack.
According to Al Suwaidi, one of the biggest growth areas will be the hospitality sector because of the large number of hotels that will open in Dubai.
While the industry has been growing in leaps and bounds, Credo states that the main challenge for the FM market will be budgetary pressures, which can continue to erode margins, and a possible return of inflation, which can lead to significant pressures on the cost base.
''FM prices in the region have fallen in recent years, largely as a result of the recession, forcing customers to look for savings at the same time as competition escalated from a surge of new players entering the market,'' states the GCC FM Briefing report.
Price remains one of the most important considerations among customers when choosing an FM. Customers are also apprehensive about the risks tied into contracts that last longer than three years, according to Credo.
''We do not expect significant increases in the price of FM going forward, particularly as those interviewed indicate price is the most important factor in the purchase decision,'' says Stranack. ''But adopting sophisticated delivery mechanisms will protect margins and ensure the GCC FM market continues to grow at a healthy rate.''
While labour eats up a large chunk of the total cost of FM operations, government regulations, including minimum wages and higher visa costs, have pushed the cost of labour further up in the GCC in recent years.
According to Mefma's report, the cost of labour in the region will continue to rise in the long term.
''Historic trends are forecast to continue and competition for blue-collar labour will increase from other sectors [e.g. hotels],'' the report states.
Relatively unsophisticated procurement methods, commonly with short-term, single-service contracts, is another challenge that needs to be addressed.
''However, growth in service bundling and total facilities management, coupled with increasing outsourcing across government estates, has seen a number of large contracts coming into the market, with multiple contracts covering hundreds of assets and with annual values extending to more than Dh40 million,'' says Stranack.
While IFM is becoming more common, there is a need to further consolidate the different services.
''The IFM structure is common and picking up, but people are not necessarily following it. I would say the market is still fragmented,'' says Chauhan. ''There are a number of services that have their own in-house structure. Eventually, the structure has to be integrated all the way up to the supervisory and top levels to ensure a better output.''
Aside from streamlining operations, FM companies also need to start getting more involved in projects, from the design to construction and handover.
''We cannot wait until the building is operational,'' says Al Suwaidi. ''We have to really give our input in the new building so we avoid mistakes. We are increasingly seeing companies do that.''
To ensure better accountability, steps are also being taken to implement a standardized rating system.
''A number of initiatives are underway to establish standards and benchmarks for the industry,'' says Stranack. ''As these gain traction, standards are expected to rise across the market, as clients demand high-quality services.''
Source: Aya Lowe, Special to Property Weekly