One segment of the real estate sector that has seen continuous growth in recent times, despite the ups and downs of global and local conditions, is facilities management (FM). Dubai is a pioneer in this field within the region, a role that has brought both benefits and costs. As customers grow more sophisticated in their needs, the FM market is adapting, with Dubai’s greater experience in the field helping it continue to lead the regional – and international – market.
GCC Growth Engine
The most recent survey of the GCC FM market, undertaken by consultancy Credo and the Middle East FM Association (MEFMA), showed that while FM was a relatively new phenomenon in the region, by 2012 the spend had already grown to an estimated $21.8bn. Since then expansion has been rapid. By November 2015 the Saudi Arabian market was worth $20bn alone, while the UAE was set to hit $5.4bn, according to Imdaad, one of the GCC’s top FM companies. The third-largest FM market in the GCC is Qatar, where growth was expected to hit 75%, year-on-year, in early 2015.
The main driver behind these countries’ FM growth is construction and real estate. All three have seen a sustained rollout of new builds in recent years, in areas from airports to apartment buildings, and mansions to malls. A recent study by Middle East Strategy Advisors calculated that some $220bn worth of projects were either under way or in the pipeline over the next five years in Saudi Arabia, the UAE and Qatar, potentially escalating the FM industry in those countries to a value of around $892bn in the next 25 years.
In Dubai alone, the year 2015 was due to see 12,000 more apartment units, 2000 villas and 350,000 sq metres of new office space come on the market. Future supply is also significant – 19,000 more residential units in 2016, and 17,000 more in 2017, according to the JLL consultancy – along with 419,000 sq metres more of retail space in 2016 and 82,000 sq metres more in 2017. New office construction will also add 704,000 sq metres by year-end 2015, 200,000 sq metres more in 2016 and 338,000 sq metres more in 2017. In the hotel segment, some 3000 more rooms will be rolled out by year-end 2015, while 8500 more will be added in 2016, 10,100 more in 2017 and 9300 more in 2018. Thus, a major supply pipeline of real estate is in place, adding to the existing stock. In the second quarter of 2015 JLL estimated the real estate supply at 7.8m sq metres of office space, 379,000 residential units, 2.9m sq metres of retail space and 65,000 hotel room keys.
While traditionally management of facilities such as these might be undertaken in-house, developers have increasingly been recognising that outsourcing this to professional FM companies makes sense – both for bottom lines and quality of service. The UAE excels in this sphere, in comparison to other GCC markets, as it has a high level of outsourcing – comparable to the US, according to the Credo-MEFMA study.
Other GCC markets fall some way behind this, with Kuwait, Saudi Arabia and Oman more comparable with France and Germany. This gives Dubai – and Abu Dhabi – a good framework on which to base future growth, while other GCC markets may still have to overcome barriers to FM entry and the relative novelty of outsourcing such services.
Dubai’s status within the industry as the pioneer emirate for FM has also led many regional FM companies to base themselves in Dubai, even when doing business elsewhere. The emirate’s potential in this field is also underscored by the fact that a wide range of the facilities and services provided by local authorities in Europe or North America are instead provided by the management of gated communities. These might run the range of services from FM-operated schools to grass cutting and plant watering. This has also given FM companies in Dubai a range of experience that few in the sector can rival, worldwide.
For all its potential, the sector does face a range of challenges. One is responding to the growing sophistication of the market, particularly in Dubai. An example is in hotels. Whereas previously, a particular brand might have its own way of doing things right down to the way it folds its sheets, leaving FM companies to run services such as plumbing and mechanical maintenance, in the current market brands are looking for FM companies that are capable of taking on front-of-house services too.
The range of clients looking for FM has also widened, with health centres and educational facilities also looking to outsource many services. At the same time, while demand for FM has been increasing, the number of companies in the market has also jumped. This creates margin pressure, especially at a time when many clients are looking to cut costs in response to global and regional economic trends. With the decline in oil prices, for example, a great deal of GCC business is affected, even in the emirate of Dubai, which has a small domestic oil and gas sector when compared to some of its neighbours.
In general, however, FM is fairly well protected against economic downturns, as completed projects still have to be managed, even if conditions are not good; even abandoned ones still require site security and other services. Thus, the FM market largely rode through the 2008-09 crisis unharmed.
The main cost in FM is labour, which in Dubai is almost entirely imported, adding a visa and transport expense to employment costs. There are no minimum wage laws in the emirate, however, although some source countries may have legislation to this effect and certain white-collar professions, such as teachers, do have a basic established wage level. Salaries in many sectors are, however, generally determined by negotiation.
In recent years, the GCC in general has seen wage levels rise, and in Dubai, which has a relatively high cost of living – Mercer’s 2015 Cost of Living Survey ranked the city 23rd most expensive in the world, up from 67th in 2014 – pressure is on for wages to keep up with inflation. Another pressure is the ever-increasing demand for workers itself, which as the number of projects increases, both in Dubai and elsewhere, sometimes moves ahead of new supply.
Thus FM companies face higher costs, yet falling prices in a more crowded and competitive market. Meanwhile, however, there is a growing recognition in a more sophisticated market such as Dubai that price is not everything. Quality of service is an important aspect, with those FM companies able to deliver competent, well-trained and motivated staff able to establish long-term contracts with developers and facility owners. Such long-term deals offer potential cost advantages to both FM companies and their contractors, while also integrating FM functions into a facility owner’s long-term strategy.
Highly specialised or niche FM is another area where there may be high margins still available, such as in white-collar services in health and education. The provision of stringent quality standards, monitoring and regulating of performance also become more central as FM moves in this direction.
Another area in which FM is developing is in participation at the project development stage. While this is still largely confined to mega-projects, where an FM company may give its input at the design stage, it may well be a key future trend. This dovetails with calls for a greater focus on sustainability and energy efficiency. FM experts looking at a new real estate project can see the new office block or housing project from the perspective of future potential management and maintenance challenges, which are often considerable. A 2014 MEFMA report showed, for example, how some $3.6bn a year is wasted in the GCC by inefficient energy management systems in buildings.
It may well be, then, that future FM contracts will feature key performance indicators (KPIs) which will contribute to the setting of energy-efficiency targets. At the same time, other “green” standards are likely to become more prevalent, with areas such as building emissions control and waste management also potential future KPIs. These developments are likely to be assisted too by the increasing numbers of smart buildings on the market. These facilities enable FM companies to adjust their labour requirements away from numbers and into quality, as remote monitoring becomes more widespread.
Thus, the FM segment faces a future that is likely to be much more high-tech, with an even stronger requirement for high levels of training and professionalism. The industry will have to adjust to these changes as well, going forward, as it contends with tighter margins and a continuing surge in demand. The potential size of the market, however, will continue to make FM a growth industry in Dubai, with companies based in the emirate also able to benefit from major growth in regional markets and beyond.
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