Global Mobility Trends in Asia Pacific – Part 2
We interviewed Dima Lorenz, Dwellworks Vice President, Global Account Management, to get his perspective on the region from recent client conversations, service team experiences, global mobility trends, and mobility industry conferences.
In the second part of this two-part blog, we’re getting an updated look at key markets, including Singapore, Hong Kong, mainland China, and emerging economies.
What’s happening in Singapore's global mobility and the “Hong Kong effect”?
Singapore has had a really strong year so far. Although we are still shy of the overdemand and undersupply situation that we have seen in Berlin, Munich, London, and Dublin over the last months, activity in Singapore has come pretty close.
We have seen a massive spike in Temporary Living bookings over the course of the last 6 months and the sourcing of long-term housing options had its fair share of challenges as well.
There are multiple reasons for this almost 100% spike in volume vs 2021 –some of them linked to what is going on in Hong Kong and mainland China.
Regionally, Singapore was one of the first markets to open up for foreign business travelers, which in itself caused a wave of pent-up demand to enter and conduct business, resulting in low vacancies at hotels and serviced apartments over the first half of the year.
Next and coincidentally, while Singapore started reopening in the early Spring, China, and Hong Kong, were going through their most significant Covid outbreaks, which sparked extensive local lockdowns and difficult restrictions and resulted in many individuals leaving Hong Kong, Shanghai, and other mainland China hubs on a temporary (potentially permanent) basis.
For many families, the assignee remained in Hong Kong or China, and the family took an extended break back to Europe, Australia – or Singapore. The arrival of these visitors had a strong impact on the availability of serviced apartments, in particular for larger units.
An additional reason for the spike in inbound mobility was the decision of several companies over the past year to move their regional HQ from Hong Kong to Singapore.
While some of these decisions were based on local Covid-management and response, other companies cited the current political turmoil in Hong Kong as the primary reason for the move. Our team has handled multiple permanent HQ moves from Hong Kong this year, and not only to Singapore but also to Shanghai, Tokyo, and Kuala Lumpur.
As a result of these and multiple other dynamic actions, we saw a significant tightening of the supply of temporary accommodations in Singapore over the last nine months. Bookings have had to be made well in advance and larger units are at a premium and in short supply.
Rates also increased over the high-demand period. It is only fair to note that the increase in rates was not just about owners and landlords profiteering, but also to compensate for inflationary costs in energy, utility tariffs, and general labor.
The next question is, “What happens for 2023, in demand, supply, and cost?” As a practical matter, when demand exceeds supply, costs go up. And we expect that to be the situation next year.
As always, bookings with short notice and unplanned extensions will incur higher fees from suppliers managing their availability.
What does the long-term rental market in Singapore look like?
The long-term rental housing market has also been under strong pressure from the volume and timing of new arrivals.
Singapore has also seen an uptake of recent graduates and young professionals entering the rental market instead of committing to long-term, high-interest mortgages.
Rental costs are higher than ever. Unlike the short-term accommodations market, which is dominated by larger, professionally-managed serviced apartment chains, the long-term rental housing market is more strongly influenced by individual landlords who – in the absence of government pricing control measures – increase the rates by as much as the market would bear.
Anecdotes of rental increases for renewals of 20%, 30%, 40%, and in some cases, 100% have been circulating widely in the Singapore expat community.
The steep increase means individuals and families on assignment are renegotiating their leases and their benefits budgets, paying out of pocket, or downsizing to smaller units.
Despite high costs and limited choices, long-term rental units have been moving at lightning speed with apartments often being leased by a new tenant sight unseen.
As in ‘hot’ global housing markets everywhere, tenants with extensive lease review requirements or long demand lists are left behind, facing closed doors.
Many expect the strong demand to continue into 2023. The regional economy is watching and waiting on China, and in the interim, Singapore is a safe haven. The city-state has also recently expanded its visa eligibility to continue to attract high-economic-value talent.
On the supply side, new residential developments could bring some relief to the market, but construction here as elsewhere has been subject to supply chain delays and the global shortage of labor.
What’s the situation in Hong Kong?
The good news, Hong Kong is showing strong and encouraging signs of reopening, bringing a much-needed boost o business and to morale.
The key, longer-term issue, of course, is that Covid is not the only concern about Hong Kong. The market was already in turbulence before the outbreak.
By January 2020, Hong Kong had already seen a year of anti-government protests, first kindled by a new extradition law, and then later with the adoption of a new National Security Law.
The double impact of two seismic events, protests plus strong Covid mandates, has caused some firms and many individuals to re-consider Hong Kong as their primary APAC location.
However – and this is an important point to make - certainly all is not lost and those who predict a complete decline of Hong Kong as a major global financial hub may very well be mistaken.
The restrictive government policies around Covid are already shifting under new Hong Kong leadership. To be determined is the staying power of these changes, but the reopening has reignited a level of confidence in the international community in Hong Kong.
The well-documented roster of companies moving their APAC HQ to other locations is not necessarily a reflection of the business community as a whole.
Hong Kong has been a long-standing pillar of Asia’s financial markets and continues to be one of the largest financial centers in the world. The sector generates over 20% of the city’s GDP and over 500,000 jobs are directly and indirectly linked to financial services.
Its significant infrastructure took decades (or arguably over a century) to build. No other city in APAC would be able to take on this volume – even on a gradual and prolonged basis.
Singapore by land size alone is simply not large enough to absorb such volume. Shanghai is not a realistic alternative either, as it is de facto under the same political management as Hong Kong itself.
Every company will have to independently assess their level of comfort with Hong Kong’s government structure, but commercially, Hong Kong still has the best infrastructure and common-law foundation in APAC.
…which brings us to China. Do you see global activity returning to China in 2023?
The return of normal mobility in China is obviously a multi-million-dollar question.
Let’s start by noting China is not fully closed off. In fact, except for 2 months at the very beginning of the pandemic in 2020, our operations in China have remained open and we have serviced incoming transferees throughout the past two and a half years.
It is true that the current measures have been a huge handicap and have been a strong deterrent, particularly for families.
Over the last two years, we have seen a reliable inflow of global assignees, mainly singles, younger couples, and senior executives, with their families remaining in their home countries. We have also seen an increase in returning overseas Chinese and Southeast Asian talent moving to China.
While the activity in China is not limited to any one business sector, we have seen fewer moves into more remote locations; the majority of our destination services and temporary housing business is presently going into Shanghai and Beijing, with a limited number of moves into locations like Guangzhou, Shenzhen, and Xian.
This is understandable, as the risk of being caught up in Covid restrictions is perceived as higher – and more daunting – the further away from first-tier cities you get.
Over the last two years, we have also seen a noticeable uptake in domestic mobility as local operations move their talent increasingly around the China market itself.
With these observations as a basis, it is fair to expect mobility in China (both for global inbounds and domestically) to return to their pre-Covid levels once an exit strategy from the Zero-Covid policy has been defined and the global economy recalibrates.
Many had been hoping that such exit strategies would have been announced at the Peoples Congress in Beijing last week – an event that was hailed as one of the biggest and most important political gatherings in China in the last 40 years.
Unfortunately, the anticipated relief was not announced and if anything, it seems that China is doubling down on the current Zero-Covid strategy plans. While an exact timeline and implementation measures were not specifically announced, many expect the current status quo to now continue well into 2023.
Although this was disappointing news to many mobility professionals and transferees, the outcome at least provides clarity on what we can expect for the coming months. Also, while continued quarantine and local lockdowns are a deterrent to some, we need to remember that China’s mobility needs have not really changed.
China continues to be the world’s second-largest economy and is the largest destination for Foreign Direct Investment, even ahead of the US. This inbound investment comes with a business need for international inbound mobility.
While China has potentially become more of a hardship post, it will continue to need foreign talent. Most likely this talent will for the time be lower in volume and be going on shorter assignments (and potentially without their families), but they will still continue to go.
Are growth economies like Vietnam and Thailand also global mobility markets?
Yes – or better said, they are on their way to becoming so. Global mobility volume in these locations has not been fully in line with their strong economic emergence.
Thailand, Vietnam, and Indonesia have all been showing significant economic development over the last several years, but from a global, inbound mobility point of view, we have until recently not seen much demand.
There is plenty of regional talent to be tapped for business growth, and the traditional ‘Western expat’ model is not necessarily the regional norm in these locations.
Having said this, global supply chains are diversifying for risk mitigation, with more manufacturers planning to move (or back up) their manufacturing capabilities from China to new, lower-cost locations across Southeast Asia (Vietnam and Cambodia being at the forefront of this trend).
These decisions to relocate are not necessarily entirely Covid driven but are more strategic and politically expedient. However, moving and/or establishing production facilities is not an overnight process.
Many firms have invested over decades into their facilities in China, which has also developed world-class supply chain operational processes; as always, ROI is the critical factor.
The thought is that eventually, the shift of foreign direct investment into these markets will bring the need for additional temporary and long-term talent, which will drive an increase in mobility in the region.
To learn more about trends in APAC mobility or any topic related to global mobility and relocation, check out part 1 of this blog.
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