Chart of the Day: Here's how awfully bad Orchard Road has been hurt by the labour crunch

It's been shelling out so much for wages.

Orchard Road has been suffering from so much ailments lately, and analysts are starting to hear it grunt from all the industry woes that has been bugging it.

According to Maybank Kim Eng, Singapore’s labour crunch is to have a hard-hitting impact on hoteliers and retailers. Anecdotal evidence point to wages for low-skilled workers in the hotel service and retail industry have escalated from ~SGD500/month to SGD1,000-SGD1,500/month over the past 2-3 years, due to reduced foreign worker quota and unwillingness of local workers to take on certain jobs.

Here's more from Maybank Kim Eng:

Labour shortage and manpower costs remain the overriding concerns for both hotels operators and retail landlords/tenants, which could significantly impact profit margins.

Labour adjustments will prevail. We took a closer look at the net property income (NPI) margins of the various landlords that have exposure to Orchard Road and found that their margins stayed relatively stable over the past four years, despite a labour crunch environment.

We would attribute the margin stability to the following business adjustments and cost-cutting measures by some of the landlords:

• Scaling back the more labour intensive F&B component by some hotels.
• Leveraging on the “Job Flexibility for Productivity” initiative for the hospitality industry by Ministry of Manpower. Under this initiative, work permit holders working in hotels to hold up to three positions in the same hotel for two years. This enables hoteliers to optimise the use of their workforce by deploying their existing workers to perform more functions, instead of hiring more foreign workers.
• To enhance flexibility and productivity, Singaporean workers can rotate between roles, but hoteliers have also been retaining older workers and training local staff to fit multiple job roles.
• Using more automation in their daily business operations, in lieu of more manpower. For example, some mall operators have been installing more security cameras, instead of hiring patrolling guards. Others are also using usage sensors in washrooms to reduce the frequency of daily clean-up.
• Outsourcing of certain jobs functions for better cost savings, and at times to improve quality of service. Some examples of tasks in the hospitality industry that are outsourced include laundry, pool maintenance, grounds keeping, food service, maintenance, information technology, reservations, customer service, accounts and financial services.

From our conversations with hotel and retail landlords, most expect to be able to keep labour shortage and manpower costs under control moving forward. At worst, they do not anticipate NPI margins to be eroded by more than 3ppts.