Opportunities abound for UAE real estate service providers

dubai - The industry has huge growth potential augmented by higher infrastructure spending

The role of service providers within the real estate industry has changed dramatically today compared to just a few years ago.

On the occupier side, providers are assuming responsibilities traditionally held by internal corporate real estate departments. From managing large leased portfolios to conducting strategic planning, occupancy analysis and forecasting, to even designing new and innovative workplaces, outsourced service providers have transitioned to play the role of strategic advisors.

On the ownership side, service providers are being asked not just to manage property and pay bills, but also to formulate strategic operating plans that will uniquely position assets in the marketplace in order to achieve higher returns for investors. These increasing responsibilities have shifted the dynamic of the provider industry and enhanced the benefits of outsourcing.

The facilities management (FM) and property management (PM) market in the GCC is relatively new and still in its infancy compared to developed regions such as Europe, Asia and North America. Nevertheless, it has been gaining significant recognition over the past decade, primarily developing on the back of momentous real estate and infrastructure investments.

The FM industry is in different stages of development across the GCC, with the UAE's being the most advanced where it has evolved from being a reactive one to one that considers energy efficiency and recognises the need for planned preventative maintenance.

In fact, during 2000-09, the real estate services market grew most rapidly in the UAE in the GCC. In the UAE alone, the real estate services sector employed about 821,560 people (18.6 per cent of the total workforce), while the sector contributed about 13.3 per cent to the gross domestic product in 2015. The country, with a rapidly growing economy and the highest construction spend in the region, has thus been at the forefront of FM adoption in the GCC.

The total FM market in the GCC as of 2015 stood at $37.3 billion, of which Saudi Arabia constitutes approximately 54 per cent, followed by the UAE (27 per cent). While the UAE has been the market leader in terms of volume of business for FM and PM services since long, the segment has started to gain considerable traction in Saudi Arabia as well. The industry is touted to grow about 20 per cent annually on average, driven by a burgeoning property market, ahead of Expo 2020 and the Fifa World Cup 2022.

The region's outsourced FM services market ($13 billion) lags behind Western Europe and Asia which has a market size of $353 billion and $241 billion respectively. Currently, the outsourced FM market in the UAE stands at $4.6 billion, constituting around 36 per cent of the overall outsourced market in the GCC, far behind countries such as Japan ($100 billion) with nine per cent global share. Nonetheless, the UAE's FM industry is expected to grow at 8.5 per cent CAGR between 2016-2021, largely driven by projects such as Abu Dhabi's 'Vision 2030' and Dubai Urban Development Master Plan 2020.

The UAE real estate services market is characterised by a good mix of both global and regional competitors, many of whom are backed by private equity players and large real estate developers, which has resulted in competitive pricing. However, the industry still remains underserved considering the rapid real estate and urban infrastructure development.

The sheer size of expected infrastructure investments in the region is testament to the abundant opportunities that will be present in the future, and it is only through organised FM and PM that these investments can be safeguarded and sustained. Currently, the industry is fragmented, and the growing awareness for facilities services requires consolidation and establishment of trusted supply chain mechanisms that can adapt to new market trends.

In conclusion, the UAE real estate services industry has huge growth potential augmented by higher infrastructure spending. Additionally, apart from upcoming new buildings and infrastructure facilities, the concept of planned preventative maintenance and the maintenance of old buildings and facilities has started to provide opportunities for the industry.

Though continued optimism regarding the prospects of the industry are slightly tempered by the current market conditions, the fluctuations are not expected to be strong enough to topple the industry's momentum. The industry has reasons to be optimistic and expect long-term growth. The industry will continue to face stiffer competition, however consolidation will ensure stronger and efficient players to dominate the industry.

The writer is founder and CEO of Al Masah Capital. Views expressed are his own and do not reflect the newspaper's policies.