Monday 18 December 2017

Brexit banks risk finding no new offices if they quit London for EU cities

Dublin city as seen from the 23rd floor of Capital Dock, currently being developed by Kennedy Wilson. The building’s offices are expected to be ready in the final quarter of 2017
Dublin city as seen from the 23rd floor of Capital Dock, currently being developed by Kennedy Wilson. The building’s offices are expected to be ready in the final quarter of 2017

Gavin Finch

Banks planning to move staff out of London after Brexit face a stark reality: there isn't much prime real estate up for grabs in rival cities. With vacancy rates for prime space in the business districts of Paris, Frankfurt and Amsterdam at the lowest levels in a decade, there are only a handful of empty and appropriate office buildings in those cities capable of housing the thousands of employees that banks might need to relocate, according to data from property broker Savills Plc. In Dublin, there are currently no buildings big enough.

"There is no obvious successor to London," said Matthew Fitzgerald, Savills's head of European tenant representations. It could take several years to see a financial cluster of a similar scale."

While the banks have so far waited to see what UK prime minister Theresa May's negotiating plan will be, first movers may gain an advantage given the limited stock of space. Bank executives are planning for the worst - an outcome where they lose the right to sell services freely around the European Union from London - and would want to have new or expanded offices set up elsewhere before the end of the two-year Brexit negotiation period.

The problem is particularly acute for Wall Street firms, who have a majority of their European employees in London. Eighty-seven percent of US investment banks' EU staff are located in the UK, which is also home to 78pc of the region's capital markets activity, according to New Financial, a think tank.

Given the scarcity of supply, banks are considering dispersing employees across a number of different European cities, according to three people with knowledge of their contingency plans. Regus Plc, the world's largest provider of serviced offices, has already said it's speeding up expansion plans in Frankfurt, should banks need temporary solutions.

"We might see a gradual spread of roles around Europe, and these would likely be department moves of no more than 200 staff," Fitzgerald said.

In the days following the June referendum, real-estate brokers say they were inundated with calls from panicked US investment banks asking about the availability of offices across the continent. Nobody has publicly signed a lease on new space yet, as executives weigh their options and wait to get a sense of what May's government is hoping to achieve from Brexit talks.

Last week, UBS Group AG Chief Executive Officer Sergio Ermotti said the Swiss bank may have to move as many as 1,500 jobs from London to elsewhere in the region. Before the vote, JP Morgan Chase & Co. CEO Jamie Dimon said he would relocate as many as 4,000 employees to the continent after Brexit. Morgan Stanley may move as many as 1,000 employees out of the UK, while Goldman Sachs Group Inc. and Citigroup Inc. indicated they would also shift people abroad. European-based banks including HSBC Holdings Plc and Deutsche Bank AG said they may have to move people or activities to France and Germany.

In Dublin, often touted as a likely destination for US investment banks given the common language and cultural ties, Big Tech has beat Wall Street to spaces that were once vacant after Ireland's debt crisis. Airbnb Inc. and Twitter Inc. have added space, helping to boost lease signings in Dublin by 25pc last year to a level last seen in 2007, according to agents Jones Lang Lasalle.

In the La Defense district of Paris, there are eight office buildings with contiguous space for 2,000 employees, Savills' data shows. In Frankfurt, that number dwindles to five.

If a bank wanted to move all of its staff and headquarters out of the UK tomorrow, then the options would narrow further. In the major financial hubs of Europe, only Paris and Frankfurt currently have an office complex big enough to accommodate 5,000 people or more, Savills says. Dublin, Madrid and Amsterdam have one development each in the pipeline that could house that many people, but those projects aren't scheduled for completion for at least 18 months.

It's little wonder that other countries are eyeing the spoils of the City of London. Financial services remain a crown jewel of the UK, accounting for more than 12pc of the economy and providing 2.2 million jobs. Banks paid the UK Treasury Stg£66bn in tax in 2014, more than any other sector. (Bloomberg)

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