Asteco boss warns of a 'race to the bottom' in Dubai
With service fee collection as a top most priority, real estate manager Asteco sheds light on the need for specialised FM services in favour of an integrated approach
Asteco managing director John Stevens is at the helm of a large real estate management company that has its pulse firmly on the property and FM market in the UAE.
Stevens’ firm manages a chunk of the real estate in the country — 20,000 units to be precise — out of which 70% of its portfolio is residential, a little more than 20% is commercial, and 7-8% retail.
He says Asteco engages with a wide range of facilities management (FM) and maintenance companies, but it depends on the kind of property involved. “We manage ‘Grade A’ buildings to developments in older, more established areas of Dubai, up to Sharjah and the Northern Emirates.
“For example, Oceana on The Palm demands a premium service with a premium FM operator on site. But, in case of a client who has a handful of buildings, they may not even have an FM company on board because they require maintenance to be done on an ad hoc basis,” Stevens says.
In the October issue of Construction Week’s sister title, facilities management Middle East, Ian Harfield of Cofely Besix Facility Management warned that the “residential sector is on a race to the bottom”. Harfield was referring to the intense competition coupled with challenges surrounding service fee collection.
Asteco’s has a major share in the residential sector and Stevens weighs in on the matter. He says: “The challenge that’s been voiced by the FM sector is that, because the market is majorly landlord-represented rather than represented by an owner’s association, they are being squeezed on price. And when it comes to building operational expenses the FM companies are in a harder place than we are. There’s no doubt about that.”
A building’s utilities constitute a majority of its running costs – anywhere from 60% to 80% – and “that cannot be brought down by more than 30% to 40% by energy savings measures”, he adds.
“I don’t think a lot of the landlords appreciate that a higher quality of service from the FM company will get you higher levels of occupancy, rents, and tenant satisfaction. A handful of service providers may appear to be costlier in the short-term, but a building is a long-term asset that you need to invest in.
“It’s probably the single largest contract a lot of FM companies have and that’s why it’s under pressure most of the time. Hence, you end up with lower quality at a lower price point, often with lesser-skilled technicians, which puts pressure on tenants and the asset. Maybe there are quick savings to be made in maintenance but if you are not looking after the asset well, you will eventually end up with high repair costs,” he says.
Asteco’s strategy for the assets they look after has seen them move away from integrated FM services in favour of more single services. “The challenge we face is that we cannot use our influence to buy bulk services. We cannot have a relationship with a single FM company because in most cases a building is tendered individually. We have no full service FM contracts, all of our buildings are individually tendered and we manage each function accordingly – hard and soft services.”
Quite often landlords and owners have an existing relationship or an interest in working with a particular FM company or security company, and have to invariably work with them, he adds.
Stevens isn’t too impressed with FM service providers billing the ‘one-stop shop’ solution. “FM companies are not always offering integrated services – they might be good at doing security and cleaning or MEP [mechanical, electrical, or plumbing] but not HVAC [heating, ventilation, and air conditioning]. Whereas if we tender individually there is a better possibility of getting the best in each field. And whilst on large-scale developments there is a certain value, I cannot see it being too viable from a landlord’s perspective,” he explains.
Prior to his time in the Middle East, Stevens worked in the Asian property sector. He recalls the sophisticated nature of FM operations in the Far East. “The last agreement I entered into before I left for Dubai was a five-year fixed price contract, which covered everything in a TFM [total facilities management] agreement – from elevators, MEP to cleaning. The company spent eight months auditing the asset thoroughly, from the stage of a pump’s life to when the smallest piece of equipment was expected to fail.”
The readily available records made it possible to carry out a detailed analysis, and Stevens says he was “met with blank looks” when he first came to Dubai and enquired about records. “The contracts I see in the UAE aren’t as advanced as the ones I saw in Asia. The market has definitely improved but I still don’t see the demand of that top level analysis from a sufficient number of clients. And whether FM operators have the capability and the information to deliver [this] is a different aspect altogether.”
Stevens says the UAE FM sector is getting up to standards that have been prevalent in Asia. “I was dealing with output-based contracts 15 years ago and we are only starting to get there now because we have been pushing for them to happen in this market. Technology has entered the market, but it’s dependent on the competencies of the property managers to make use of that data for the betterment of the asset.”
Meanwhile, Stevens says Asteco will launch a new portal to enable a range of service providers and suppliers to sign up and register online. “Henceforth, we will be able to track their assessment. If I am moving into the higher end [of FM service providers] I want to see the competency of their personnel, their skill set, and expertise in the marketplace. For instance, I am looking at a handyman service to manage smaller compounds, I don’t need [a bigger FM company] to look after a compound of 40 villas because it’s far too pricey.”
Stevens says FM companies need to know what market segment they are targeting to be successful.