The booming facilities management sector in the Middle East has caught the attention of international firms, creating more competition for homegrown companies
The maturing of the region’s building and facilities management (FM) market is a topic that has been discussed for years, but if anyone were seeking empirical evidence of it, they only need to look at announcements by two of the UK’s biggest firms in the sector that they had agreed deals with partners to get into the Saudi market isn’t a bad place to start.
Firstly, on 26 November, Interserve announced that it had signed a deal with local Saudi trading and contracting firm Rezayat Group to form a joint venture providing integrated FM services across the Kingdom.
This was then followed by another joint venture less than two weeks later between OCS Group and Saudi’s Zahid Group to form their own joint venture for the Kingdom.
Both firms were no strangers to the Middle East. Interserve has been operating in the region for 40 years, and has a number of business interests in the Gulf – including stakes in Dubai-based contracting firm Khansaheb Civil Engineering and equipment services division RMD Kwikform.
Interserve’s MENA region FM director Saeed Ahmed, who joined the firm six months ago from competitor Emrill, said that it had been monitoring the Saudi FM market for three years and began the process of setting up its own operations two years ago.
“We considered various options for setting up a business and met with a number of potential partners before agreeing to work with Rezayat Group,” he said.
The RMD Kwikform arm of the business had been operating in the Kingdom for around five years and had three offices as well as a support yard.
“The increase in building activity in Saudi Arabia and the construction of high-end developments has led to a need for facilities management providers who can deliver international best practice and maximise the value of new assets,” Ahmed added.
He said that of all the potential partners it had met, Rezayat was the one “we had most in common with” in terms of shared values and objectives.
He believes that Interserve, which has revenues of around $5.2bn and a workforce of over 80,000, can help to improve both education and service levels in a market that is “not developed”.
“Many customers procure single or bundled services based on lowest cost solutions that do not maximise asset value,” he said.
“As a top UK support services business with a significant international presence, we have a wealth of expertise, whether it be processes, technical knowhow… that we can bring to the market and drive standards in the industry.”
OCS Group, meanwhile, is a $1.4bn-turnover company with 91,000 employees worldwide. The company is a much more recent entrant into the Gulf, having set up its first joint venture in Qatar in May 2012 under a business with Tadmur Holding. This was followed by a second joint venture announced in May 2014 in the UAE with United Technical Services – a deal described by chief executive Chris Cracknell as “making great progress”.
He said the company had begun looking at Saudi Arabia shortly after setting up its Qatar operations, and quickly identified Zahid Group, which has a number of businesses including equipment hire and dealerships for heavy machinery brands like Caterpiller, as a suitable partner.
“OCS spent over a year getting to know the executive team at Zahid Group through exchange visits and detailed discussions. We are both family businesses – as indeed are all OCS Group’s joint venture partners in the Middle East – so we share common ethics, values and ambitions,” Cracknell said.
“In particular, OCS Group and Zahid Group share a commitment to investing for the long term and to the development of our people in order to build a sustainable business.”
He argues that the economic fundamentals for the Saudi Arabian FM market “speak for themselves”.
“Saudi Arabia is already a regional economic powerhouse with growth in gross domestic product (GDP) running at over 5% a year.
That growth means there are now large local businesses that require top class facilities services alongside multinationals moving into the country and making inward investments. Both types of organisation expect high standards in their buildings, which OCS Arabia is able to deliver.
“The other factor that makes Saudi Arabia so appealing is the country’s commitment to diversify the economy away from hydrocarbons into new sectors, including manufacturing, healthcare and infrastructure. The scale of investment is already apparent as the King Abdullah Economic City – one of six economic cities – comes to completion and where OCS Arabia has its headquarters.”
Many of the Kingdom’s major contractors, including Saudi Oger and El Seif Engineering & Contracting, have their own, large, dedicated FM businesses, but as Sinead Bridget, director of the Middle East Facilities Management Association (MEFMA) explains, the market is still some way behind the UAE in terms of its development.
“A problem unique to Saudi Arabia is regulation,” she explains. “Currently, in the Kingdom there is no law or rating system (like in the UAE) that protects investors by ensuring properties are preserved, maintained and operate efficiently. Dubai, for example, has quality controls in place and its Real Estate Regulatory Authority has its own safety standards to which buildings must adhere and legislatively, a strata law was passed in 2007 to control costs, promote competition and provide a level of autonomy for joint building owners.
“If the FM sector in Saudi Arabia is to grow in the right direction, it needs the involvement of the government to help protect property investment and tenants through regulation.”
MEFMA, which was founded by 17 members in 2009, has now grown its network to include 60 corporate members and over 400 associate firms. It is pushing for a region-wide, independent star rating system (SRS) to be adopted to benchmark both building maintenance standards and FM service provision.
“The SRS system is expected to be finalised and implemented soon with the backing of MEFMA members and government entities,” said Bridget.
Jason Ruehland, managing director of Emrill – a facilities management service provider that is co-owned by contracting partners Al Futtaim and Carillion, alongside developer Emaar Properties – argues that a rating system will mean that landlords will have to undergo a “robust” audit that will look at areas like statutory compliance, maintenance processes, sinking funds, energy performance and capital replacement programmes. He believes that landlords will benefit from such a process.
“This will spawn a whole range of local education programmes and in the long term drive better operated and maintained buildings.”
Emrill is focussed on the UAE market and within the past 12 months it has grown by 22% as it has picked up new work servicing Dubai Marina skyscrapers including Princess Tower, 23 Marina, Elite Residence and The Torch. The firm now employs over 6,000 staff.
“Over the last three years, the FM market has really started to mature, and there’s a lot more competition around pricing and quality. This is a great catalyst for FM providers to drive innovation into their business. FM companies that do not adapt with time will be left behind and we may see some consolidation over the next few years.”
UK-based Macro, which has been in the Middle East since 2008, is part of building consultancy group Mace. It provides FM consultancy advice and offers helpdesk services to building managers, as opposed to providing scores of concierge, security and other staff.
“The UAE market continues to grow towards 2020, however, competitiveness is increasing substantially,” says director Nigel Davies. “Clients are learning the hard way that you cannot get a professional service for some of the values being quoted.”
He argues that the key to good service is to ensure employees are regularly trained, and his firm uses both internal and external courses to deliver this.
Like a number of other providers in the market, the firm is moving into areas that cross over into the MEP sector. Davies said Macro has picked up work through new service lines in the testing and commissioning of buildings and in energy management within the past month.
Ruehland believes this will be the one area where the industry will need to progress – particularly as many top-flight buildings are being delivered with increasingly sophisticated building management systems installed. Emrill has a system known as Building Smart that can centralise building management systems and use remote monitoring, which allows for manpower and administration requirements to operate buildings to be cut.
“While the adopting of energy-saving technology and initiatives would require an upfront investment from property owners or developers, the savings can lead to a significant reduction in operating costs,” he said.
“Buildings generally waste between 20-40% of energy consumed and the average utility consumption costs of a building are two-to-four-times the cost of the FM services. Therefore, energy savings would lead to significant reduction in the expense of operating buildings and the technology would lead to enhanced operational efficiencies, increasing the life of assets.”
On a related note, the increasing sophistication of systems for buildings such as schools, hotels and hospitals means that many FM providers are developing the skills necessary to handle these, according to Bridget.
“As a result, and together with our focus on training and certification, standards are being forced upwards.
“Naturally, any industry will always have those who take short cuts but since MEFMA was founded, a focus on best practice has begun to take hold and anyone who is operating otherwise can have no future against this professional backdrop.”