Are you sure?

Newbies challenge old players in Budapest's shrinking facility management market

Stagnation is the word that best describes the market of facility managers, as the leading companies on the Budapest Business Journal’s list disclosed revenue figures for 2010 largely equal to the results of the preceding year.

For Strabag Property and Facility Services, the top ranked player on the list, the HUF 10 billion figure is actually identical to the total provided by the company for 2009. Arex fm, Rewag and Kész also reported figures similar to the 2009 data.

Although these companies managed to keep their businesses, most of the results show a downward trajectory and taking inflation into account, the numbers are notably lower than in 2009.

But showing that the sector still holds prospects, the latest facility management list also features newcomers, such as KÖT R 92 and DirektMester, which both entered the ranks with 2010 net revenues of around HUF 350 million.

New players to come

The new additions show that companies still see adding management services to their profiles or upgrading the service that they already have as a potential lifeline in the wobbly market.

One such is property advisor Colliers International, which has for a while been considering entry, having no management business as of yet. “It is an important service on the long run, enabling you to build up a fixed fee income basis and many relationships with various parties,” Tim Hulzebos, managing director of the company, told the BBJ.

The trend was started by the economic crisis, which basically froze the entire real estate market; players in all niches of the industry were happy to even survive. At that time, even developers started dealing with management. On the one hand, having nothing to build, they saw it as a possible means of generating cash flow. On the other, they were unable to sell the properties they had built and, in order to reduce costs, they opted to manage them themselves with the resources they already had. Having the management arm running, they later entered the market competitively, seeking outside contracts. A perfect example is TriGranit, which set up a management business and was ranked third on the 2010 list.

Setting up a management arm could have other motivations. “If there is no other choice for a developer to keep together its team than to enter asset management then it is definitely the right choice to enter the market,” said Zoltán Scharek, head of the property management branch at property advisor Cushman & Wakefield. At the same time, he also warned that the decision should be reviewed in the medium term, since it may translate into a company giving up its core areas of expertise, which will inevitably have negative consequences.

Getting started

There is no surefire way of setting up a management branch. Colliers head Hulzebos said his firm is open to reshuffling already existing staff, hiring professionals from outside or even buying an already established market player.

“We recruited both local professionals and experts from abroad,” said Simon Bayley, chief development officer of TriGránit, when asked about the experiences of its launch. “The type of employee we selected depended on the level and the requirements of the position. Foreign experts were mostly chosen to fulfill positions at a management level, where their professional knowledge is most needed,” he added.

Whichever method they opt for, fledgling facility managers will have their work cut out for them, since the market is small and competition is fierce. “Expectations of clients and tenants using the service have grown, while the financial means of the players became less favorable. This resulted in increased price competition,” Scharek said.

Although Bayley sees only limited hopes for market expansion, and hence not much room for maneuver, others, like Hulzebos, are still determined to make a go of it.

 

This article appeared in the BBJ's Office Market special report on April 22, 2011.