Brexit turmoil spurs race for office space in Europe

Bloomberg

Regus Plc, 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 the U.K.’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 U.K. by 2020 because of Brexit, according to an estimate by PricewaterhouseCoopers LLP. 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 1 million square meters (10.8 million square feet), Capital Economics estimates.
Office vacancies across continental Europe have been high since the financial crisis, ranging from 13 percent in Amsterdam to 9 percent in Dublin, according to data compiled by Savills Plc. That compares with about 4 percent in the City of London financial district and 2.2 percent in Hong Kong.
In Frankfurt, about 1.2 million square meters of offices are empty, about 9 percent of the total. Developers including Tishman Speyer Properties are set to build another 450,000 square meters in the next three years, according to data compiled by property consultant Bulwiengesa.
“Even if only 5 percent 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 Inc. in Frankfurt. At the moment, office rents in Germany’s financial hub are about 60 percent cheaper than those in the City.

Labor Laws
Paris, the biggest office market in mainland Europe, has the most capacity for new demand, according to Capital Economics. About 1 million square meters of space is available immediately and another 1.5 million square meters 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 labor 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 ($21 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 Inc. and Twitter Inc. are adding space there to take advantage of comparatively low rents and a young, educated workforce. Lease signings in Dublin rose 25 percent last year to a level last seen in 2007, according to Jones Lang.

Same Language
The U.K.’s withdrawal from the EU would leave Ireland as the only English-speaking country in the bloc with a sizable financial center.
“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 meters of space available, though almost 500,000 square meters are due to be built by 2018, according to Savills data.
Top executives at banks including UBS Group AG, JPMorgan Chase & Co., HSBC Holdings Plc and Goldman Sachs Group Inc. have said that Brexit would force them to re-evaluate their U.K. staffing, though none have announced specific plans.
The crucial question is the so-called passport rule, which allows lenders in the U.K. to work with EU counterparts, JPMorgan CEO Jamie Dimon told Italian newspaper Il Sole 24 Ore on Thursday.
“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 U.K. “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 U.K.”

Undesirable Locations
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.”
Regus shares fell by a total of 19 percent in the two days after the June 23 Brexit vote. They were up 0.6 percent at 279.9 pence at 12:06 p.m. in London, bringing the decline since the referendum to about 10 percent.