Demand for office space set to heat up in Europe
Frankfurt, Paris, Amsterdam and Dublin could benefit from jobs moving out of London after Brexit
Regus, the world’s largest provider of serviced offices, is speeding up expansion plans in Frankfurt ahead of an anticipated surge in inquiries from financial firms leaving London. In Amsterdam, demand for its workspaces is already rising.
“It will be a big opportunity for us to give banks a temporary home,” said Daniel Grimm, head of German development at Regus. “We were planning to grow strongly even before Brexit, since we barely have enough capacity to accommodate new tenants, and now it’s a race against time.”
As cities including Paris, Amsterdam and Dublin try to lure banks away from London following Britain’s decision to leave the European Union, landlords are hoping to benefit from increased demand. Companies including Regus are preparing for the influx and forecasting that rents and property values will rise in response.
As many as 100,000 financial-services jobs could be lost in the UK by 2020 because of Brexit, according to an estimate by PricewaterhouseCoopers. If those jobs end up in mainland Europe – as firms move functions including securities clearing and derivatives trading to the EU – demand for new office space could reach 10.8 million square feet, Capital Economics estimates.
Office vacancies across continental Europe have been high since the financial crisis, ranging from 13 per cent in Amsterdam to 9 per cent in Dublin, according to data compiled by Savills. That compares with about 4 per cent in the City of London financial district and 2.2 per cent in Hong Kong.
In Frankfurt, about 1.2 million square metres of offices are empty, about 9 per cent of the total. Developers including Tishman Speyer Properties are set to build another 450,000 square metres in the next three years, according to data compiled by property consultant Bulwiengesa.
“Even if only 5 per cent of the estimated 700,000 bankers in London are moved here, it would have a massive impact,” said Christian Lanfer, head of office leasing at Jones Lang LaSalle in Frankfurt. At the moment, office rents in Germany’s financial hub are about 60 per cent cheaper than those in the City.
Paris, the biggest office market in mainland Europe, has the most capacity for new demand, according to Capital Economics. About 1 million square metres of space is available immediately and another 1.5 million square metres is due to be added within a year. However, banks and insurers may be deterred by the highest rents in Europe outside London and France’s less flexible labour laws.
“If you need to be nimble and adjust your infrastructure according to how markets are reacting, in an economy like France that’s slightly harder to do,” said Rob Wilkinson, chief executive officer of AEW Europe. His company owns about 19 billion euros (HK$162.5 billion) of buildings, mostly in France.
Dublin doesn’t have that problem. As the city has recovered from Ireland’s debt crisis, technology companies and financial-services consultants including Airbnb and Twitter are adding space there to take advantage of comparatively low rents and a young, educated workforce. Lease signings in Dublin rose 25 per cent last year to a level last seen in 2007, according to Jones Lang LaSalle.
The UK’s withdrawal from the EU would leave Ireland as the only English-speaking country in the bloc with a sizable financial centre.
“If jobs and activity are going to move as a result of Brexit, Dublin is well-positioned to capture some of that,” said Peter Collins, chief operating officer of Kennedy Wilson Europe and the head of its operations in Ireland. “Most of the big investment banks and TMT firms are already here,” he said, referring to technology, media and telecommunications companies.
To be sure, Dublin has only about 300,000 square metres of space available, though almost 500,000 square metres are due to be built by 2018, according to Savills data.
Top executives at banks including UBS Group, JPMorgan Chase, HSBC Holdings and Goldman Sachs Group have said that Brexit would force them to re-evaluate their UK staffing, though none have announced specific plans.
The crucial question is the so-called passport rule, which allows lenders in the UK to work with EU counterparts, JPMorgan CEO Jamie Dimon told Italian newspaper Il Sole 24 Ore.
“If we have that passport after Brexit, we likely would not have to make any change at all,” said Dimon, whose bank employs 16,000 people across the UK. “The worst case is that we might have to relocate a few thousand people to other offices in the euro zone, though the majority would stay in the UK.”
If moves do happen, it won’t be that easy to simply shift bankers’ desks to the new locations. Many of Europe’s vacancies are in undesirable locations, areas whose empty offices will only disappear once they’ve been torn down or turned into housing.
Most importantly, the economic hit that Europe will take as a result of Brexit may outweigh any benefit its cities would experience from job moves, said Philippe le Trung, head of corporate development at Fonciere des Regions. The Paris landlord owns properties including the CB21 tower in La Defense.
“Overall for Europe, it’s not a great thing”, le Trung said. “Brexit will be a drag on the economy.”