OUTLOOK ON FACILITY MANAGEMENT IN FINLAND 2001

Transcription

1 Teknillisen korkeakoulun rakentamistalouden laboratorion selvityksiä 42 Helsinki University of Technology Construction Economics and Management Papers 42 Espoo 2001 TKK-RTA-S42 OUTLOOK ON FACILITY MANAGEMENT IN FINLAND 2001 Antti Tuomela Satu Heinimäki Jukka Puhto TEKNILLINEN KORKEAKOULU TEKNISKA HÖGSKOLAN HELSINKI UNIVERSITY OF TECHNOLOGY TECHNISCHE UNIVERSITÄT HELSINKI UNIVERSITE DE TECHNOLOGIE D HELSINKI

2 Teknillisen korkeakoulun rakentamistalouden laboratorion selvityksiä 42 Helsinki University of Technology Construction Economics and Management Papers 42 Espoo 2001 TKK-RTA-S42 OUTLOOK ON FACILITY MANAGEMENT IN FINLAND Antti Tuomela Satu Heinimäki Jukka Puhto TEKNILLINEN KORKEAKOULU TEKNISKA HÖGSKOLAN HELSINKI UNIVERSITY OF TECHNOLOGY TECHNISCHE UNIVERSITÄT HELSINKI UNIVERSITE DE TECHNOLOGIE D HELSINKI

3 Distribution: Helsinki University of Technology Construction Economics and Management P.O.Box 2100 FIN HUT Telephone Fax: leena.honkavaara@hut.fi HUT Construction Economics and Management ISBN ISBN (PDF) ISSN Photogaph on the cover courtesy of HUT/CEM. Otamedia Oy 1. print Espoo 2001

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5 FOREWORD The research paper is a part of a larger research project called Contracts of Facility and Property Management Services in Finland taking place at Helsinki University of Technology in the Laboratory of Construction Economics and Management. The main objective of the larger research project is to develop Finnish management service purchasing methods and contractual usage. The management team of the project, Contracts of Facility and Property Management Services in Finland, is composed of: Tiina Tanninen-Ahonen, TEKES Tapani Väljä, Sponda Oyj (Chairman) Hannu Soikkeli, YIT Rapido Kiinteistöpalvelut Oy Jorma Äikää, SOK Kiinteistötoiminnot Jukka Tammisto, Nordea Pankki Suomi Oyj Kari Sundqvist, ISS Suomi Oy Matti Malmberg, ABB Oy Mikko Salla, Nokia Oyj Professor Jouko Kankainen, Helsinki University of Technology The Contracts of Facility and Property Management Services in Finland research project is part of the Rembrand technology program of TEKES (the National Technology Agency). The Rembrand - Real Estate Management technology programme seeks to promote the Finnish property and construction sector by focusing on the services it provides. The research paper aims to convey some of the information that has been gathered from abroad. The report describes the quantity and some of the distinctions of the Finnish facility management market. Added to the general description of the real estate sector, the experiences, opinions, requirements and expectations of the Finnish facility management services are characterised. The common trends of organisations and the current market for management services are reviewed on the basis of theme-focused interviews done for the Contracts of Facility and Property Management Services in Finland -project. In Espoo December 2001 Authors 3

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7 TABLE OF CONTENTS FOREWORD INTRODUCTION FINNISH PROPERTY MARKET FINLAND FINNISH ECONOMY POPULATION NATIONAL PROPERTY OF FINLAND BUILDINGS ON THE BASIS OF APPLICATION AND GROSS FLOOR AREAS GEOGRAPHICAL DIVISION OF PROPERTY REGIONAL POTENTIAL OF FACILITY MANAGEMENT CONSTRUCTION AND AGE DISTRIBUTION OF BUILDINGS REAL ESTATE OWNERS IN FINLAND SOME FM DISTINCTIONS IN FINLAND THE STRONG BACKGROUND OF LOCAL PROPERTY MANAGEMENT CORPORATE REAL ESTATE MARKET MANAGEMENT CONTRACTS MANAGEMENT COSTS AND INCREASING MAINTENANCE GROWING FACILITY MANAGEMENT MARKET FACILITY MANAGEMENT SERVICE PROVISION IN FINLAND SOME FM TRENDS AND INFORMATION NEEDS IN FINLAND CONCLUSIONS...30 REFERENCES

8 1 INTRODUCTION This report summarises some of the Finnish FM market information produced in the Contracts of Facility and Property Management Services research project during the year The research aims to produce information for companies or people who seek for the everchanging market information of the Finnish facility management. The general objective of the Contracts of Facility and Property Management Services research project is to develop the contractual relationships between real estate owners and facility and property management firms. (Figure 1). Framework of the project OWNER Consepts Contracts MANAGEMENT-FIRM Tools PROPERTY RELATED SERVICES (BUILDING) FACILITY RELATED SERVICES (USERS) Figure 1 Framework of the project The methodology of the study is based on a literature review and theme-focused interviews. The theoretical base of the study was the general information of facility and property management services. The general objective of the whole research is to generate information for contractual relations for management firms and their clients. The aim of the research paper is to generate general information and illustrate the potential of the Finnish facility management market. The research paper studies the following issues: Finland s property market from the facility management s point of view the most significant real estate owners to present some legal viewpoints of the local management environment the local service provision of FM the potential of the Finnish facility management market the expectations of the future of FM in Finland. 6

9 2 FINNISH PROPERTY MARKET 2.1 Finland Finland (Finnish name Suomi) is a republic, which became a member of the European Union in Its population is 5.2 million with the capital Helsinki having residents. Finland is an advanced industrial economy: the metal, engineering and electronics industries account for 50 % of export revenues, the forest products industry for 30 %. Finland is said to be 'the most on-line nation in the world', with more mobile phones and Internet connections per capita than any other country. 1 Finland is located in the Northwestern corner of Europe (Figure 2) with land borders to Sweden, Norway and Russia, and Estonia across the Gulf of Finland. Figure 2 Finland in Europe (FINFO, Finland Information Pages ) 2.2 Finnish Economy Finland's road to industrialisation started in the 19th century with the harnessing of forest resources. Forests are still Finland's most crucial raw material resource, although the engineering and high technology industries, led by Nokia, have long been the leading branches of manufacturing (Table 1). 2 The most important export product today is the mobile phone and Finland is one of the few European countries whose exports exceed imports in data and communications technology. 1 FINFO, Finland Information Pages Embassy of Finland

10 Today, Finland is a typical advanced industrial economy. The net wealth of Finnish households is at the average level for member states of the European Union. In 1999, Finland's GNP per capita was around euros (ca USD). 1 Table 1 National Economy (FINFO, Finland Information Pages ) Value of exports in 1999 by region by product EU Efta rest of Europe Asia North America others 57.9% 4.5% 13.2% 10.6% 8.7% 5.1% electronic and electrical products pulp and paper machinery and equipment metal products transport vehicles timber and wood chemicals 28% 23% 12% 7% 6% 5% 9% Value of imports in 1999 by region: by use: EU Efta rest of Europe Asia North America other countries 58.0 % 5.1 % 11.8 % 13.6 % 8.4 % 3.1 % raw materials and other production necessities investment goods consumer durables other consumer goods energy products 41 % 26 % 10 % 14 % 9 % 2.3 Population The population of Finland is approximately Finland is the sixth largest country in Europe in terms of area, but holds a low population density of only 17 persons per square kilometre. Most Finns, some 65 %, live in urban areas, while 35 % remain in a rural environment (Table 2). The three cities of Helsinki, the capital, population , Espoo, , and Vantaa, , form the fast growing Helsinki Metropolitan Area, which is now home to roughly a sixth of the country's total population. Other important cities are Tampere, , Turku, , and in the north Oulu, Embassy of Finland FINFO, Finland Information Pages

11 Table 2 Population: People (FINFO, Finland Information Pages ) 5.2 million, 17 inhabitants per square kilometre 65% live in towns or urban areas, 35% in rural areas Principal cities: Helsinki (555,500), Espoo (213,300), Tampere (195,500), Vantaa (178,500), Turku (172,600) and Oulu (120,800) About one million people live in the Helsinki metropolitan area. Languages: Finland has two official languages: Finnish and Swedish. Finnish, a Finno-Ugric language, is spoken by 93% and Swedish by 6 % of the population. Sami (Lappish) is the mother tongue of about 1,700 people. Compared to the Middle European countries, the Finnish population is very small compared to the geographical area. As an example, compared to UK's 242 inhabitants per square kilometre Finland has only 17 in the year 2000 (Figure 3). UK! Population 59 million! Area km²! 242 inhabitants per square kilometre Finland! Population 5.2 million! Area km²! 17 inhabitants per square kilometre Figure 3 Density of population in the UK and Finland The density of population has its effect to facility management as well as many other things. The potential facility management areas are limited and allocated to specific districts. 9

12 2.4 National Property of Finland Built property plays a very significant role in the national economy of Finland. On the basis of Statistics Finland, the national accounts were billion FIM (420 billion E) in 1997 (Figure 4) and the built environment formed two thirds of it. Private houses and other buildings formed 49 % of the national property at 205 billion euros % 3 % 14 % National Accounts of Finland 1997 Total 420 billion euros 26 % Private houses 110 Other buildings 95 Land- and water constructions 49 Built land % 12 % 23 % Forests 48 Water and land areas 12 Machinery, devices, etc. 60 Figure 4 The National accounts of Finland 1997 (Tilastokeskus (Statistics Finland). Kansallisuusvarallisuusselvitys vuosilta Finland, ) 2.5 Buildings on the Basis of Application and Gross Floor Areas In 1998 Finland had buildings, which had a total of 356 million gross floor square meters. The average building had an average of 280 square meters. The academic buildings were the biggest of all with an average of 1700 square meters each. 2 One-floor buildings constituted 64 percent of the buildings in The number cumulated to 90 percent when two-floored buildings were added to them. The Finnish buildings can be considered low-level, as there were only 300 buildings over ten floors in The accommodation buildings formed as much as 64 % of all buildings in Finland. Two thirds of them were small houses (one or two family houses) and one-third lower apartment buildings. Commercial property was 10 %, public buildings 9 %, industrial buildings 11%, logistic buildings 5 % and other buildings 1 % (Table 3). 4 1 Tilastokeskus (Statistics Finland). Kansallisuusvarallisuusselvitys vuosilta Tilastokeskus (Statistics Finland). Rakennukset, asunnot ja asuinolot 1998, Asuminen 1999:9. p Tilastokeskus (Statistics Finland). Rakennukset, asunnot ja asuinolot 1998, Asuminen 1999:9. p Tilastokeskus (Statistics Finland). Rakennukset, asunnot ja asuinolot 1998, Asuminen 1999:9. p

13 Table 3 Property of Finland on the basis of application (Tilastokeskus (Statistics Finland). Rakennukset, asunnot ja asuinolot 1998, Asuminen 1999:9. Helsinki, Finland, p. 30.) Application Gross floor area Percentage gfm² % Accommodation Small houses Row houses Apartment buildings Commercial property Commercial buildings Office premises Public buildings Heath care buildings Assembly building Educational buildings Industrial buildings Industrial buildings Logistic buildings Transportation buildings Warehouses Other buildings Total Geographical Division of Property In 2001 Finland consists of five main provinces plus the smaller Ahvenanmaa province. The provinces are Southern-Finland, Western-Finland, Eastern-Finland, Oulu, Lapland and Ahvenanmaa (Figure 5). LAPLAND OULU WESTERN EASTERN SOUTHERN AHVENANMAA Figure 5 Provinces and biggest municipal districts in Finland 11

14 With the population of people in 1998, more than 20 percent lived in the greater Helsinki area ( people) and the greater Tampere and Turku areas held home to a third of all population in Finland. The Southern and Western provinces combined made up 75 percent of the Finnish population. 1 The biggest part of the buildings, 76 percent, was allocated in 1998 in the Southern and Western provinces of Finland. Eastern-Finland comprised only 11 percent of the buildings leaving the Oulu and Lapland provinces at 13 percent (Figure 6). 2 Property allocated to provinces % 4 % 8 % Southern Finland 11 % 40 % Western Finland Eastern Finland Oulu Lapland Ahvenanmaa 36 % Figure 6 Property allocated to provinces (Tilastokeskus (Statistics Finland). Rakennukset, asunnot ja asuinolot 1998, Asuminen 1999:9. Helsinki, Finland, pp ) 1 Tilastokeskus (Statistics Finland). Seutukunta- ja maakuntakatsaus p Tilastokeskus (Statistics Finland). Rakennukset, asunnot ja asuinolot 1998, Asuminen 1999:9. pp ,

15 Table 4 Gross floor areas (%) and population in provinces in Finland (Tilastokeskus (Statistics Finland). Rakennukset, asunnot ja asuinolot 1998, Asuminen 1999:9. Helsinki, Finland, pp ) Gross Percentage Percentage Percentage floor area of property of property of population in Finland in province in Finland Province gfm 2 % % % Southern Finland , ,8 Accommodation ,9 62 Commercial property ,3 11 Public buildings ,5 9 Industrial buildings ,6 12 Logistic buildings ,3 6 Other buildings ,3 1 Western Finland , ,5 Accommodation ,1 64 Commercial property ,2 9 Public buildings ,1 9 Industrial buildings ,6 13 Logistic buildings ,8 5 Other buildings ,4 1 Eastern Finland , ,6 Accommodation ,4 66 Commercial property ,1 9 Public buildings ,2 10 Industrial buildings ,0 9 Logistic buildings ,5 4 Other buildings ,1 1 Oulu , ,8 Accommodation ,4 65 Commercial property ,8 10 Public buildings ,9 11 Industrial buildings ,8 9 Logistic buildings ,4 4 Other buildings ,1 1 Lapland , ,8 Accommodation ,5 62 Commercial property ,5 12 Public buildings ,4 10 Industrial buildings ,4 11 Logistic buildings ,2 4 Other buildings ,1 1 Ahvenanmaa , ,5 Accommodation ,3 67 Commercial property ,1 13 Public buildings ,0 9 Industrial buildings ,0 6 Logistic buildings ,0 4 Other buildings ,0 2 Total ,0 100,0 The Southern and Western provinces of Finland can be considered to be the most potential areas for Facility and Property Management services. The rest of the provinces, excluding cities like Oulu, can be considered marginal for larger scale FM practices. 13

16 2.7 Regional Potential of Facility Management Throughout Finland the average fee-level for facility management is approximately 2,0 per gross floor square meter per year 1, the potential management fees for different provinces and municipal districts can be estimated. The different views aim to create an image of the general potential of the local markets and different management domains. In reality, the costs and fees are dependable to the location and building application. The given estimates are merely trend setting in order to quantify each management market inside Finland. The six provinces would have a combined potential of 712 million euros for management fees in the manageable buildings (Figure 7). The figure shows that the most potential facility management markets exist in the Southern and Western Finland provinces. LAPLAND OULU EASTERN WESTERN SOUTHERN Province Gross floor Potential of area management fees gfm 2 M /year Southern Finland Western Finland Eastern Finland Oulu Lapland Ahvenanmaa Total AHVENANMAA Figure 7 Potential of management fees in six provinces of Finland The potential of different building-applications in the most potential provinces are very similar. Accommondation buildings represent the biggest property type in both provinces and the industrial buildings second biggest (Table 5). 1 Hyartt, J. & Saari, A. & Kiiras, J. Kiinteistöjen ylläpidon kustannustieto 1992, Hoito- ja kunnossapitokustannukset sekä elinkaaren kustannukset. 14

17 Table 5 Potential of management fees in the Southern and Western Finland provinces on the basis of application Different applications Gross floor area Potential of in Southern and Western management provinces fees gfm 2 M /year Southern Accommodation Commercial buildings Public buildings Industrial buildings Other buildings Western Accommodation Commercial buildings Public buildings Industrial buildings Other buildings Total In the five biggest municipal districts of Finland the potential of management fees are approximately 280 million euros per year (Figure 8). The greater Helsinki area: Helsinki, Espoo and Vantaa, has four times more potential than the second biggest Tampere district. District Gross floor Potential of area management fees gfm 2 M /year Helsinki Tampere Turku Lahti Oulu Total Figure 8 Potential of management fees in the five biggest municipal districts of Finland The allocation of buildings by their application in the three biggest districts shows that the Helsinki area has the best management market for different kinds of buildings (Table 6). The other potential districts are Tampere and Turku. 15

18 Table 6 Potential of management fees in the three biggest municipal districts of Finland on the basis of application District Gross floor Potential of area Management fees gfm 2 M /year Helsinki Accommondation Commercial buildings Public buildings Industrial buildings Logistic buildings Tampere Accommondation Commercial buildings Public buildings Industrial buildings Logistic buildings Turku Accommondation Commercial buildings Public buildings Industrial buildings Logistic buildings Total Construction and Age Distribution of Buildings Construction in different decades and the age distribution of buildings Finland is accented to the 60s, 70s and 80s (Figure 9). Only 26 % of the buildings were built before the 60s. Construction in the 90s appears to be lower than the very active 70s and 80s. 1 Buildings (gfm²) according to the year of construction(1998) 24 % 13 % 23 % 1 % 5 % 5 % 4 % 11 % 14 % Unknown Figure 9 Age distributions of buildings in Finland (Tilastokeskus (Statistics Finland). Rakennukset käyttötarkoituksen ja rakennusvuoden mukaan Finland, 1998.) 1 Tilastokeskus (Statistics Finland). Rakennukset, asunnot ja asuinolot 1998, Asuminen 1999:9. pp. 7,

19 In a more specific time period the different applications of buildings show a steady trend in construction between (Table 7). Table 7 Buildings on the basis of gross floor area and application (Tilastokeskus (Statistics Finland). Rakennukset käyttötarkoituksen mukaan Finland, 1992.) Application Gross floor area gfm * % 1990* % 1995 % 1998 % Accommodation Small houses Row houses Apartment buildings Commercial property Commercial buildings Office premises Public buildings Heath care buildings Assembly building Educational buildings Industrial buildings Industrial buildings Logistic buildings Transportation buildings Warehouses Other buildings Total *1985 and 1990 Warehouses are concluded in the Other buildings 2.9 Real Estate Owners in Finland In 1995 the biggest real estate owners in Finland were private persons and heirs (35 %). The housing, cooperative and joint stock property companies owned a third of the gross floor area in Finland. Different institutions and organisations owned the remaining third (Figure 10). 1 3 % 2 % 9 % 1 % 1 % 2 % 14 % 10 % Distribution of property on the basis of owner-types 1995 Private person or heirs Housing or cooperative companies Joint stock property companies 35 % 23 % Private corporations Public corporations Public utility company Banks and finance companies Communities and federations of communities Government Religious organization and communities Figure 10 Building owners (on the basis of gross floor areas) 1995 in Finland (VTT Rakennustekniikka, Rakentaminen ja kiinteistöhallinta (Technical Research Centre of Finland). Kiinteistö- ja rakennusklusteri ja sen keskeiset teknologiat, esiselvitys. Finland, p. 9.) 1 VTT Rakennustekniikka, Rakentaminen ja kiinteistöhallinta (Technical Research Centre of Finland). Kiinteistö- ja rakennusklusteri ja sen keskeiset teknologiat, esiselvitys. p

20 Comparing the gross-floor-area-distribution to the number of owned buildings per different owner-types, there is a clear distinction (Table 8). The private persons and heirs own in ,6 % of all buildings. The share of buildings owned by joint stock property companies, private corporations, communities, religious organizations and unknown buildings has increased during the 80s and 90s. 1 Table 8 Building owners (on the basis of number of buildings) 1980, 1990, 1995 and 1998 (Tilastokeskus (Statistics Finland). Rakennukset, asunnot ja asuinolot 1998, Asuminen 1999:9. Helsinki, Finland, p. 24.) Owner Buildings 1980 % 1990 % 1995 % 1998 % Private person or heirs , , , ,6 Housing or , , , ,6 cooperative companies Joint stock property companies , , , ,4 Private corporations , , , ,5 Public corporations , , ,5 Public utility companies , , , ,3 Banks and finance companies , , , ,2 Communities , , , ,1 Government , , , ,6 Religious organizations , , , ,5 and communities Others, unknown , , , ,7 Total More information about the Finnish Property Market can be found from KTI, the Institute for Real Estate Economics, from Catella Property Consultants, and owner information can be found from The Finnish Association of Building Owners and Construction Clients (RAKLI), 1 Tilastokeskus (Statistics Finland). Rakennukset, asunnot ja asuinolot 1998, Asuminen 1999:9. p

21 3 SOME FM DISTINCTIONS IN FINLAND 3.1 The Strong Background of Local Property Management The actual history of Scandinavian real estate management has a long history in the form of property management. It is expressly property management that is the closest to the original corporate real estate management and the Scandinavian owner-based service provision model. The property management, as a noticeable activity, has different traditions in different countries. It is difficult to point out the origin of property management in the separate areas, since there has always been some kind of demand and supply for it. The forming of the professional form of property management can be estimated to have begun in the 1970s when construction companies started to manage their buildings in order to maintain the needed physical conditions and to collect the rent. These companies were housing and joint stock property companies. The facility management in Finland has evolved, or has had very strong influences, from the local property management. Most management activities and models originate from the management of housing and joint stock companies in Finland. In Finland the housing and joint stock property companies are a limited liability for companies that serve the purpose of owning and administrating one or more buildings. Each share represents the premises owned by the shareholder. The building and the premises, possessed by the shareholders, have to be owned and possessed by the housing or joint stock property company. 1 The housing and joint stock property companies highest decision-making body is the shareholders meeting (Figure 11). The shareholders meeting elects the board of the company and the auditors 2. The board appoints a superintendent to manage the company. The board sees to the management of the company and the proper organization of operations. If the company has a superintendent, he or she shall see to the day-to-day management of the company according to regulations, instructions and orders issued by the board 3. 1 Kiinteistöalan Kustannus Oy-Rep Ltd & Suomen Kiinteistöliitto (Finnish Real Estate Federation). Isännöitsijän käsikirja. pp Kiinteistöalan Kustannus Oy-Rep Ltd & Suomen Kiinteistöliitto (Finnish Real Estate Federation). Isännöitsijän käsikirja. p Housing Companies Act, Powers of the board and superintendent. No. 809, section

22 Shareholders meeting ELECTS ELECTS AUDITS Auditors Board AUDITS ELECTS Superintendent SUPERVISES INSTRUCTS Other possible administrative employees eg. assistant, accountant Operational staff Figure 11 Institution of a housing company (Kiinteistöalan Kustannus Oy-Rep Ltd & Suomen Kiinteistöliitto (Finnish Real Estate Federation). Isännöitsijän käsikirja. Helsinki, Finland, p. 15.) The Finnish property management has its biggest influences and distinctions from the housing and join-stock property companies management and superintendent tasks fixed by legislation. The property has been, and still is, managed with the institutions presented earlier. According to Finnish property management activities, the superintendent s list of tasks includes the following 1 : 1. Administrative tasks! meetings: call together board meetings, shareholders meetings and other meetings! contractual issues: renting, insurance and subcontracting! supervising and observing the laws! employment relationships of the company! compulsory registrations 2. Economical tasks! financial planning! accounting 3. Technical tasks! organizing and monitoring services! organizing and monitoring maintenance! project management and renovation planning. 1 Kiinteistöalan Kustannus Oy-Rep Ltd & Suomen Kiinteistöliitto (Finnish Real Estate Federation). Isännöitsijän käsikirja. pp

23 The same, 70s born, property management culture still has its effect on the modern day real estate management in Finland. It can be seen as a foundation for all the other forms of real estate management (asset and facility). In many cases, the property management has been considered as the only form of real estate and building management in Finland. The legislative responsibility of the superintendent as a managing director has its effect on the modern organizations and decision-making. In general, the property management issues are traditional management and control issues, the task entity of a Finnish property manager many times include altered tasks from different sectors of real estate management activities. In Institutional invertor organisations in Finland the PM contains different tasks from owner-based real estate management such as administration, investment, renting and maintenance (Figure 12). OWNER PROPERTY MANAGEMENT ADMINISTRATION INVESTMENT RENTING MAINTENANCE Economical Construction Facility marketing Technical management Administrative Acquisition Tenant relations Operations Figure 12 An Example of Finnish Institutional Property Management Organization (Puhto, J. Kiinteistöpalveluiden laadunhallinta Presentation in Helsinki. Finland: Helsinki University of Technology, Construction Economics and Management.) The distinctions between property management and facility management are not as obvious as one might think. First, each area covers a wide range of activities, from building operations to occupancy and financial management. Second, the activities vary dramatically depending upon the type of corporation. 1 The same idea applies very much in Finland. The biggest trendsetters for the Finnish FM business have been the British and the American FM cultures. The Finnish FM has the same purposes and perspectives. Pertti Vanhanen, The Chairman of the Finnish Chapter of International Facility Management Association, defines FM as following: 1 Lambert et al. Leading-Edge Corporate Real Estate: Services in Transition. p

24 Facility Management a process where an organization produces, maintains and develops real estate and supportive services for the strategic needs of corebusinesses Corporate Real Estate Market At least for the time being corporations still have a very strong culture of having their own facility and property management functions. Corporations regularly own their property and manage it with their own property management units. According to Celexa 2 as much as 60% of the Finnish corporations own their premises. Compared to the British with the approximate 30 % and American 25 % 3 the Finnish corporate capital structure is very property intensive (Figure 13). 70 % 60 % 50 % 40 % 30 % 20 % 10 % 0 % USA UK Finland User-owners Figure 13 Percentage of User Owners in the USA, UK and Finland 1 Vanhanen P. Presentation for the Finnish International Facility Management Association website Konsala, J. Finnish Property Market. Finland: Celexa, p Kaleva, H. Comparison of International Real Estate Markets report. 22

25 While the investors have started to pay attention to the corporate key figures, the Finnish companies have lately started to sell property and to outsource the core business detached functions. As everywhere else, the facility management and services are very often included. Despite the Finnish business success stories, the local business culture and corporate policies have held over the strategic outsourcing actions until the past couple of years. Compared to the British and American companies the Finnish companies are in an early stage of doing several outsourcing decisions. The biggest ones have been the ones involving the two biggest telephone operators, Sonera with ABB and Elisa Communications with ISS. With the exception of a few big deals during the year 2000, most companies are relying on their own management units. Most commonly, the in-house service units deliver the user-associated services as stationary, mail, and reception services. In most cases services like cleaning, maintenance and security have been out-tasked since the 70 s and 80 s. An average Finnish corporate delivers some services internally and some from out-tasked service providers (Figure 14). CORPORATE MANAGEMENT FM UNIT own service unit contractor contractor outsourced Communication link Contractual link Figure 14 Traditional Finnish Corporate Management According to the theme-focused interviews in Finland, the corporations do not have difficulties purchasing any services from specialized service providers if the quality of the service is good. At least at the moment the common impression is that most companies are very willing to outsource the operative services, technical and administrative management functions. 23

26 3.3 Management Contracts Finnish management contracts are becoming more performance-based. The traditional contracts have generally listed duties and quality definitions. Goal settings and measurements are rapidly improving, whilst globalization is becoming very strong in the Finnish FM-market. Management fees have traditionally been fixed, but the market is becoming more receptive towards different types of incentives. Contract relationships are considered strong and contracts are mainly ongoing; unlike in countries where modern FM is being practiced, the partnership type contracts are becoming more popular (Table 9). In general there are still some main distinct features in FM/PM contracts in Finland. Table 9 Main distinct features in the FM/ PM contracts in Finland (Keituri K. & Äijälä S. Facility and Property Management Contracts in Finland and USA - Some Distinctions unpublished project work. Tallberg Management Ltd. Helsinki, Finland, ) Finland Duties Task lists quite general Quality definitions General Goal setting, measurements Very rarely done, improving Management fees Mainly fixed fees Contract lengths Mainly ongoing, short term 3-12 months notice, improving towards partnership type contracts, 3-5 years 3.4 Management Costs and Increasing Maintenance Instead of increasing production of new buildings, the Finnish companies are focusing on adding value to the existing property by renovating and preventive maintenance. 1 While the premises are the second biggest cost item after labour, the Finnish companies are paying more attention on maintaining the property. 2 1 Land, P. & Vaarama, H. Kiinteistökustannukset vertailemalla hallintaan, benchmarkingilla parhaitten parhaaksi. p Land, P. & Vaarama, H. Kiinteistökustannukset vertailemalla hallintaan, benchmarkingilla parhaitten parhaaksi. p

27 In Finland the overall management costs of buildings are 12.6 billion euros per year (Figure 15). The most significant expenditure is the energy costs at 2.5 billion euros. Because of the relatively high labour costs, the different services form the next biggest expenditures. Preventive maintenance and cleaning make up almost 1.7 billion euros of annual costs. Finland also has a relatively strong culture of purchasing different consultant services. The group of other services ( 2,2 billion) contain different consulting and contractor services used in the Finnish management market. Value of an activity M 3000 Management Costs Value of activities 12,6 Billion Euros per Year Administ-ration Breakdown Maintenance Cleaning Exteriors Preventive maintenance Other services Heating Water Electricity Million Euros Figure 15 Annual Management and maintenance costs in Finland (VTT Rakennustekniikka, Rakentaminen ja kiinteistöhallinta (Technical Research Centre of Finland). Kiinteistö- ja rakennusklusteri ja sen keskeiset teknologiat, esiselvitys. Finland, p. 10.) 25

28 4 GROWING FACILITY MANAGEMENT MARKET 4.1 Facility Management Service Provision in Finland The facility management service supply is increasing rapidly in Finland. More service providers, owners, construction firms and others seek business opportunities within the facility management. The current management market comprises of several FM service providers from very different backgrounds (Figure 16). Some Finnish management service providers are building management services as a natural part of their service portfolio and some seek for better access to customer relations. User service companies Real Estate companies Construction companies RE brokerage companies FM Property managers Specialized new FM-providers Building Service companies IT-companies Figure 16 Backgrounds of FM service providers in Finland (modified from Atkin, B. Modules about Facilities Management. Lecture, Royal Institute of Technology, Stockholm, 1999.) Therefore the Finnish market is going through a learning stage where many companies quickly go in and out of the market. Given the relatively small market, many settled and traditionally thought management service providers do exist. Despite of the very rapidly changing management environment there have been general reviews of the Finnish management service providers. Finnish management companies with a background in property management or maintenance are for example the REIM, FPM Liikeisännöinti, Tallberg Management Ltd and YIT Rapido Kiinteistöpalvelut (Table 10). Construction companies like NCC, SRV Viitoset, Skanska and Hartela s KJ Kiinteistöjohto have established management services as life-cycle-long service continuation. 26

29 In Finland most of the facility management service providers deliver property management as well. The major managing contractors and agents are the Tallberg, Johnson Controls, JSP Facilities and REIM-ryhmä. The three pension-fund-based managers are Antilooppi Oy, Kiinteistö-Fennia and Kiinteistövarma. Antilooppi delivers management services for the Ilmarinen Pension Fund. Kiinteistö-Fennia only delivers services for the Fennia Group. Kiinteistövarma sells management to outside parties but primarily manages the property of the Varma-Sampo Group. 1 The Finnish service providers delivering management are ABB, Engel, ISS, Säkkiväline, Sodexho and YIT Rapido. None of these companies are an ideal total facilities management company, at the moment most of them are being thought of as companies that deliver management as well as many of the services. ABB and YIT Rapido have their main focus on technical management and services, while the seek to deliver also the softer user-focused services, excluding Sodexho which provides only soft FM services. Table 10 The major Management companies in Finland in 2002 (Rautio, A Manageeraus Suomessa paljon porua, vähän tunkua, Locus magazine, 1/2002 p. 18, Finland) Portfolio Asset Property Facility management management management management for investors and corporations for users ABB (x) x x Aberdeen x x Antilooppi x x Catella x x x x CM-Urakointi x Engel x x Estator x x x ISS x x J. Juhola Oy x x x Johnson Controls x x JSP Facilities x x Kari Management x x x Kiinteistö-Fennia x x Kiinteistövarma x x KJ-Kiinteistöjohto x x x NCC x Realco x x Realprojekti x x REIM-ryhmä x x x x Skanska x x x Sodexho x Säkkiväline (x) Tallberg x x x x Viitoset Management x x YIT Rapido x x x x 1 Rautio, A. Manageeraukseen on tunkua. Finland: Locus- magazine, No. 4. pp

30 Some companies have built alliances in order to deliver services more effectively. Some Finnish service providers have identified their fields of expertise. By joining forces, some companies are finding synergies to better deliver customer service solutions. Many FM service providers have started to pursue building partnerships with their clients, and the competition for the big and growing clients can be described as tough. 4.2 Some FM Trends and Information needs in Finland According to several studies among the Finnish FM industry by HUT Construction Economics and Management, the trends and improvement areas in Finland are very similar compared with the rest of the world. The Finnish FM industry considers the following issues relevant at the moment. Outsourcing: The most potential management tasks to be outsourced are considered the technical management and administration. The most important tasks within FM are considered the customer relations and investment decisions. In general the companies that do not professionally manage property are more willing to outsource all facility related management and service activities than those who consider property and facility management as part of their business. Some questions on the market: What management expertise should be outsourced and what not? Experiences on partnerships (especially in PFI/PPP issues)? Value of Facility Management According to some interviewed clients many of the management service concepts are still unclear and many local management companies lack case examples and proof of success. Few management service providers are considered professional. Many of the clients need more demonstrative examples before outsourcing decisions. Some questions on the market: Tangible facts of the value of outsourced and out-tasked FM functions? How can FM service providers bring visible strategic value to customers core businesses? 28

31 Performance management in services Service purchasing has new quality demands in the market. In some cases the once outsourced services are not being taken back in-house, on the cost of quality. Service providers are agreeing upon different service levels with their customers. Different tools of performance management are well known but the experiences of using them are lacking. Some questions on the market: What should be agreed upon in the service level agreements and what issues should be measured? How well should the client specify the service level needs in the RFP s? How should the SLA s and KPI s be implemented? What are the client s, manager s and service provider s roles in practice? 29

32 5 CONCLUSIONS The built environment formed two thirds of the national accounts of Finland. Accommodation buildings form almost two-thirds of the buildings in Finland. Finland, as a FM market area, can be considered partially marginal. The most potential management areas are the Southern and Western Finland provinces. The most potential municipal district in Finland is the Helsinki area. Finland has an approximate facility management potential for 356 million gross floor square meters and annual 712 million euros for management fees. The most potential municipal district, the Helsinki area, has alone 78 million gfm² and an annual management potential for 156 million euros. Finnish facility management has had a great influence on the local property management tasks. The housing and joint stock property companies are the most common means of owning and administrating buildings in Finland. In these environments the decisions are being made by the boards and management executed by the superintendent. Finnish corporations own relatively much of the property used for the businesses (60%). Many companies are still running PM and FM with in-house management and service teams. Services like maintenance and cleaning have a relatively long history of outsourcing or out-tasking. Facility management in general is in a phase of transition. Management contracts are becoming more performance-based and service provision is growing. Global service, management and consultancy companies are establishing FM related businesses in Finland. The global interaction is becoming more common with company acquisitions, mergers and professional information exchange. Outsourcing is increasing rapidly. Along all user centered service and management functions in the private sector, the public sector in expected to have much potential for future outsourcing deals. Both private and public sectors can be, for the time beeing, considered very user-owner centric. 30

33 REFERENCES Atkin, B. Modules about Facilities Management. Lecture, Royal Institute of Technology, Stockholm, Embassy of Finland FINFO, Finland Information Pages Tilastokeskus (Statistics Finland). Kansallisuusvarallisuusselvitys vuosilta Finland, Housing Companies Act, Powers of the board and superintendent. No. 809, section 54. Helsinki, Finland, Hyartt, J. & Saari, A. & Kiiras, J. Kiinteistöjen ylläpidon kustannustieto 1992, Hoito- ja kunnossapitokustannukset sekä elinkaaren kustannukset. Otaniemi, Finland: Helsingin teknillinen korkeakoulu, Rakentamistalouden laboratorion julkaisuja 119 (Helsinki University of Technology, Construction Economics and Management, Publications 119), p. Kaleva, H. Comparison of International Real Estate Markets report. Finland: Kiinteistötalouden instituutio KTI (Institute for Real Estate Economy), February p. Keituri K. & Äijälä S. Facility and Property Management Contracts in Finland and USA - Some Distinctions unpublished project work. Tallberg Management Ltd. Helsinki, Finland, p. Kiinteistöalan Kustannus Oy-Rep Ltd & Suomen Kiinteistöliitto (Finnish Real Estate Federation). Isännöitsijän käsikirja. Helsinki, Finland, p. Konsala, J. Finnish Property Market. Finland: Celexa, p. Lambert et al. Leading-Edge Corporate Real Estate: Services in Transition. IDRC Foundation p. Land, P. & Vaarama, H. Kiinteistökustannukset vertailemalla hallintaan, benchmarkingilla parhaitten parhaaksi. Turku, Finland: Kiinteistötalouden instituutio KTI (Institute for Real Estate Economy), p. 31

34 Puhto, J. Kiinteistöpalveluiden laadunhallinta Presentation in Helsinki. Finland: Helsinki University of Technology, Construction Economics and Management. Rautio, A. Manageeraukseen on tunkua. Finland: Locus- magazine, No. 4. pp Rautio, A. Manageeraus Suomessa Paljon porua, vähän villoja. Finland: Locus- magazine, No. 1. pp Tilastokeskus (Statistics Finland). Rakennukset, asunnot ja asuinolot 1998, Asuminen 1999:9. Helsinki, Finland, p. Tilastokeskus (Statistics Finland). Rakennukset käyttötarkoituksen ja rakennusvuoden mukaan Finland, Tilastokeskus (Statistics Finland). Rakennukset käyttötarkoituksen mukaan Finland, Tilastokeskus (Statistics Finland). Seutukunta- ja maakuntakatsaus Oulu, Finland, p. Vanhanen P. Presentation for the Finnish International Facility Management Association website VTT Rakennustekniikka, Rakentaminen ja kiinteistöhallinta (Technical Research Centre of Finland). Kiinteistö- ja rakennusklusteri ja sen keskeiset teknologiat, esiselvitys. Finland, p. 32

35 OTHER PAPERS IN THIS SERIES OF THE CONSTRUCTION ECONOMICS AND MANAGEMENT AT HELSINKI UNIVERSITY OF TECHNOLOGY: TKK-RTA-S42 Tuomela, A., Heinimäki, S., Puhto., J., Outlook on Facility Management in Finland 2001, TKK-RTA-S41 Ventovuori, T., Puhto, J., Toimitilajohtamisen ostopalvelut, TKK-RTA-S40 Hanhijärvi, H., Tuomela, A., Puhto, J., Toimitilapalvelujen laadunhallinta, TKK-RTA-S39 Lehtonen, T., Tuomela, A., Puhto, J., Toimitilapalvelujen luokittelu, TKK-RTA-S38 Kolhonen, R., Työmaan laatupalkintokriteeristö, TKK-RTA-S37 Saari, A., Vesa, M., Ulkoseinän valinta elinkaariedullisuuden perusteella, TKK-RTA-S36 Saari, A., Tavoitteiden asettaminen rakennuksen muunto- ja käyttöjoustavuudelle, TKK-RTA-S35 Heinimäki, S., Puhto, J., Kiinteistöjohtamispalvelujen markkinat Suomessa, TKK-RTA-S33 Ylikangas, T., Tilaajan ja urakoitsijan vuorovaikutus design-build hankemuodossa, TKK-RTA-S31 Kolehmainen, E., Kiiras, J., Konsultti päätoteuttajana projektinjohtorakentamisessa, TKK-RTA-S30 Lamminluoto, S., Kiiras, J., Tavoitehintainen yksikköhintaurakka kohteena Harjun Ammattioppilaitoksen peruskorjaus, TKK-RTA-S29 Huovinen, P., Suomen investointiklusteriin kuuluvien yritysryhmien kansainvälisen liiketoiminnan, kilpailukyvyn ja sen kehittämisen vertailuraportti, Research, working and discussion papers also available. Texts in these series, obtained tel or fax ISBN ISBN (PDF) ISSN