With rising inflation, the geopolitical crisis in Ukraine, and the spectre of global recession, even property markets in East Asia may soon feel the impact of higher borrowing costs and rising interest rates. This article aims to explore the impact that these and other key macroeconomic trends are having on the real estate sector in Singapore, China, and Hong Kong – and the knock-on effects for talent.
In each of these markets, we’ll explore four of the six major asset classes, which in this article we define as:
- Commercial real estate, comprising offices
- Industrial real estate, comprising business parks, factories, warehouses, etc.
- Residential
- Retail, comprising prime and suburban malls and retail spaces
- Lodging, comprising hotels and student housing (not in the current scope)
- Alternatives, which comprise data centres and infrastructure assets (not in the current scope)
Asia Pacific will continue to grow in 2022, though at a far lower rate than in 2021
Before diving into the individual national markets, let’s briefly review the residential sector across the region as a whole, since this tends to be of greatest concern to most people. Interestingly, most industry analysts are still forecasting substantial growth in the region’s most expensive housing markets through 2022, despite the ongoing pandemic, geopolitical tensions, and the likelihood of significant interest rate increases.
While residential prices across the region rose 9.1% in 2021, this is most likely due to the impact of the subsiding pandemic and buyers experiencing FOMO (fear of missing out). While we cannot expect anything like the same growth this year, we should expect continued residential property investment as a form of wealth preservation. At the same time, continuing post-pandemic reopening will likely encourage cross-border purchases.
That said, Q1 2022 figures have already shown a notable trend towards lower growth year-on-year. Residential sales in Hong Kong slumped to a two-year low in March 2022, for example, while Singapore experienced a similar contraction. However, there are some signs of potential recovery. In Q2 2022, Hong Kong home prices stabilised as the pandemic was gradually being brought under control.
In the case of Singapore, the city deliberately sought to cool the residential market in 2021. Now it has experienced a slight turnaround due to what’s known in the market as “non-landed residential sales” (condominiums and apartments) and more properties coming to market in the months following the last round of the city’s cooling measures.
Asia’s talent market is experiencing acute skills shortages
Overall, it’s clear that most countries in the Asia Pacific region are experiencing skills shortages for multiple reasons. These include technology changes, an ageing workforce, and lack of capacity to upskill employees.
The OECD reports that, beginning in 2021, “the working age population as a share of total population will decrease over time in Southeast Asia”. A 2021 survey by infrastructure consultancy Turner and Townsend found that 64% of the 90 markets surveyed faced a skills shortage last year.
The result of this shortage is rising wages – an acute recruitment challenge, especially against the backdrop of rising underlying inflation.
Another challenge for employers in the region is rising staff turnover, the result of the Baby Boomer generation retiring and younger workers tending to switch jobs more frequently. The impact of this is a rise in companies turning to contract and temporary staff to fill gaps.
The final mega-trend to discuss is the growing regional importance of diversity and inclusion. Just before the pandemic, McKinsey estimated that women make up only 12% of the global construction industry. They remain largely under-represented in many areas in the corporate workforce, a situation that many Asian firms are looking to improve by increasing access to female talent.
Now we’ve looked at the overarching trends, let’s take a deeper dive into three specific markets, starting with Singapore:
Commercial and Residential to drive Singapore’s real estate growth
Most sources are bullish on the Singapore real estate market, based on rising demand in Commercial and Residential, a resilient Industrial sector, and hope of a recovery in Retail as international tourism returns to the country.
- Commercial. Rising rental demand due to the government relaxing its pandemic restrictions since April 2022. Companies relocating from Hong Kong to Singapore are also driving up demand, while grade A office space in the central business district remains limited, thereby driving up prices.
- Residential. Residential property prices are predicted to increase in 2022, though estimates vary between 7% and 1-3%, due to government policies specifically designed to curb rising prices.
- Industrial. Life sciences and pharmaceutical tenants require tailored spaces to house high-tech R&D facilities, while the country’s manufacturing sector looks set to grow by 50% by 2030. As a result, demand is expected to soar, causing industrial rents to continue to edge higher.
- Retail. Easing pandemic restrictions are expected to fuel better performance in the retail sector, as more people return to retail spaces. Retail real estate supply is also being kept low in the hope of boosting a recovery in rental prices.
Singapore real estate is expected to ramp up hiring
For many reasons, the demand for talent in Singaporean real estate has long outpaced supply. Now the expectation is that the industry will ramp up its hiring as the economy continues to open up post pandemic.
At the same time, the sector is facing the challenge of digital transformation. Many of the established real estate firms have been slow to digitise compared with other sectors. Now the sector is becoming aware of the need to digitalise and is looking to hire skilled talent in this domain – particularly digital marketing.
“Shortages of skilled talent will force real estate companies to strengthen their employee value propositions to attract and retain top talent. This will include offering higher bonuses, pay rises, and long-term incentive schemes.”
Another reflection of the digital age is that leases for retail space have reduced by 10% as more retailers shift to e-commerce. With empty space needing to be leased, firms are increasingly looking for experienced leasing managers with extensive networks to recruit new commercial tenants.
The rise in business relocations to Singapore from Hong Kong and China in the wake of strict lockdown policies, plus the rapid increase in family offices between 2020 and 2021, means that real estate firms need more senior leasing or tenant rep roles to service these new potential tenants. With the Monetary Authority of Singapore’s announcement of stricter governance criteria for family offices, real estate firms will need those tenant reps to have skilled expertise in the areas of governance, risk management, and technology – all of which the new family offices will need.
Shortages of skilled talent will force real estate companies to strengthen their employee value propositions to attract and retain top talent. This will include offering higher bonuses, pay rises, and long-term incentive schemes. The average annual bonus for real estate employees is expected to increase from one month’s salary in 2021 to as much as three months’ salary in 2022. This is a reflection of both the industry’s improved performance and the increasing demand for talent.
Hong Kong: on the cusp of recovery after pandemic shock
China’s zero-Covid policy coupled with the pandemic restrictions on travel have put off a lot of corporate and business entities from doing business in Hong Kong. The most recent census of the territory reported a 2% contraction in the population for the first time in 60 years.
However, with new Hong Kong Chief Executive John Lee promising to reopen fully by Oct 2022, there is some hope that the economy will stabilise. Thus, the property market outlook is still hopeful, with reports that it is on the cusp of recovery in 2022.
- Commercial. According to JLL, the Hong Kong office market overall seems not to have been affected by the recent net talent outflow, which it regards as temporary. The report points out that large multinational corporations such as L’Oréal, Moët Hennessy, and VF Corporation have relocated to Singapore, while Pepsi, Unilever, and P&G have relocated to Dubai. Despite all this, the office sector is expected to stabilise as the roadmap to reopening is announced. Demand for commercial real estate is also increasing amongst the Life Sciences sector, helping to keep the market buoyant.
- Residential. This market has seen some recovery now the pandemic restrictions are easing, albeit still a drop year-on-year. Goldman Sachs predicts that house prices could fall by 20% from 2022 to 2025. This price decline could then lead to an increase in sales, which Knight Frank predicts could grow in volume by between 3 and 5%, led by the luxury market.
- Retail. Expected to improve given the gradual easing of social distancing measures and the use of e-vouchers to stimulate consumption. However, the pace of recovery is likely to remain gradual given the time it is likely to take for retail foot traffic to resume pre-pandemic levels.
- Industrial. The market saw solid demand from third-party logistics players despite a slowdown overall. This, coupled with tight vacancy, pushed rents up by 1.1% in Q2 2022. Going forward, observers predict that landlords and investors in this sector will consider partnerships with operators from other fast-growing sectors such as logistics, cold storage, self-storage, or data-centres. Leveraging such partnerships to arrange long leases would theoretically lead to both secure, stable rental income and higher yields.
Hong Kong real estate talent demand expected to rise, leading to average pay increases of 20%
As the real estate industry stabilises, demand for talent will increase. Some employees left their jobs during Covid and struggled to get work. As the market improves, many of these will find work again, and can expect salary increases of up to 5% on average.
Those skilled employees currently in work, by contrast, can expect a 20% salary increase by moving jobs between companies. The increase in demand for talent is exacerbated by how many Hong Kong professionals have left for Singapore, Australia, or the UK, but in some cases, this was due to companies relocating, so some roles that have gone will not need to be backfilled.
Generally, revenue-generating roles, operations (facility management), and IT roles are those where demand is most likely to increase. Real estate companies need to focus on increasing revenues, digital transformation, and developing new customer-focused operating models, all of which will drive demand for talent. Firms in the leasing space in particular are offering sign-on bonuses alongside higher salaries and more competitive commission structures, specifically to attract top talent.
“Planned investment in the New Territories and Kowloon to develop residential real estate and new, innovative, economic hubs are expected to contribute to the sector’s growth – and its talent requirements – in the years ahead.”
Planned investment in the New Territories and Kowloon to develop residential real estate and new, innovative, economic hubs are expected to contribute to the sector’s growth and its talent requirements in the years ahead. New construction projects will require project management, facilities management, and property management talent, for example, as well as leasing professionals to engage and service high-end commercial and retail properties. Real estate consultancy providers will need investment specialists and others able to manage and diversity clients’ real estate portfolios.
Those individuals who exhibit a broader skillset – including customer service and tenant management – are more likely to stand out.
China’s long-term outlook remains solid despite residential slowdown
Thanks to the long pandemic lockdowns in cities such as Shanghai and Changchun, China may now struggle to achieve the annual growth goal of 5.5% set in March by the National People’s Congress. That said, most economists anticipate that the Chinese economy will grow by up to 6% in Q3 and Q4, provided the government’s stimulus policy increases domestic consumption and growth in urban real estate.
Since 2021, the slowdown in urban housing construction has contributed to overall economic slowdown in China, aggravated by residential sales declining by more than 20% in H1 2022. Property market woes will continue to worsen in 2022.
- Commercial. CBRE expects nationwide “net absorption” – the sum of square feet that become physically occupied, minus the sum of square feet that became physically vacant during a specific period – to reach 6.2 million square metres in 2022. This is an increase over the five-year average of 5.3 million square metres, led by growing demand for office space from technology, media, and telecom companies such as Tencent, Byte-Dance, Alibaba, Huawei, Meituan, and Amazon. As a result of growing demand from top internet companies, four of the grade A office markets in Beijing are currently recording a vacancy rate of less than 10%.
- Residential. With lockdowns in tier one cities having affected some people’s incomes, and thus their ability to service their mortgages, this has weakened demand for residential real estate. S&P Global Ratings expects that national property sales will fall by 28%-33%. Banks in more than 100 cities have lowered mortgage rates since Mar 2022 – by as much as 60 basis points in some cases – in the hope of stimulating demand. The government is clear that it prefers to avoid speculation in the housing market or for developers to take on high volumes of debt to fuel construction. As a result, the residential sector is unlikely to see price increases in the near future. At the same time, disgruntled buyers are withholding payments on unfinished homes, and this heightens the pressure on developers who were already facing severe liquidity problems. Other homebuyers have stopped mortgage payments to pressurise banks and government to push developers to deliver the homes people paid for. This will add further downward pressure on house prices.
- Retail. The government’s tax incentives and subsidies should support the recovery of the country’s retail sector, with Gen-Z-related trades and new energy vehicle retailers expected to see significant growth, according to CBRE. For 2022, the average rental for prime retail space in major cities saw a drop of 0.9% quarter-on-quarter. However, after huge hits to the rental income of shopping malls during the pandemic, the long-term outlook is now more solid. Shopping centres are continuing to optimise their operations, upgrade their facilities, and introduce new services and innovative retail formats to serve new consumer behaviours and shopping patterns.
- Industrial. With demand set to remain strong in 2022, net absorption in this sector is expected to exceed 6 million square metres for the second consecutive year, driven by the rise of new business models such as e-commerce and the expansion of third-party logistics players. According to McKinsey, the pandemic has only accelerated the growth of the logistics sector. Surging demand for e-commerce during lockdowns spurred demand for logistics, making 2021 a bumper year, a trend that is likely to continue in 2022.
Real estate talent demand expected to increase
According to CGTN, China is facing multiple downward economic pressures, and the Chinese government plans to roll out a basket of policies to drive stable economic growth and boost employment, including offering tax reductions and value-added tax refunds. As part of government plans to help create up to 11 million new jobs, real estate is expected to see an increase in hiring.
Private real estate companies have become more cautious about recruiting in the current economic climate, especially as Chinese government efforts to curb property speculation have cooled the market. As a result, there is more real estate talent than market demand at present.
“Because the Chinese government views real estate as a vital industry for future economic growth, we can expect to see more activity in the Commercial and Industrial sectors in the years ahead.”
However, because the Chinese government views real estate as a vital industry for future economic growth and values its overall contribution to GDP, we can expect to see more activity in the Commercial and Industrial sectors in the years ahead. This will lead to a demand for talent with real estate operations and investment experience.
There is already explosive growth in the demand for talent in the Industrial sector for that very reason. Real estate funds will need to adapt to change and must recruit new talent. Individuals with experience of fund raising, real estate investment, valuation and business development will be in demand, as will those with operational experience of managing and servicing commercial and retail properties.
Real estate firms in the Commercial and Retail space are likely to need more professionals for their leasing divisions. Office and retail leasing are seen as key to long-term profitability, as this is an income-recurring business. In addition, Commercial real estate firms have constantly been adjusting their business to satisfy market demand for healthcare facilities, hotels, and services offices which can generate a strong cash flow. Individuals with skills in leasing are likely to be in high demand as a result.
At the same time, forward-looking real estate companies are increasingly focusing on the use of e-platforms to engage customers, alongside other digital technologies. Demand for employees with skills in digital and e-commerce will likely increase as real estate firms looking to better engage and service customers online.
For a conversation about your organisation’s needs and requirements, please contact Vincent Leong, v.leong@sheffieldhaworth.com
