Service charges in the Facilities Management (FM) industry have dropped by 10 to 20 per cent in the last 12 months as the real estate and construction industry passes through a tough time, according to experts.

Ian Kennedy, Senior Facilities Manager, Brookfield Multiplex Services, said: "Renewal of FM contracts has seen a trend towards a drop of 10 per cent to 20 per cent from previously contracted fees."

In a survey conducted by Emirates Business, Samer Al Qada, Managing Director, Facility Services, G4S; Kyle Bashy, Business Development Director, Middle East, for Honeywell; Abdelaziz Rihani, General Manager, Portland Middle East Facilities Management; Rohit Dalmia, Business Development Manager, Al Shirawi Facilities Management; Ravi Kumar, Service Technical Manager, Belhasa Engineering & Contracting; and Sean Heckford, a senior FM Consultant, International Built Asset Consultancy EC Harris, confirmed that more companies were entering the FM sphere due to the huge opportunities available in the Middle East.

As regards the areas where maximum savings of service charge costs can be achieved by property owners, Dalmia said: "The bulk of savings for a property owner is related to the Dubai Electricity and Water Authority (Dewa) with water, electricity and sewage, which all can be controlled significantly."

Excerpts:

Can you tell us if the facilities management service charges have dropped in the last one year considering the downturn in the real estate sector?

Qada: Yes, charges for FM services have dropped 10 per cent to 20 per cent due to a slowdown in the real estate market in the past two years. As an FM services provider in the UAE, we have been affected as a result. We know some of our existing customers have revised their FM contracts to read the reduced costs.

Bashy: According to us, there has been anything up to a 20 per cent drop in FM charges this year owing to the decline in the construction industry.

Kennedy: Over the last year, generally, renewal of FM contracts has seen a trend towards a drop of 10 per cent to 20 per cent from the previously contracted fee. However, I do not expect this trend to continue in the foreseeable future, especially now that fuel and food prices have increased, resulting in potentially higher operating costs. These costs are also compounded by lower buying power since the UAE currency is pegged to the dollar.

Rihani: To some extent, FM charges have dropped owing to the recent recession which has not only affected the FM sector but other real estate sectors as well. It's a chain reaction.

However, the FM industry is the only business that can perform well in today's market. Developers and home-owners want to keep their property value by maintaining them properly. Of course, there's a slip slop in the charges when compared to last year by five per cent to ten per cent.

Dalmia: It would be wrong to generalise an increase or decrease in service charges across the board because it varies from building to building. One has to understand the complexity that goes into determining service charges and the handover status of the premises. With advancement in energy savings, we have seen service charges drop but at the same time we have seen them rise due to poor design and build quality. It's really a case-by-case situation.

Kumar: In my opinion, FM charges have not dropped despite the current global crisis. Some developers who had set high charges prior to Real Estate Regulatory Authority (Rera) regulating the service charges, are reducing them today. But developers who were reasonable and had competitive service charges have not made much of a difference in value even after Rera regulated the market.

Heckford: No comment.

Is the industry recording more new entrants?

Qada: Yes, the real estate market has been witnessing new entrants considering the market before in the UAE and GCC had very much potential with many projects under construction. In fact, the last year has been a great chance to all FM companies to prepare themselves for huge potential in the Abu Dhabi and Dubai real estate markets for the next 20 years.

Bashy: Yes, while some tenants are looking for cheap means to manage properties, there are many looking to employ professional and quality FM companies. Unfortunately, I do not believe the two go hand in hand and there is huge diversification in the market between new and smaller companies that see the chance to make a quick buck. There are still those who are more established and experienced players who can still deliver value through more strategic methods of cost savings and an eye on the longer-term life cycle of a building.

Kennedy: There are new entrants in the industry. This is consistent with the normal trend in times of commercial downturns, where there are a number of new entrants based on the assumption it is a horizontal integration for related industries to branch out into the FM industry in order to help them through the tougher times.

Rihani: Several international companies have entered the market with many local companies being established recently. Also, some developers have chosen to divert their business activities to the FM sector, either to stay as a player in the construction field since developments are on hold or to profit from the occasion and establish their own FM companies as they foresee it's a profitable business so far.

Dalmia: In terms of volume there are more new entrants. However, in terms of value, most likely not. When the construction boom ended, FM was inevitably going to be the next big thing. The model isn't unique to the UAE but is the same across the world. Given the sheer volume of real estate developers (large and small) and real estate brokers combined with the construction slowdown, everyone shifted their focus towards FM. Moreover, developers even started their own FM companies assuming it would be relatively cheaper to perform services in-house and/or retain the profits internally. Now there is a glut of new FM companies, the majority of them being small in size with poor service levels and pricing that was impractical. Of course, given the recessionary pressure on developers and owners, such fly-by-night FM companies did breed for some time. Also, there has been consolidation in the FM market with several of these new FM companies either being ceased, merged or given up expansion. As a result of such consolidation, we are inevitably receiving more and more enquiries directly from developers.

Kumar: Yes, new entrant FM companies are expected to grow further, given the huge opportunities that the rapidly expanding facilities management market presents in the Middle East. New generation buildings with more sophisticated equipment and high-tech installations including Building Management System require professional FM companies to operate in this regional market to increase life-cycle cost of buildings and to implement energy saving strategies.

Heckford: As demand levels increase, new companies have entered the market at all levels, from single trading entities through to consultants offering FM services. We are witnessing a growth in demand of our own asset and facilities management expertise as owners and occupiers are looking to improve business performance and drive value from their assets.

With respect to a building that incorporates FM after it is completed and occupied, can you tell us what the savings are for property owners as a result of having FM on-board at that stage?

Qada: As this is our core value, we are providing our services through standard systems, supported by a technical team with experience in management.

Bashy: The savings will all depend on how much the developer or end-user is willing to invest. The more the money committed, the more is saved in the long run but this then becomes a problem of cash flow so we are increasingly working on performance contracts that have worked well for both parties. Take for example President Obama's administration. The contract allows us to implement up to $5 billion (Dh18.36bn) of energy-efficiency, renewable-energy and water-conservation projects at federally owned buildings and facilities, nationally and internationally, over the next 10 years.

Kennedy: Specific break-downs are difficult to provide as savings can be interpreted in different forms and what initially looks like a saving in the short term may well turn into a long-term disaster for both in reliability and over all asset value. It is easy to provide generic maintenance across the plant and equipment but normally the savings are achieved over the long term, with these savings recognised due to extending the life-cycle replacement costs of the facility. Short-term savings can be produced but do not always benefit the long-term value of an asset and therefore it can be very dependent on the ownership and the importance to provide appropriate budgets to maintain the equipment.

Rihani: Obviously, FM companies add up to the value of a property by having a properly planned preventive maintenance schedule. I always believe in the fact that 'being pro-active is better than being re-active'. Effective management of risk will enable better focus on the property system of internal control, minimising the risk of fraud and financial irregulations. This will result in protecting the financial assets of the property. In all the properties we look after, we reduce the average repair cost by approximately five per cent in the first year, by creating an awareness action plan for the residents on repairs, maintenance strategy, and residents' involvement strategy.

Dalmia: Once a building is constructed, one can't alter the fixed assets. It's just not financially feasible. As an ongoing process, the bulk of the savings are related to Dewa. Water, electricity and sewage can all be significantly controlled. The largest savings can be achieved by managing and maintaining the chillers efficiently and the same goes for the maintenance of Fan Coil Units (which are the A/C blowers in an apartment). Secondly, from using energy-saving spares such as energy-efficient light bulbs, installing sensors and timed lighting and monitoring elevator usage patterns, further savings can be made. With respect to water and waste, one can save by ensuring they have the right cleaning company on board. There are so many ways to save money, it all varies from building to building.

Kumar: Facilities management covers many areas and most facilities managers have a wide range of responsibilities. There are, however, three key areas which are central to almost all areas of FM and which present many opportunities for cost savings such as maintenance, help desk and procurement.

Energy and water savings can be up to 30 per cent to 40 per cent of energy if a property unit has implemented certain standards, including intelligent lighting system, solar power to public facilities and warehousing and using proper energy saving lamps instead of incandescent bulbs etc.

Heckford: Implementing good FM does allow property owners to make assets more lettable, attract tenants and support tenant businesses more effectively. This in turn enables owners to make their assets perform better and at higher returns.

Within the GCC, which country has opened up to the FM industry completely?

Qada: The FM market in the GCC is still not mature enough. However, the UAE is the first country that is starting to offer the FM services concept.

Bashy: The UAE has been the first to open up to the FM industry because of the ambitious projects that it has built and the need for FM and its latest technologies to manage them.

Unfortunately, not all technology that has been implemented is geared towards energy saving but is more about maintenance.

Kennedy: From my exposure to the region, it appears most of the GCC countries are involved with the FM industry in varying degrees but to say completely, I feel that is yet to happen.

Rihani: So far, personally I've not seen a proper FM industry set up in any of the GCC countries. The FM industry currently lacks regulations within the industry.

Dalmia: The UAE has been the market leader, but Saudi Arabia, Qatar and Bahrain are absorbing the concept of FM quickly especially because they have held up better during the recession than Dubai. But regardless of the last two years, you have to look at the bigger picture and Dubai and Abu Dhabi have experienced exponential growth over the past decade and even more recently, landmarks such as the Burj Khalifa have been finished that demand facilities management.

Kumar: Globally, I think India and China have big potential for the FM market as these two countries are emerging economies in the coming generation.

Heckford: Within the GCC, Saudi Arabia, Qatar and the UAE are all actively introducing FM.

The UAE is the first country in region offering FM services Samer Al Qada, Managing Director, Facility Services, G4S

I do not expect this falling trend to continue in the foreseeable future Ian Kennedy, Senior Facilities Manager, Brookfield Multiplex Services

There is huge diversification in the market between new and smaller companies Kyle Bashy, Business Development Director, Middle East, Honeywell

The FM industry currently lacks regulations Abdelaziz Rihani, General Manager, Portland Middle East Facilities Management

There has been consolidation in the FM market Rohit Dalmia, Business Development Manager, Al Shirawi Facilities Management

India and China have big potential for the FM market Ravi Kumar, Service Technical Manager, Belhasa Engineering & Contracting

We are seeing growth in demand of our own asset and FM expertise Sean Heckford, Senior FM Consultant, International Built Asset Consultancy, EC Harris