PROPERTY STALWART

Despite global uncertainties, Knight Frank group chairman Alistair Elliott remains upbeat about the prospects for real estate.

In an age of job-hopping millennials, Alistair Elliott jokes that he must come across as really dull to some of his younger colleagues for sticking with the same company throughout his career. “I started straight after college. My dad was a farm manager. I think I probably wanted to go into farm management,” says the senior partner and group chairman of Knight Frank. “Somebody, possibly wisely, said: ‘If you’re thinking about property, you can come back to farm management. Go and study commercial property, it’ll be more exciting.’”

After studying estate management at college, the affable Briton joined the privately owned real estate consultancy in 1983, “blagging his way” into its graduate scheme after missing the cut-off date for joining, he recounts.

“I negotiated a slightly lower entry salary and they let me in,” he says. “I honestly thought I would stay for six weeks. Either because they wouldn’t like me, or I wouldn’t like them. Probably, I was thinking the former. Here we are, 36 years later and I’m still there.

“I came close to leaving early on, but the one thing about Knight Frank is that it has maintained its character, and I’ve really enjoyed working there. It’s grown enormously. I’ve grown from knowing most people in the London business to knowing a lot of people around our world.”

Today, Knight Frank has more than 500 owned and affiliated offices in 60 territories, which employ more than 19,000 people.

For the financial year ended March 31, 2019, the company’s pre-tax profits fell 11% to £148.4 million against the backdrop of slowing transaction activity across key markets, while group turnover (including that from its own offices) slid 2% from £517.4 million in the previous fiscal year. Add the affiliated offices to the mix and combined annual turnover was over £2.6 billion.

“Real estate is now a global commodity, so there’s no doubt we have to operate in a global arena,” says Mr Elliott. “We’ve got most of the markets covered, we’ve just got plenty of room for expansion in those markets.”

Currently, Knight Frank receives roughly half of its turnover from the United Kingdom, and the remainder from the rest of the world. Aside from its wholly owned businesses, it also has licensing agreements with strategic partners in certain markets, especially where it sees a need to have a presence for its clients. In some cases, it may start off as a licensing agreement, with Knight Frank ultimately taking some ownership in the venture.

“My determination and our commitment is to maintain the strength and depth we’ve got in our UK business, while expanding in our overseas businesses where the headroom is very much greater,” says Mr Elliott. “In that context, Asia is in the spotlight for us.

“A lot of the growth (in the world) is going to come from Asia, and a lot of the wealth we look at is going to be generated within Asia and then move around the world. We want to capture that and build our business accordingly.”

RAMPING UP GROWTH

To that end, Knight Frank is encouraging its overseas businesses — especially in Asia — to ramp up growth. The biggest constraint, Mr Elliott acknowledges, is finding people with the requisite depth and breadth of experience — both in terms of partners and employees.

“Core Asia is where we need to do more, and I would like to think that in two years, we were making a real difference in developing our scale across core Asia.”

Asia today accounts for one-third of Knight Frank’s business, with markets such as Singapore, India, Australia and Hong Kong regarded as mainstays. The group owns its operations in India and Australia, and holds a significant shareholding in Knight Frank in Singapore.

In fact, Knight Frank has had a presence in Singapore through its partners for around 80 years. “It’s a well established part of Knight Frank and a very high-performing part of the firm,” he says.

“I suspect that because of the huge growth prospects from the region going forward, Singapore is very well placed to capture a lot of that growth. It’s seen as being a very stable, welcoming community and happens to be well positioned for the growth of the world.”

And should instability around the world continue, Singapore may also be well placed to benefit from more investment in the new decade than the last 10 years, he suggests.

In China, where the firm focuses primarily on commercial property, he sees further scope for growth. As such, Knight Frank is keen to develop in China at a swifter pace. It is already in key cities such as Shanghai, Beijing, Guangzhou and Shenzhen, but intends to increase its headcount in the country.

While the company might be drawn into more cities and expand into additional areas, “that will inevitably distract our local management from building the team in those four cities”, says Mr Elliott.

Knight Frank doesn’t “have a great ambition” to enter the residential market in China, which tends toward “high volume and mass-market”. Instead, where possible, it prefers to work with Chinese nationals looking to purchase residences abroad for education or tourism.

While China has found itself facing strong headwinds of late — having been embroiled in a trade war with the United States and now battling the coronavirus outbreak — Mr Elliott still sees opportunity in the country.

“Taking a long-term view, real estate, in every part of the world, has some really exciting attributes. Retail is being challenged, logistics is doing well, offices are changing, co-working is becoming a more established working environment,” says Mr Elliott.

“The requirements for office space by businesses have never been greater and more exciting. We have student populations growing and there are many new areas for real estate to develop in.”

Where China is concerned, not only is it growing, it offers huge scope for all of those sectors, he points out. “Although the trade wars are causing us to be more cautious, we are nonetheless looking at areas where we can expand because (while) those real estate markets may have more volatility, but they still have sufficient scale for us to build our business.”

But China isn’t the only one of its markets that has been facing turbulence. The UK spent the last three years consumed by the debate over Brexit, while Hong Kong has been grappling with protests.

Touching on the recent UK election that the Conservatives won by a wide margin, he says: “The certainty the election result has given business has buoyed markets across all sectors. We expect that to continue into 2020. Broadly speaking, the UK is set for a busy year both residentially and commercially. There may well be a second bounce if the (Brexit) withdrawal meets business expectations.”

In Hong Kong, the unrest has given rise to hesitancy and is having an increasing effect on trading in the territory, he notes, adding that the biggest impact so far appears to be on the retail and hotel sectors.

With no sign of the protests drawing to a close soon, pressure on those sectors will grow, he adds. “So far, the office market has been relatively unaffected, and the residential market is okay, from our experience.

“I think what happens next, depends upon what happens next. If the unrest continues, then it will have a greater impact across those sectors already being impacted and will probably start to affect the others.

“I believe if there is a conclusion, things could return to normality pretty quickly. It is a vibrant commercial centre with lots of infrastructure. It’s popular and well established and could bounce back quickly.

“Inevitably, the longer and greater the protests are, the more difficult the recovery will become.”

GLOBAL VIEW

Taking a more global view, Mr Elliott remains upbeat about the prospects for real estate, despite uncertainties in the global economy.

“We are investing in the business still, but we’re keeping a close eye on what’s happening to the markets to make sure we can manage our cost base accordingly.

“Generally speaking, the mood toward real estate is a positive one. We’ve got historically low interest rates globally. Yes, we’ve got the prospect of a slowing global economy, but real estate is a pivotal part of what everyone does all the time, even with the disruptors there.”

He points to promising trends — such as a growing student population, urbanisation, a sharpening focus on retirement living and healthcare — which will all yield opportunities. The lower-for-longer interest rate environment will also lead to more mergers and acquisitions activity, he reckons.

“We’ve got to be flexible where we have our resources, to make sure we can adapt to these changing demands and the changing sectors. I think there’s a lot of scope for the future. (However), if volumes suddenly take a shift we will have to be fleet of foot to make sure we adapt our business accordingly,” he goes on to say.

Still, Knight Frank typically takes a medium- to long-term view.

For instance, while the retail industry in a number of markets is being squeezed by high operating costs and the growing popularity of e-commerce, Mr Elliott is a firm believer in the retail industry in the longer term. However, he doesn’t rule out the need for restructuring or for redevelopment.

“Two things are going to happen,” he reckons. “The operating platform needs to get cheaper, and the number of shops, fewer. I believe we will then find core locations and core shopping centres which will continue to do quite well, possibly with a greater mix of uses — food and beverage, leisure activities.

“And those areas or shopping centres which need a more aggressive change of use will offer well-located pieces of real estate with an established use that will need to be adapted to suit the current environment.”

FRONT-ROW SEAT

Throughout the course of his long career at Knight Frank, Mr Elliott has had front-row seats to “some really exciting projects”, in addition to having the chance to travel the world. “Any time there was any suggestion of boredom, I got something else to do,” he quips.

In 2006, he was appointed head of the UK commercial business — a job he thought would be undemanding until the global financial meltdown hit in 2007-08. As the business restructured, it was a steep learning curve in how to manage and — in some instances, where certain decisions proved off the mark — how not to. His experiences likely helped him in his current role as well. “I’m still learning,” he adds.

While the firm’s character — one of “honest exchanges and friendship around the world” — hasn’t changed, certain aspects of the industry have, such as the increasing role and importance of technology.

“Technology wasn’t pivotal when I started — it almost didn’t exist. In fact, I started out in the postroom my first two weeks,” he recalls, adding that it quickly introduced him to everyone in the building within a fortnight. But e-mail has made the mailroom somewhat redundant.

“I suspect if I said to our graduates, ‘Now you’re going to spend the first two days in the postroom’, they might go work somewhere else!”

He adds: “Technology is a key part of our strategy. We are investing more in technology around the world than we ever have done in

Yes, we’ve got the prospect of a slowing global economy, but real estate is a pivotal part of what everyone does all the time, even with the disruptors there

order that our people can provide the best possible service to our clients. Not the other way around.

“Where I hope we will differentiate ourselves is that we regard real estate as being a very personal business. One of our adages is that there is a personal element to real estate, which is often overlooked, commercially and residentially. I am absolutely determined to stick to our approach, which is we want to provide our people with the best technological platform they can have and allow them to give better advice in a very personal way.”

While online real estate agents and online data providers pose a challenge, ultimately people buying homes or investing in buildings want a personal interpretation of the data, Mr Elliott asserts.

For its part, Knight Frank is investing in its research departments to publish leading-edge reports so that its employees can interpret data and advise their clients accordingly. Meanwhile, it is trying to ascertain how it can best use artificial intelligence and robotics to give it an edge.

“There will be room for brokers (but) the contribution a broker makes may change. We have to present ourselves as a consultancy business,” he says.

“What people generally come to us for is advice. And if I see a trend going forward, it is that we’re going to have to be much better at giving really, really good advice.”

Business Times

(Hong Kong) is a vibrant commercial centre with lots of infrastructure. It’s popular and well established and could bounce back (from protests) quickly