The facilities management (FM) industry in the Gulf is expected to gross revenues worth more than $4.2 billion (Dh15.4bn) this year mainly driven by demand from Saudi Arabia, Qatar and Abu Dhabi, according to a report.
The report by Frost & Sullivan on the Middle East Facilities Management Market said that while the FM industry generated revenues more than $3.8bn in 2009, the industry is expected to grow more than 20 per cent every year for the next five years. While there was a gradual slowdown in the growth of the FM sector in 2008 and 2009, demand from end-users in the Middle Eastern markets is likely to impel growth for high-end facilities management services.
The report said that during 2008 and 2009, developers who planned new projects were reluctant to sign new contracts due to the credit crunch and this adversely affected the growth margin of facilities management companies. Now, however, the market is expected to clock a significant rate of growth due to growing need for end-users to concentrate on their core activities.
Suganya Rajan, Research Analyst of Frost & Sullivan, who is the author of the report, said: "Despite a plethora of developments across the Middle East, facilities management in the region is still behind America and Europe. However, our research proves that the market is set to continue along a path of exponential growth and will be worth $8bn by 2013.
"This is largely due to the demands from building owners who now expect an international standard of building management. Further, there is a renewed pressure on developers to be more sustainable and introduce a number of new technologies into the buildings. As a consequence the facilities management market in the Middle East is attracting many new entrants. Most of these are domestic conglomerates that are expanding their services portfolio," said Rajan.
The report, however, cautioned that in order to stay ahead of the curve and be successful the FM companies will have to implement best practices and adhere to forthcoming regulations laid down by Middle East Facilities Management Association (Mefma) and the Real Estate Regulatory Agency.
Meanwhile, the Frost & Sullivan report said that the Middle East is facing the challenge of dipping life span of buildings due to climatic conditions and negligible maintenance.
In addition, there is an increased wastage of resources such as power and water which is attributed to poor management of facilities.
Governments in the region cannot afford to let this trend continue as this will lead to huge monetary losses because of ill-managed facilities. Much of this wastage can be limited, provided the facilities are managed professionally adopting a skilled workforce and efficient technology, the report said.
Market leader
The UAE has been the market leader in terms of the volume of business of the facilities management industry, but clearly, there is a shift in focus towards Saudi Arabia and Qatar, it said.
Both countries offer promising business opportunities that were overshadowed by the construction boom in Dubai and other emirates of UAE, until the recent economic crisis.
However, the UAE still holds strong position in terms of lucrative business prospects mainly due to the vast developmental activities that took place over the last decade. All 'big-ticket' construction projects completed in UAE, now demands facilities management in order to maintain the buildings well.
The report said that end-users, mainly customers who sought single services, are increasingly price conscious. Building owners are becoming highly demanding due to inflationary pressures. This increases the pressure on the service providers who in turn will have to reduce the cost to be on par with competition. "With rising inflation, FM companies face difficulties in managing costs.
"The cost of labour is a vital component that has a major influence on the price of services. With rapidly increasing labour costs, FM companies are fighting to balance the needs of the customers and their costs."
Pricing of services is the key to success in this market. There is stiff competition with respect to prices quoted for services. Competitive pricing will need careful planning as this might affect returns in the long term. Pricing will help beat competition with ease, but this demands cautious execution.
The report said, energy conservation and pragmatic solutions that reduce energy costs are more demanded by end-users.
"Big developments present a higher carbon footprint, putting pressure on developers to balance carbon emissions during the life-cycle of the building. FM companies are expected to provide this solution to developers and owners, in order to obtain better business opportunities and sustain this challenging market."
The facilities management industry in the GCC is structured into three groups: single service providers, bundled service providers and integrated facilities management (IFM) service providers.
There is a large cluster of companies that provide single services and specialise in the same. Most single service companies are beginning to partner with IFM providers in order to have safe order books. However, the demand for single services still remains strong as end users value the experience and professional service of these single service companies.
According to Frost & Sullivan, there are more than 30 domestic and international companies that provide FM services in the GCC. Further, there are more than 50 service providers that operate in the unorganised sector and will continue to contribute to the FM market growth.
The IFM market is expected to grow rapidly as more clients understand the ease of doing business with FM providers under a single contract. This will also help bundled services to grow.
Meanwhile, the FM market in the Middle East is attracting many new entrants and most of these are domestic conglomerates that are expanding their services portfolio. The report added, however, that the entry of new companies has not changed the course of competition, as the market is in the early stages of development leaving room for many participants.
"Competition is not deterring any company from growing, but it is changing the business models, as more companies are aware of the fact that they should have a leading edge over the rest to sustain long-term competition," said the report.
Challenges
One of the main challenges of the FM industry is the low awareness of the sector. International firms that operate out of this region provide a strong customer base, but many end-user sectors have still not opened up to the concept of outsourcing facilities management services.
Spreading awareness about the need for outsourcing facilities management services to professionals is gradually gaining importance and is expected to bring in an upward trend in the business in the Middle East. The other challenge has been overcoming inflationary pressures by the FM companies which has been the biggest challenge faced by FM service providers in the region.
Almost all countries in the GCC face high inflation and companies struggle to contain costs. This is especially true in the case of companies that sign long-term contracts. Though there is an option of including a price escalation clause in the agreement signed, most end users are not open to this, making it tough for FM firms to retain their margins.
Most FM companies face an uphill task of workforce management. Labour-intensive services such as soft services including manned security, catering, landscaping and janitorial services demand higher number of unskilled staff, which is of shortage in this region. Such services attract many staff from other Asian countries, which necessitate the framing or adoption of labour laws that demand good working conditions and accommodation. This further complicates the job of facilities management companies that hire them, as they often come under the scanner of labour laws and other immigration policies.
However, efficient management of workforce provides the input for successful delivery of agreements and retention of labour.
Other challenges have been the life-cycle cost of a building that is very high. Professional management of buildings increases their life-cycle and helps in efficiently reducing the maintenance costs involved.
Governments in the Middle East have invested heavily into the infrastructure and construction of public spaces such as airports and shopping malls. Managing these structures and simultaneously ensuring safety is of paramount importance. With a growing need to efficiently manage concrete assets, facilities management is becoming a popular concept in the region.
Reduction in energy consumption is the future for most activities in this region. Future buildings in the Middle East are expected to be highly energy efficient.
With improved efficiency in FM, it will be easier for building owners to cut down their energy costs. Further, future buildings are likely to accept the concept of outsourced facilities management as a default inclusion in the lifecycle of a building. The influx of expatriates and the need to maintain international standards in buildings is the driving trend here. High-rise structures deserve extra care in order to bring in efficiency and safety.
Technology
According to the report, endusers are increasingly demanding advanced technology due to security and health concerns. Similar to other service sectors, software has permeated into the FM industry, as well. Adoption of technology helps the facility manager achieve better efficiency. Computer-aided facilities management (CAFM) and computerised maintenance management system (CMMS) are popular among end-users who are looking for high-end solutions, especially in the commercial and banking sectors.
Comprehensive service offerings from a single company help endusers to settle for multiple services under a single contract. Facilities management companies will need to improve their capabilities and offer more services in their palette, which can potentially attract more customers. In addition, the multitude of services gives them better flexibility in the eyes of customers and improves their chances of winning orders.
Management
Long-term contracts are gaining higher importance among endusers and there is a gradual and positive shift in their preferences for long-term contracts.
However, managing long-term contracts is difficult for FM companies, as they increase the risk of inflation. With rising costs, long-term contracts offer very little room for FM firms to manoeuvre the cost range. Companies that exercise efficient management of long-term contracts plan their costs in an effective manner and manage their cost bracket in a prudent manner to achieve success.