MEP experts discuss the Middle East's retrofit sector
Experts from diverse sectors adressed the topic of retrofitting, particularly in the hospitality sector, at a roundtable organised by MEP Middle East. Here are their views…
Retrofitting is an important subject, especially when the government is involved in pushing the agenda. The Dubai government has embarked upon an ambitious drive to retrofit 30,000 buildings by the year 2030, with the aim of achieving 30% energy savings.
This in turn has seen the hospitality sector adopting more retrofit projects. Key hotel landmarks across the city have undergone renovation and refurbishment works. For instance, a refurbishment programme is currently underway at Dubai’s Jumeirah Beach Hotel, which, upon completion, will offer “a refreshed look for 175 rooms and suites, and upgrades to a number of [the] most popular guest facilities”, according to the hotel’s website. In addition, hotel operator Atlantis Resorts & Residences also began a $100m (AED367m) refurbishment programme at its flagship property, Atlantis The Palm.
The hospitality sector is therefore emerging as a key industry for refurbishment works in the GCC, and particularly in the UAE. With the above in mind, we had a mix of experts from various sectors discuss the opportunities and challenges in retrofitting, at a roundtable organised by MEP Middle East.
Our participants included: Bruno Pessoa, director of technical services, Minor Hotels, Middle East and Africa; Martin Mueller, regional director of engineering, Hyatt Hotels Corporation; Alex Yoo, director of design & project management, Marriott International; Dimitri Papakonstantinou, managing director, Plafond Fitout; Stuart McGregor, GM, Trans Gulf Electromechanical; Ramy Boufarhat, COO, James L Williams Middle East; Azzam Messaykeh, CEO, Faisal Jassim Group; Raffi Kazazian, energy solutions director of Taqeef; Ian Fail-Brown, CEO, SESC Group; and Anil Mangalat, design director/partner, MMAC Design Associates.
Mueller started off by saying how a hotel could be retrofitted without disruptions to guests. He stated that there were several factors to be considered while retrofitting. He said: “The age of the building matters. Usually, older buildings have more space and so you have more options available. Secondly, location and how the operation is actually affected matter. In some areas, you can close sections. But if it’s a single building, it’s very challenging.”
Fail-Brown shared his own experience while staying at a hotel when retrofitting was ongoing. He said: “I have just stayed at the Jumeirah Beach [hotel] recently and it was in the middle of a retrofit. The work got carried out when most people weren’t in the rooms; they did sections of the property. I didn’t really find it a very major hindrance. It was managed really well.”
Yoo added to Fail-Brown’s line of thought, by saying: “A lot of it has to do with the configuration of the property, a monolithic or high-rise building as opposed to a clustered resort. I think a cluster-type plan lends itself to phasing, thereby minimising any impact to the guest experience.”
Papakonstantinou added to Mueller’s point about the age of the building and how it was built. He said: “The Kempinski in the Mall of the Emirates recently went for a more intrusive refurb. At the time that we tendered the job they had two buffer floors in between the construction areas, which obviously reduces revenue for the operator but at least it does keep the hotel operating during the refurbishment period.”
Yoo stated his observation that more projects are moving towards retrofitting in the current economic climate. “Retrofitting existing buildings has become an attractive proposition,” Yoo said. “The proportion of new-builds versus retrofit projects is shifting and the majority of our projects are conversions or retrofit projects. We’re at an important crossroads in terms of how we address these issues such as execution, implementation of technologies and strategies for energy-efficient and sustainable buildings and so forth.”
Maturity of the group
McGregor said that the maturity of the group who is doing the refurb is quite important. “I do understand the age of the building, the configuration, etc., have an impact on retrofitting. But it’s essentially about the maturity of the group who is doing the refurb and how much they actually want to contribute to having a green building, potentially shutting down sections that will impact their revenue and saying that ‘rather than having a payback period of over two or three years, we expect a payback of over 10 years’. So a lot of it has got to do with the group who operates that facility,” McGregor said.
“And the builder,” added Mangalat, “the vision that the client has for the hotel [is important]. If it’s a soft or full refurb, how fast does the client want it open? Some restaurants operate while others are being refurbed. There are operational challenges and we have to be smart about it as interior designers. Technology is a big aspect. I know most of you gentlemen are from technological backgrounds, but (audio visual information technology) AVIT is a big part of refurb. Some brands are more technology-driven than others. You are looking at a larger integration of technology and AV. It may not be possible in every retrofit.”
Kazazian latched on to Mangalat’s point on the “vision of the hotel”. Kazazian said that one needs to understand what the hotel’s goal is. He said: “Historically, we are used to seeing buildings coming down after 30 years. There is a perception that new is better than retrofitted.”
Papakonstantinou added that the whole idea that new is better than retrofitted is more prevalent in the Middle East. He said: “In Europe, or in the US, you see more retrofitting in buildings, and in fact, it’s more even desirable to have a classic 1920s building that has a history behind it. However, here in the Middle East, and possibly also due to the aggressiveness of the environment, it’s more usual to knock things down rather than refurbish them.”
“But, going forward, legislation, incentivisation by the government, and education of the general public will help. It also has to make financial sense to the developer. All these things have to sort of converge and come together. Because at the moment, going green is expensive.”
Bruno went on to ask the eternal question as to “why retrofit?” He replied himself by saying that from an operator’s point of view, there are two reasons to retrofit. He said: “Firstly, because the brand has to, or the hotel has gotten to a point that it’s losing its value. So when that is the case, it’s good because sometimes we struggle in convincing our clients that they need to retrofit.
“Secondly, it is sometimes easier, especially when we are doing takeovers, which is the case with Minor. We need to retrofit the property because it doesn’t fit our standards. Now that becomes far more challenging and far more exciting to deal with rather than just doing a refurb, a couple of wall coverings here, and some lighting to comply with green certification. But ultimately, the question is why do we need to retrofit and why are we now looking at that in the Middle East context?
“In Europe, the reason why people do not [retrofit] or try to avoid as much as possible having to do a new building is because labour is ten-fold the cost of labour in the Middle East. Regardless, that’s not an excuse. What I see is the ultimate advantage, again from an operator’s point of view, of having a building that is done in half the time and still can meet our requirements because retrofitting can be done.
“I don’t believe when people say it cannot be done. I have converted office towers into hotels. And I’ve converted hotels into apartments when I was on the consultancy side. Everything is possible as long as it is well planned, well managed, and has a budget. So the biggest benefit from an operator’s point of view is the fact that we can get a hotel up and running instead of having to wait for municipality approvals.
“Besides, many properties from 15 years to 30 years ago were larger. And that is a big advantage. Because you end up with larger column spans, which is one of the biggest issues in retrofitting, we can work without touching or compromising the integrity of the structure.
“From an MEP point of view, the technology has advanced so much that an air-handling unit from 20 years ago is 10 times bigger than the present day air-handling unit. And the same goes for duct systems. So we have benefits in that way, we can increase our ceiling heights and so on.
“How can we make sure that the retrofitting happens in a very wise way? Because many times we have regulations that have already been imposed on the property and we cannot go back. And having to go back, it’s almost like we might as well demolish the whole property and restart. That’s the biggest issue about retrofitting.”
Why shallow retrofit?
The question later transformed as to why shallow retrofitting is needed and if it made any business sense. To this Mangalat replied: “It is important because hotels have different of fit-out lives. Initially, it used to be seven to 10 years. Now it’s five to seven depending on the quality of the fit-out. Again, the client loses his competitive edge when someone comes in with a better quality or better brand which is a bit more in line with the times.
“So you are driven to retrofit. But maybe, you don’t have to go in for a full refurb because your fan coil units (FCUs) are working just fine. The technology works alright. The building management system is relatively up to date. So in that case, you can just do a quick refurb, in line with the competitor and it solves issues of budget and time. This is why shallow refurb is done.”
Messaykeh argued the above point: “The challenge sometimes when you go for shallow retrofit and avoid deep retrofit is that later on if you want to do a deep retrofit, it would not look financially very rewarding. When you club shallow retrofits with some deep retrofits, it would be possible then for a bank or investor to sign off. So it’s how you position this. But if really the hotel or property requires renovation, then it’s better to do a deep retrofit.”
Mueller revisited Mangalat’s point that renovation cycles are getting shorter, which means that it’s only possible to do shallow retrofits. He said: “We are down from 10 years to seven years and now to five years because of market pressure and technological advancements. As the cycles get shorter, the time to execute is shorter as well. So the danger is that shallow retrofitting is done and nobody touches the big stuff because it’s getting too expensive and too complicated. So the danger in this is that when there are shorter cycles, you tend to attract more shallow retrofits.”
McGregor said that there is always an energy efficiency angle behind retrofitting. He said: “One of the biggest overheads in a hotel is going to be the energy efficiency, how much you are paying for the utilities. So are you trying to just spruce it up and add a touch of paint, or actually are you trying to make it more efficient, and reduce your overheads?”
It’s important to have a value proposition rather than a cost proposition, remarked Fail-Brown.
He said: “If you take any hotel operator, it is happy to pay more money, if the quality of service that it get warrants the additional money that it has paid for. So what you have is a value proposition about buying something when it comes to retrofit, construction, and services that you want inside a building. But you don’t look at value, you look at the cost. And it’s how do you put those two together and then share a value proposition as opposed to a cost proposition.”
Mangalat added that the mindset of developers and clients is changing. He said that people are “looking to retrofit from an energy-savings point of view because they understand that in operations, the number they get back in about five years warrants a retrofit.”
Boufarhat added that retrofitting definitely helps in energy-savings. “I think energy service companies (ESCOs) need to team up with companies like us, the MEP contractors, who have engineering excellence, to help audit. Often someone who signs the audits is incorrect, the quantity surveyor (QS) is kind of wrong. We’ve got a lot of people to do correct audit and if companies like us join these ESCOs, which we are about to do very soon, this combination can guarantee savings for the client,” Boufarhat said.
Kazazian added: “Energy efficiency improvement has to be the key and the main drive for these type of projects. The tariffs are increasing in the region. We are seeing a lot of shallow retrofits and as a company, we have technologies linked to improving energy efficiency; however, we know that’s not enough. We are trying to back it up through walkthrough audits with the end users. To give them a value proposition of three to four years of return on investment.”
ESCOs and enforcement
Kazazian remarked there is a mechanism that has been implemented already by DEWA’s Regulatory and Supervisory Bureau (RSB) for retrofitting 30,000 buildings through the ESCOs and this all is managed by a Super ESCO called Etihad ESCO. He said: “Etihad ESCO is releasing the official tenders and this is giving a bigger push to ESCO-type companies to go and participate in retrofit projects. There have been a lot of campaigns in terms of awareness. However, in parallel, there are also challenges in the private sector. How do we approach the three-star hotel in Bur Dubai, which is owned by a small entrepreneur, and how do we actually go and convince that person that he has a 20-year old chiller on the roof, and he can save up to 50% in energy consumption [if retrofitting is done]. There isn't yet a clear enforcement method.”
Boufarhat added: “Their financial model is different from the five-star hotels. At the moment, ESCOs come in and do a correct audit. They will suggest things that are actually viable, and provide a proper financial model and say that ‘it will cost you X and it will save you so much in six years’. But the three-star hotel operation might not agree as his model is different from other hotels.”
Boufarhat said that you need educate such operators by telling them that their operation will not get disrupted.
McGregor gestured towards the experts from the hotel industry by saying: “I think this is where you guys have got to be talking to the ESCOs. By not doing a retrofit and stalling with the cost consultant and the MEP people, is not the right approach. And the second problem is when we actually get on the site. Do you guys know what’s actually in your existing buildings? Your drawings say that your water path runs across and you can’t see if there is a containment and there’s a sudden cost increase.”
The architect’s conundrum
Pessoa said that most of the problems occur at the design and architectural stage. He elaborated: “In some properties that I see here, I wonder why the property is heavily glazed to the point that its lighting gets affected. The MEP component needs to run at its highest capacity because there is a huge magnifying glass bringing all the heat in.
“I wonder why the designers in first place haven’t tried to defend the enclosure of a building, and that ultimately is going to be the most important factor about how everything is going to work in terms of energy efficiency. We have beautiful architecture in the Middle East, and yet we always see glass skyscrapers. We don’t have to follow in that direction.”
Boufarhat agreed by saying: “You need to speak to the architects because that’s something that MEP contractors and MEP designers want. Because if you limit the façade , then the amount of heat that is generated is one of the biggest problems in current new builds. The building façade issue is massive.”
Yoo said that in a retrofit situation, that’s a challenge because “you are inheriting something that’s already built”.
Mangalat responds on behalf of architects and designers. He said: “I think it is happening. I can't speak for everyone in the design industry, but many architects already think about matters like that. They use simple things like shading devices. Orientation of the building is the first discussion most qualified architects have.
“We do have two separate discussions. One the client has with the operator, understanding what the feasibility is, what the returns on investment are, and what are the benefits are of retrofitting a building to the fullest extent. Second, design-wise, we bring another conversation where we are saying, from a LEED certification point of view, what are ethical benefits of reducing your carbon footprint. Things are changing, the clients are becoming more aware. The bigger developers are already there.”
Eventually, it’s all about the money
Towards the end, most of the participants were leaning towards issues related to financing in the retrofitting sector.
Messaykeh said that retrofitting is different in every project. “Every project is different. But the commonality of this is it has to make business-sense. It’s not a green tag on everybody’s shirt that says ‘I’m green’. The guy who pulled the trigger on this is a financial guy. He is not an engineer, he’s not a specialist in hotels or an operator. He is the guy who is going to spend the money. The challenge that we have is that banking and investment companies in the region are not aware of energy-efficient retrofit projects.”
Messaykeh added that private investors look for the quickest return on investment. To which Kazazian said that once the tariffs start to increase, things will change, especially within the private sector. He stated: “Currently, the reason why there are retrofits is because individuals or entrepreneurs are feeling the pain of high bills. The assets have actually reached their end, so this is where they are open to looking into new technology as they want to reduce their bills.”
Investing money yourself is the best way to go about a retrofit project rather than depending on banks, said Boufarhat.
He said: “We haven’t had a very solid experience with banks on deep retrofits and energy services contracts. Maybe in other parts of the world at the moment, where banks are a little bit more open, but over here local banks today aren’t there yet. The best way for financing is probably to do it yourself because you are actually your putting money where your mouth is.”
However, Messaykeh was of the view that banks should be involved. He said: “How much can private investors finance? There are massive retrofits needed in the country, and without banks, it’s going to be very tough. I think there should be an effort to make sure that banks are able to understand this business and they are supported by the government for them to be able to finance these modules and put these assets on their balance sheet. So banks need to be educated and the government and central bank have to play a role.
“I remember that in 2008, I used to work for Johnson Control, and when the crisis hit the US, the first thing that the government did was to have a stimulus package. A big portion of it was to back the energy solution projects in the country. And that’s how they stimulated the whole economy in the US. Part of the stimuli was needed to come out from the crisis that they had.
“Such a type of initiative is more needed in this part of the world, especially in the UAE, because I think the UAE is on the path to its maturity level.”
Towards the end of the debate everyone agreed that there are indeed a lot of opportunities in the retrofitting market and that bringing all the stakeholders together in forums like this would help spread awareness in the retrofitting industry.