Global Trends and Talent Implications in Real Estate: 2023

The real estate industry is experiencing a profound transformation worldwide, driven by market dynamics, rising interest rates, and a shift in investor expectations. The impact of hybrid work, the growing importance of sustainability, and changing demands of investors all highlight the evolving skill sets and expertise sought after by real estate organizations. Our report looks at overarching global trends and offers regional perspectives including talent implications for European, Asia Pacific (APAC), and North American markets. By understanding these trends and their implications, companies can strategically position themselves to attract and retain top talent, adapt to market shifts, and drive growth in an ever-changing industry.

Global trends

1. Intensifying competition for top talent

Intense talent competition and a heightened emphasis on succession planning prevail across the real estate industry worldwide. In APAC, rapid CEO turnover, diversification of large firms, growth in industrial and multifamily sectors, and the rise of debt funds have intensified the competition for top talent. In North America, clients are carefully assessing board composition and C-suite executives, investing in talent development initiatives to bolster retention efforts. Meanwhile, in EMEA, cautious investor sentiment, evolving operational hurdles across asset classes, and the growth in “smart” transactions requiring expertise in value-add asset management and data and analytics have become pivotal factors intensifying the competition for top talent.

Companies can expect strong competition for talent with expertise in asset management and value-add investing. Employees should consider broadening their skill set via exposure to different asset classes, transactions/structuring, and asset management to remain competitive. Organizations should also address any skill gaps by investing in employee learning programs and demonstrating a commitment to career development of the next generation talent in the leadership pipelines.

2. Evolving financing landscape

In North America and Europe, there has been a notable rise in debt funds as clients aim to drive transaction activity in an acquisition stagnant market and to address investors' financing needs. This has led to the creation or enhancement of debt funds’ capabilities, with six new firms launching debt funds in North America in 2022, and the top five firms raising over 30% of private real estate debt funds globally.¹ Banks remain cautious around financing real estate ventures, particularly those involving higher-risk financing, such as speculative developments.

The launch of new debt funds and the dominance of top firms in private real estate debt fundraising highlight the growing importance of this financing avenue. Given higher productions over the past two years, we have seen an increase in compensation levels for origination talent.

3. Environmental, social, and governance (ESG) considerations

ESG considerations are driving change in the real estate sector globally.² Organizations are now incorporating ESG concerns into business decisions to create social impact alongside financial returns. Real estate leaders who can effectively integrate ESG principles, drive sustainability initiatives, and champion diversity and inclusion are in high demand. This trend highlights the growing importance of roles such as Head of ESG and other sustainability-focused positions.

Non-executive directors (NEDs) also need to acquire sustainability acumen to meet the increasing expectations from boards, presenting an opportunity for NEDs to raise their profile.

4. Hybrid and remote working:

Europe has seen a faster return-to-office compared to the US, where higher office vacancy rates persist. It has been estimated that office buildings in New York, the world's largest office market, have lost a collective $76 billion in value from their most recent sales price.³ This shift towards hybrid working has raised concerns about the future of offices, the largest segment of commercial real estate. The transformation of office spaces may require leaders who can repurpose and redesign existing properties in line with market demands in terms of use-cases.

Regional perspectives

Including employer and employee implications

Europe

1. Bank vulnerabilities and opportunistic investors

Rising interest rates have changed the real estate market’s economic equation. This is placing high pressure on asset valuations and investor appetite, thereby creating a need for liquidity and pressure to sell funds. In a struggling market, opportunistic buyers—such as private capital firms and family offices—are active groups, and investors in need of debt financing face reluctant lenders. Though this varies between countries, the high concentration of non-bank lenders funding and shadow banking’s vulnerability to rising interest rates are both concerning for European real estate leaders.

Employer implication:

• To address the demand for distressed assets and non-performing loans from opportunistic investors, organizations must prioritize leaders with strong financial acumen and capital market experience, as well as value-creation asset management.
  
  
  • This approach enhances risk management capabilities, enables effective navigation through crises and market downturns, optimizes capital management strategies, and capitalizes on emerging market opportunities.

Employee implication:

• Leaders need to effectively manage capital resources, create value from real estate through astute asset management, optimize funding structures, and enhance financial stability amidst volatile market conditions.

2. Uncertain future for newer, less specialised businesses

Newer investment management platforms are facing funding scarcity, as many investors need liquidity or to reduce real estate allocations. Meanwhile, bigger, well-capitalized players with robust funding inflows are gaining share. This poses a threat to the survival of newer businesses and those that lack full-cycle track records.

Employer implication:

• Creating a unique investment proposition, cultivating in-depth asset class expertise, or providing a strong regional focus are crucial for staying ahead in challenging times. 
  
  
  • Investors are unlikely to be persuaded to provide capital by a light touch or generalist approach.

Employee implication:

• To thrive in these dynamic markets, real estate professionals should gain broader expertise in emerging areas like ESG and value-chain knowledge, while also staying sharp in traditional areas like financing, developments, and corporate M&A. This allows for comprehensive capabilities across the full real estate cycle, as well as the required financial acumen.

APAC

1. Diversification to new asset classes

While offices and retail spaces remain unpopular, data centers, logistics, student housing and specialist assets are becoming attractive investment opportunities. This shift is primarily motivated by the desire to leverage emerging market trends and acquire assets that offer greater stability. Funds are now offering real estate-backed private credit investments to institutional investors—a result of the heightened demand caused by inflationary pressures, rising interest rates, and the potential recession risks. Notably, private credit capital deployment remains active in markets such as Hong Kong, Korea, and Japan. 

Employer implication:

• Given the reliable recurring income streams associated with these property types, companies may seek out talent with a focus on operational efficiency in property management, lease administration, and other operational functions.
  
  
  • Companies may want to look at hiring investment professionals with above listed skills, as well as exposure to a broader range of asset classes including private credit.

Employee implication:

• With a growing demand for digital expertise, real estate professionals who can navigate emerging technologies, implement innovative solutions, and capitalize on the opportunities presented by digital transformation will be highly sought after.

2. Partial-stake deals and capital flows

As competition for assets intensifies, investors are increasingly willing to pursue partial-stake deals and co-owning assets. This trend is prevalent in the office sector and larger markets, such as Australia, and is likely to spread to Korea, Singapore, and Japan, while also extending to other sectors like e-commerce and rental apartments.⁴

Employer implication:

• The expansion of partial-stake deals beyond the office sector necessitates talent with cross-sector knowledge and adaptability.

Employee implication:

• Professionals with expertise in structured finance and investment strategies will be in high demand as companies and investors work to navigate these complex transactions.

North America

1. Focus on alternative investments

Alternative asset classes—such as manufactured and student housing, self-storage, and single family residential—have been receiving more attention. Developers are handing back obsolete office buildings to lenders, while banks that are under scrutiny from regulators and investors are beginning to offload property—even well-performing locations—at a loss.⁵

Employer implication:

• As platforms look to diversify into newer asset classes, individuals with deep specific sector knowledge will be favoured over the generalist investor.
  
  
  • We expect new fund launches to continue throughout the remainder of 2023, with over $250 billion in dry powder focused on the North American real estate market.⁶

Employee implication:

• As infrastructure platforms embrace the cross-pollination of talent, experts in digital infrastructure and data centers can expect firms to approach them jointly, leveraging their combined knowledge to capitalize on broader opportunities. As a result, deep silo expertise is giving way to cross-asset class experience.

2. Proptech: Emergence of AI

Proptech refers to all digital solutions used by real estate professionals to facilitate and streamline processes including purchases, property development, and investment. Recently, one area has received major buzz: artificial intelligence (AI).

As leaders prioritize relevant AI use cases, they are also evaluating investments based on both potential upside and automation-generated cost savings.  Budget cuts to real estate technology investments may lead to reductions in operations roles and outsourcing back-office functions.⁷

Employer implication:

• Real estate organizations need individuals who can identify and evaluate innovative proptech solutions, forge partnerships with proptech companies, and effectively integrate technology into real estate strategies. The ability to leverage technology for operational efficiency and competitive advantage is becoming a key differentiator in the industry.

Employee implication:

• Real estate professionals who possess a deep understanding of emerging technologies, such as AI, Internet of Things (IoT), and data analytics, will continue to be highly sought after. These leaders will play a crucial role in driving digital transformation, optimizing operations, and enhancing the tenant experience.

Authors

Deb Barbanel leads Russell Reynolds Associates’ Real Estate practice. She is based in Los Angeles.
Adelin Choy is a member of the firm’s Financial Officers practice. She is based in Hong Kong.
Derek Poh is a member of the firm’s Financial Services Sector. He is based in Singapore.
Alexander Prokot is a member of the firm’s Financial Services Sector. He is based in Frankfurt.
Trinity Sokan is a member of Russell Reynolds Associates’ Financial Services knowledge team. She is based in London.

The authors would like to thank their colleagues Cem Turan, Chris Davis and Cameron Scott for their contributions to this paper.

Footnotes

_{¹ “The Real Estate Debt 50 2022”, PERE, 2022 
² “ESG and Real Estate: The Top 10 Things Investors Need to Know”, CBRE 2022
³ Joshua Oliver, Joshua Chaffin, “Financial storm bears down on US commercial real estate”, Financial Times, 2023
⁴ “How real estate investors are facing a core-asset shortage”, JLL, 2023 
⁵ Joshua Oliver, Joshua Chaffin, “Financial storm bears down on US commercial real estate”, Financial Times, 2023
⁶ “Lending slowdown may signal tipping point for real estate industry”, RSM US, 2022
⁷ “Real Estate Trends 2023: Forecast for Property Firms, Investors, and Proptechs”, Ascendix, 2023}