Facilities management sector in the Gulf feels the heat

There’s a cost crunch happening in the regional facilities management (FM) sector. Right now asset owners typically think they’re paying too much for FM services, especially in the community management sector, where individual owners often focus on their section of a building or development, to the detriment of the wider community.

Thanks to a combination of this sustained price pressure, margins in facilities management are getting thinner. They are being pushed to the very edges of profitability by demanding clients and a hyper-competitive market, especially in the UAE.

With the economic pressures in the region, there is an emphasis currently on cost cutting. FM contracts are going down in the market at the moment; in some cases, to levels that are unsustainable. We have seen some of the traditional larger FM service providers step away from contracts, because the client stops awarding based on quality and instead, has awarded based purely on price.

Clients are also moving to higher risk transference models with uncapped penalties based on key performance indicators with little to no profitability. As a result, there are now a number of FM providers in the region looking to divest or acquire organisations to build volume to offset shrinking margins.

The hard FM segment — that dealing with mechanical and electrical maintenance — is particularly stretched. It is generally underfinanced in the Middle East given the very harsh conditions the equipment operates in, with some landlords preferring to use breakdown as a point of maintenance, rather than planned preventive maintenance programme.

This negatively impacts the building service provision to the customer, which then reflects on the landlords’ ability to manage and inevitably costs more in early replacement costs.

Increased operational costs

FM companies are also being exposed to increased operational costs driven by rises in utility bills, fluctuations in fuel prices and the looming introduction of VAT. Other factors contributing to cost increases include changes in government and municipality regulations, which are gradually becoming more stringent; the frequent gaps between an asset’s requirements and the services actually being delivered to it; as well as a failure by some corners of the industry to make the best use of technology and best practise methods.

The result is that organisations cannot always calculate and present the longterm cost benefits of good FM.

It is a failure in not offering or not availing the so called integrated or total facilities management services, which strongly supports cost optimisation with higher performance. FM in the Gulf is evolving, there are basics to be corrected, but the latest trend I have observed is that more and more players are entering FM services. New players are enlarging their current portfolio to be FM service providers, competition is growing, but unhealthily. Instead of consolidating and optimising, costs are being cut to survive, affecting skilled resources, performance and delivery.

Relief may come thanks to another emerging trend that might just make a crucial difference for the industry. The greater use of technology in FM could prove to be the catalyst that allows the larger players to provide services more efficiently and make greater use of fewer Abdulla Al Qamzi is managing director at Khidmah.