In response to a booming UAE real estate market, property management is becoming increasingly professional. John Stevens, director of property management at Asteco, discusses the challenges facing today’s market.
“We consider ourselves to be the only full-service real estate provider in the UAE,” says John Stevens, Asteco’s director of property management. “We are looking at taking our brand name into the region as the next logical step.”
Celebrating its 20th year in business this year, Asteco has offices in Dubai and Abu Dhabi, recently opened offices in Sharjah and Al Ain, and has Fujairah in its sights, with regional offices to follow shortly thereafter in Qatar and Bahrain.
“Whilst we have an office in India and strategic relationships with other global organisations, that will be our first permanent office in the GCC outside of the UAE,” says Stevens. “Within the next 24 months we will have at least another two overseas operations. We see this as a great opportunity since currently there is no real regional service provider in this field.”
In response to the UAE’s booming freehold property market, a deluge of real estate companies have set up to take a piece of the pie. But when it comes to property management, there are still relatively few firms that can deliver a professional service. Asteco declares itself to be ‘the UAE’s largest independent privately held property management company’, with just over 6.5 million square feet of real estate under its management. Stevens says that the majority of this is residential, about 30 per cent is office/commercial, 20 percent retail and just under 10 per cent being industrial warehousing space.
All in all, this adds up to more than 10,000 individual units, though Stevens concedes that it is hard to quantify in this manner. From a management perspective, Asteco administrators are assigned between 200 to 400 units each. Asteco’s other competencies include the leasing and sale of property, both commercial and residential, market research and project development, financial studies, design process, and property consulting.
Founded and led by Elaine Jones, Asteco has recently established a joint venture with Savills International for disciplines such as shopping mall management and retail consultancy. Stevens, who is also General Manager of Asteco’s Sharjah office, elaborates on the finer points of property management.
How would you differentiate property management from facilities management?
The clear and simple difference between property or asset management and facilities management is that facilities management has no income component. Facilities management is concerned with controlling expenses over the life of a property. Whereas with property management you are looking at both trying to maximise your property’s income-earning potential while minimising the expenses you incur.
What we call property management in the UAE is realistically more like asset management. Asset management will include FM as part of the broad scope of services.
So property management in your view incorporates facilities management?
The definition of the terms needs to be looked at more closely. What we call property management in the UAE is realistically more like asset management. Asset management will include FM as part of the broad scope of services. You are looking at the property as a whole; you are looking at the lifecycle of the equipment; you are looking at the income revenue from tenants; from signage and from other forms. Asset management involves everything from security, cleaning, maintenance – what we would consider as some parts of facilities management. So calling it property management is probably an understatement of what you are actually providing – because property management might just be considered the income collection, just concentrating on collecting the income on behalf of the landlord and dealing with tenants’ complaints.
What are Asteco’s core competencies?
We can work with our clients through the entire development cycle from identifying a piece of land and working all the way through from research, market studies, feasibility studies to highest and best use of land assessment. Then, once the facility is being designed, we will move into leasing, sales and management consultancy where we mobilise resources across divisional boundaries to give clients input as to what is not only going to lease and sell well, but what is going to be the most cost-effective to manage.
Sometimes there is a difference in what the sales and leasing people want and what we as property managers require to make the building efficient during its life. So during the consultancy phase we review plans and provide advice on the building’s design to ensure that it adequately reflects the requirements of both parties. Then it moves onto the ongoing day-to-day management responsibilities. Finally, at the end of the cycle, you have the possible disposal or refurbishment of the investment to consider.
In your role as consultants to building owners, do you ensure facilities management is considered from the design phase?
Yes that’s something that we do. We believe that an FM service provider should be appointed prior to the building’s final commissioning so that they are fully aware of the property, the systems and defects to ensure the best performance is achieved from the asset.
Quite often what happens here in the Emirates is that the building owner will wait for a month or two before the warranties expire before asking the FM company to come and take over. That’s not the best way to go about it.
We can now see a change in the market and notice that owners are starting to think longer term. We explain to clients that bringing in an FM consultant early on will save money in the long run by giving valuable advice and assistance early in the life of the property. Convincing the client to pay for that is a little bit more of an educational process in the current market.
The management service delivered to a property is going to have a greater effect on the occupancy and rental or sales values being achieved.
What are some of the major challenges in the UAE property management market today?
Being in a developing market means there are a lot of issues that need to be addressed. One of the things we will see in the coming 12 months is that the management service delivered to a property is going to have a greater effect on the occupancy and rental or sales values being achieved.
There’s a lot more supply in the market place and there are already a number of cases where buildings have been completed last year and the tenants have been unhappy with the level of services they are receiving from the landlord/managing agent and so are relocating to other properties. We believe that landlords and developers will begin to understand that, rather than being reactive, they will become proactive in addressing the needs of their tenants.
Coming from a Far Eastern-European background, I’ve come from marketplaces where the ownership and the community or strata titles of freehold towers are very clearly defined. At this moment in time, we have a lot of towers coming on line in Dubai. We’ve seen what’s happening with tenants grouping in certain developments and starting to use their collective voices to exert an influence over the management of the development. However, without a legal framework within which these properties can operate, this will be a major problem in the months and years to come.
We are working with developers to develop community rules and regulations. However, every large developer in Dubai must be doing the same, which to a certain extent is rather a waste of resources. We are all working on parallel parths trying to produce the same thing, trying to get everybody into a situation where we can pool knowledge. To actually develop the rules and regulations of strata title ownerships, I think, is going to be one of the keys to developing the Dubai marketplace.
What about the service charge issue? Does there need to be greater uniformity within the market?
This is another challenging area. The community regulations and the provision of a sinking fund as part of service charges are topical issues at the moment. In some instances, developers are perhaps offering a lower service charge in order to entice people to buy property. Once they are in, up they go.
A service charge is the cost of running the common areas or, in layman’s terms, everything outside your front door: such as lighting, lifts, lobbies, the security, the cleaning and the swimming pools – running all the common facilities in the common areas. The difficulty that we are now experiencing is that when these buildings were originally being sold there was little or no comparable market data around. Landlords were running buildings themselves. So actually knowing the expenses and operational costs that were being experienced in the marketplace was difficult. We had a situation where people were coming up with figures that were not based on any historical data.
When considering service charges you then get into a situation where you add on services provided to residents. As far as we would recommend when operating a building or development, you would have one pot which is your common area maintenance, and another for services which your tenants or residents may buy into on a per-usage basis – such as valet parking, a concierge service or a laundry service.
When you are looking at freehold tower blocks, you have to collect your service charge to be able to run the building. Without collecting the service charge, things start to break down, things can’t be repaired. In the worse case scenario, the lights go out.
In Australia or the Far East, where the markets are developed, you can actually take the property back and dispose of their debt, if they are in debt. You have first call on the property. Some contracts of sale in the Emirates have the same provision.
What changing trends can you identify in the UAE market?
In Dubai, at this moment in time, there’s 0.4 per cent vacancy in residential space; and 0 per cent vacancy in commercial space. Landlords who are willing to take a more medium-to-long-term view of the marketplace are looking at constructing commercial properties.
There is a clear move towards commercial building development, and this is a direct response to the lack of commercial space within the market. There is also a clearer understanding that commercial buildings are going to be a good investment in the future, and there will be increased cases where buildings that have been converted from one use to another in the past will be repeated.
In terms of FM provision, what is outsourced and what is performed in-house?
On the FM services, the majority of our services are outsourced. We look at basically managing the appointment and performance of the contractors, through the use of SLAs [service level agreements] and KPIs [key performance indicators]. By outsourcing to multiple suppliers, we are often able to achieve best-in-class in each service. You can get what we believe is the best security company, or the best maintenance services. While there are advantages of going to a single supplier, in terms of the responsibility and coordination of the contract, if there’s a failure on behalf of that contractor, it’s a lot more painful to replace a single supplier who is providing the whole scope of services, than just replacing one contractor who is providing a part of the whole.
Another big issue is that when we manage properties, landlords may have interests in particular property services companies, so we have very little choice sometimes on which we are going to use. If the landlord has a security company, then they are the ones who will be providing security for that building. So currently the opportunity in the marketplace to actually be able to provide a single service supplier I believe is restricted. Whether the clients are willing to pay for it is something that will develop over time.
Whichever way it goes, there still needs to be someone to manage the FM service supplier and to be able to report to the client and ensure that they are performing as they should be – while also taking on the responsibility for the tenant and customer.
There are some services that Asteco can provide in-house, such as concierge, reception and help-desk services. But we are not a labour supplier, we are not a security company, we are not a cleaning company, so we will keep those parts outsourced.
When it comes to MEP [mechanical, electrical, plumbing], I believe that there are professional facilities management companies and MEP companies out there which are good at their jobs and we are happy to use them. What we have developed is an in-house engineering services team to be able to monitor and audit their performance on behalf of our client