Brexit : What will its impact be on the European real estate markets? - Knight Frank
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BREXIT
UNDER PRESSURE
Brexit :
What will its impact be on the European real estate markets?
2
02
We can(’t)
work it out
6-7
Divorce
timeline
01
Heroes
14 - 17
Should I stay And the winner is…
or should A MULTIPOLAR SYSTEM
I go ? #1 DUBLIN
8 - 13 #2 LUXEMBOURG
An analysis of
company moves
related to Brexit
03
THE LOSS OF
THE FINANCIAL PASSPORT
ACCELERATED
DECISION-MAKING
TRADITIONAL FINANCE…
BUT OTHER SECTORS TOO
MOVEMENTS THAT NEED
TO BE PUT INTO PERSPECTIVE?
BREXIT
UNDER PRESSURE
3
06
04
05
Wish you
were here
18 - 23
Friends
will be
friends
28 - 31
#3 Paris
Renewed appeal
Joint interview
Good times,
RENEWED APPEAL… FOR GOOD?
William Beardmore-Gray
bad times
PARIS IS MAKING EYES AT THE
FINANCE INDUSTRY Global Head of Occupier
Services and Commercial
RESULTS ARE STILL LIMITED Agency, Knight Frank
24 - 27 Philippe Perello
Managing Partner,
Knight Frank France
Brexit and the London
real estate market Elvin Durakovic
Managing Partner,
Knight Frank Frankfurt
TECH REVOLUTION
RENTS RISE AGAIN
ASIAN INVESTMENT
DEAL OR NO DEAL?
4
Contact
David Bourla
Chief Economist
& Head of Research
+33 (0)1 43 16 55 75
david.bourla@fr.knightfrank.com
Authors
David Bourla
Chief Economist
& Head of Research
Sophia Daverdon
Research analyst
london market focus
James Roberts
Chief Economist
dublin market focus
John Ring
Head of Research
© Knight Frank SNC 2018
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in England.
Pictures : ©Shutterstock / ©Pexels / ©Freepik.
Connecting
Connecting
People People,
& Property, & Property
Perfectly. perfectly.BREXIT
UNDER PRESSURE
5
Under
pressure
A "Brexodus" has not (yet?) taken place
A little over two years ago, the British people voted This trend is confirmed by Knight Frank’s survey of
in favour of Brexit. Six months before the United company moves announced since the June 2016
Kingdom’s official exit date from the European Union, referendum. Although the outcome of negotiations
it is still impossible to say how the divorce between between London and Brussels is still very uncertain,
the two sides will take place. The agreement continues the exercise helps to establish a hierarchy of the
to stumble on many points, some of which are highly most popular European destinations, and provides an
sensitive, such as the issue of the Irish border. understanding of the advantages of each location. Dublin
stands out and accounts for a quarter of all moves
Agriculture, transport, energy and defence, the related to Brexit, ahead of Luxemburg, Frankfurt and
pharmaceutical, automotive, aeronautical and food Paris. Since the announcement that the EBA (European
industries, football and horse racing… a large number of Banking Authority) will relocate to the city, Paris is
sectors of the economy, as well as British and European capitalising on the country’s increased appeal since
companies, are affected. But the stakes in terms of the election of Emmanuel Macron, as well as the new
sovereignty and regulation, as well as access to government's strong commitment to reforms. Paris is
financing, make Brexit a particularly hot topic for the consequently also a popular choice with companies.
European finance industry, as well as a major challenge
for the City due to the loss of its financial passport. Whilst A few days ahead of the European summit on the 18th and
the vote in favour of Brexit was immediately followed by 19th October, which is meant to provide the framework for
questions about the potential weakening of the London the future relationship between the UK and the EU, and a
financial market, estimations about job relocations have few months before 29th March 2019, the official exit date
been constantly revised downwards, from 100,000 jobs for the UK, this study focuses on the results of our survey,
the day after the referendum, to the 5,000 to 10,000 jobs the change in Paris’ position and the impact of Brexit on
recently suggested by the Bank of England. A “Brexodus” the European corporate real estate market, the second in
has therefore not yet occurred, and whilst company a series of studies launched by Knight Frank in 2017.
move announcements have increased steadily, a large
proportion are still only potential projects. Not enough
to rattle the power of the City, for now. What seems to
be happening instead is a rebalancing of the finance
sector in favour of a complex and integrated network of
continental markets.66
We can(’t)
work it out
Divorce timeline
On the 23rd June 2016, the British people voted in a referendum, choosing to end
43 years of a sometimes complicated relationship with the EU. The decision was
implemented on the 29th March 2017 by invoking article 50 of the Lisbon Treaty,
and will take effect on the 29th March 2019. The European summit that is taking
place on the 18th and 19th October should, in the meantime, signal the end of
negotiations between the UK and the EU.
Although some progress has been made, the timing is very tight and many
questions remain unanswered. Moreover, summer 2018 rekindled fears of a no-
deal Brexit, as it seems difficult to reconcile the demands of a highly divided British
political class with those of Europeans determined to preserve the integrity of the
single market.BREXIT
UNDER PRESSURE
13rd July
Theresa May replaced David
Cameron at 10 Downing Street.
She is now responsible for
7
implementing the referendum
2016 2017 29th April
result and beginning negotiations
on the arrangements for leaving
the European Union.
At a special summit, EU
leaders showed their
unity by unanimously
adopting broad
guidelines to be used
23rd June 29th during negotiations with
British voters ended,
March the UK.
by 51.9%, 43 years Article 50 of the
of European Union Treaty on the EU was
membership. invoked, and the UK
exit process officially
began.
8th June
In early legislative elections in the UK,
the Conservatives lost their absolute
27th July majority, weakening Theresa May's
position a few days before the start
Jean-Claude Junker, President of of official negotiations with the EU,
the European Commission, put against a backdrop of increasing
the Frenchman Michel Barnier in dissension between hard and soft
charge of negotiations with the Brexit supporters.
UK, pursuant to article 50 of the
Lisbon Treaty on the EU.
19th March
In order to avoid the
12 July
th consequences of a
sudden break-up, the UK 8th December
and the EU agreed on the
The white paper published by the terms of a non-renewable First agreement between the UK
British government, setting out its
8-9th July post-Brexit transition and the EU on the terms of the
plans for the post-Brexit period, is a period, which will last divorce (final settlement paid
failure. It is coldly received by the EU until 31st December 2020. by London, preservation of the
and also provokes displeasure in the David Davis, the Brexit rights of British and European
City, as the paper waives the UK’s right minister, and Boris citizens, etc.). Phase II of the
to benefit from a financial passport. Johnson, the British negotiations began.
Foreign Secretary,
resigned in protest at
Theresa May's overly
conciliatory position
towards the EU.
2018
1st January
29th March in theory, this is the date on
which the new agreement
The UK will officially leave between the United
the EU. Start of the transition Kingdom and the EU will
period during which all of enter into force. The United
the European rules continue Kingdom may conclude
to apply.
2020 trade agreements with
outside countries.
20th
September
2021
During the Salzburg summit,
the EU rejected the British 18-19th October 2019 31st December
plan (known as “Chequers”)
A new European summit will End of the transition period.
that they consider to be
theoretically signal the completion
incompatible with the
of negotiations between the
integrity of the single market.
UK and the EU. A withdrawal
agreement must be finalised,
formally validated by the Member
States and then submitted to the
European and British Parliaments
for approval.8
Should
I stay or
should I go ?
An analysis of company
moves related to Brexit
What is the true scale of the Brexit-related moves since the June 2016 referendum?
What types of activities and companies are involved?
Which cities have so far attracted the most people?
Our survey provides an initial response, despite much uncertainty
surrounding the negotiations between the UK and the EU.BREXIT
UNDER PRESSURE
9
T
THE LOSS OF THE FINANCIAL PASSPORT ACCELERATED DECISION-MAKING
he European passport allows a company to carry Knight Frank recorded almost 200 relocation
out a whole range of financial activities such as announcements related to Brexit over a period of just
deposit collection, trading in derivatives, issuing over two years, from the day after the referendum to mid-
loans or bonds, portfolio management and September 2018.
insurance and mortgage brokerage throughout the EU,
or in a State subject to the agreement on the European These movements are not equally distributed over
Economic Area (EEA). This includes banks, insurance time. Since the British vote in favour of Brexit, the
companies, asset management companies, investment announcements have increased steadily, with the
funds and financial start-ups (FinTech). exception of a temporary decline in the fourth quarter of
2017, which it could be tempting to interpret as a surge of
The passport is currently used by 5,500 companies based optimism. That period coincided with the completion of the
in the UK, including a number of American and Asian first round of negotiations, and many observers probably
companies using London as a gateway to the EU. Its loss thought that an agreement on the terms of the divorce
has therefore been a constant concern for the City since between the United Kingdom and the EU was in sight.
the vote in favour of Brexit, and it forces companies wishing
to continue their activity throughout the Union to establish
a truly capitalised subsidiary with a sufficient number of
employees. These requirements cannot be satisfied using
"empty shells", which ESMA and EIOPA1 reminded national CHRONOLOGICAL CHANGE IN THE NUMBER OF MOVEMENT
ANNOUNCEMENTS RELATED TO BREXIT*
regulators who will have to respond to approval requests
from entities that are based in the UK and wish to continue
to have access to the European market. Q3 2018 (at mid-september)
“The[se] principles […] will support the national Q2 2018
“
supervisory authorities in securing sound
and convergent practices linked with the
Q1 2018 45
authorisation and supervision of activities of Q4 2017
insurers based in the United Kingdom and 39
seeking relocation of their activities to the Q3 2017
27 European Union Member States. Sound
Q2 2017
supervision demands appropriate location of
management and key functions. Empty shells or Q1 2017
letter boxes are not acceptable“
Q4 2016
Gabriel Bernardino,
Chairman of eiopa 26
Q3 2016
Arguing that it is in the interest of Europeans not to weaken
the City – at the risk of benefiting major non-European
financial centres such as New York, Hong Kong and
Singapore – the UK still hopes to benefit from an equivalence
21
regime. But the outlines of this regime, from which several
outside countries already benefit (Switzerland, United States,
Canada, etc.), are yet to be defined. It is the loss of the
30
passport, as well as the uncertainty surrounding the obtaining
and scope of this equivalence regime, that is the primary
motivation for company moves related to Brexit.
19
9
ESMA: European Securities and Markets Authority.
1
1
EIOPA: European Insurance and Occupational Pensions Authority.
410
Since then, company move employees to the German city would "finance" and "technology", and refers
announcements have continued cost UBS, or to the $200 to 300 million to companies using digital technology
to increase. 84 projects have thus needed, according to Stuart Gulliver, to design and offer innovative financial
been recorded since the start of Q2 HSBC's CEO, to increase its Parisian services. This phenomenon is not
2018, a higher number than those workforce by a thousand positions! recent, dating back to the aftermath
recorded over the whole of 2017. This of the 2007 financial crisis, but it will
increase in projects says a lot about TRADITIONAL FINANCE… undoubtedly continue to shake up
the environment in which companies BUT OTHER SECTORS TOO traditional players in the financial
operate. Indeed, without any certainty industry. The proof? The substantial
as to the outcome of the negotiations, Standard Chartered, UBS, HSBC: these sums that FinTech continues to raise
the prospect of a hard Brexit or a no- few examples are sufficient to reflect from investors. During the 1st half of
deal Brexit has forced them to take the impact of Brexit on finance. Due 2018, 58 billion dollars were invested
“
steps to deal with all eventualities, to the loss of "passporting rights", at a global level, of which 16 billion
so as to allow them to continue their finance, in its various forms – asset was in British FinTechs. London is
activities beyond the transition period. and wealth management, investment home to some of the most successful
banks, investment banking, etc. –, has Unicorns in a sector that employs
“The reason we can’t wait for accounted for the majority of moves almost 60,000 people in the UK,
results from the negotiation is recorded so far (around 70%). This including Funding Circle, Revolut and
that the full application process figure includes not only front-office TransferWise, and remains the capital
can take, in some countries, from activities, but also support functions of financial start-ups. However, this
six months right up to 18 months, whose roles are essential in enabling (almost) undivided domination could
and maybe longer. Then you companies to ensure their continued be undermined by Brexit. Beyond the
need to recruit locally, you need operations. Duco, a specialist in loss of the financial passport, Brexit
specialists in compliance. It is a financial data reconciliation, has just and possible restrictions on the
really big undertaking”2 announced the opening of an office movement of workers and labour
Simon Black, in Wroclaw, Poland, and data centre laws raise the question of London's
CEO of PPRO development projects in Amsterdam ability to continue to attract the
and Frankfurt, to address the concerns world’s best talent, particularly from
It is difficult to predict what will happen of clients, including major names in the EU (the latter accounted for 12%
next. The outcome of the negotiations, the financial sector such as ING and of City employees at the end of 2016,
and the way in which future relations Société Générale. compared to 6% four years earlier). The
between the two sides are organised, subject is an essential one for British
will determine the extent of company Other "FinTech" companies have FinTech companies, whose success
relocation moves outside the UK. In also taken the plunge, including and degree of innovation depend
the case of a no-deal or hard Brexit, Equilend, who has just announced largely on their ability to attract a
nothing rules out a much larger second the opening of an office in Dublin, flexible and highly mobile workforce.
wave of relocations than the one we and Aquis Exchange, who recently European cities have understood this,
have seen to date, which has been filed an application to operate in Paris and are intensifying their efforts to
quite modest. On the other hand, a with the French Prudential Control attract start-ups and create a "FinTech-
soft Brexit, or at least an equivalence and Resolution Authority (“Autorité de friendly" environment.
regime that is relatively favourable to Contrôle Prudentiel et de Résolution”
the City, could just as easily push back - ACPR) and the Financial Markets The insurance sector accounts for
this wave and call into question the Authority (“Autorité des Marchés almost 20% of all moves related to
pursuit of projects in which companies Financiers” - AMF). FinTech? This Brexit. The loss of the financial passport
are engaged. Their implementation is term is a contraction of the terms is also an issue, forcing companies in
indeed restrictive (human resources,
administrative formalities, real estate,
etc.) and their costs are far from BREAKDOWN OF BREXIT-RELATED MOVES BY ACTIVITY (NUMBER OF MOVES IN%)
negligible. In mid-2017, Standard
Chartered estimated that it would cost
$20 million to make Frankfurt their
19 6
post-Brexit European headquarters,
small change compared to the $100
million that Brexit and the transfer of its
2
The Guardian, 25th February 2017.BREXIT
UNDER PRESSURE
11
this sector to establish a subsidiary in support financial companies in the
an EU country in order to access the fields of law and recruitment. Beyond
THE MAIN FINTECH FAMILIES
European market. Of the thirty or so the obvious tax reasons, the subject
actual or potential projects, more than of recruitment is also a key criteria for
half are located in Luxembourg (AIG, online gambling companies (now based
FM Global, CNA Hardy, etc.) and Dublin in Gibraltar, Bet365 and William Hill,
(Beazley, Royal London Group, Chaucer, for example, could potentially transfer
Neo-banks: online
etc.). France has a relatively small some of their activities to Malta). As accounts, payment
number of them, but can nevertheless with FinTechs, it is essential for this applications,
pride themselves on having attracted booming and highly competitive sector personal financial
management
one of the most iconic post-Brexit to continue to recruit talent.
projects, with Chubb's decision to Ex : Morning, Leetchi,
Bankin, Linxo, etc.
relocate its European subsidiary to La
Défense, in the Carpe Diem tower.
Whilst insurance and financial
companies’ projects have continued
Financial services
to feature in recent news (Ashmore for companies, small
and Equilend in Dublin, Jane Street in and medium sized
Amsterdam, STM in Malta, etc.), other businesses and key
accounts, online
types of players have also stood out. currency transfers,
The example of European agencies electronic invoicing…
based in London, which has been widely
Ex : Kantox, Finexkap, etc.
reported in the media, is probably not
the most significant as their relocation
Networking between
outside the United Kingdom was project leaders, crowd
obvious. The EBA is in the process funding, crowd lending,
of finalising a lease on approximately crowd equity
5,000 sq m within a tower in La Ex : KissKissBankBank,
Défense, while the EMA (European Ulule, Sowefund, etc.
Medicines Agency) is waiting for the
completion of a turnkey building in the
Zuidas business district of Amsterdam.
Technological solutions
Moves related to Brexit go well beyond
to regulatory constraints
the European agencies, and cover a and conformity (KYC)
very wide range of activities. Among
Ex : Fortia,
these, lawyers and the advisory Neuroprofiler, etc.
sector, which account for 6% of the
total number of moves; a significant
proportion which, as with the projects
of Dentons or Fieldfisher in Frankfurt,
Ashurst in Luxembourg and Odgers
Berndtson in Dublin, illustrates the Source: La Tribune
opportunities linked to the need to
57 11 712
Finally, Brexit could take on a whole
new dimension for companies in the
industrial-distribution sector. For the
moment, this sector, which provides a
large number of jobs, is at the origin of a
limited number of relocations. However,
it could have to overcome, depending
on the outcome of negotiations between
the UK and the EU, significant obstacles
in terms of taxation, regulation,
supply chain and the movement of
goods. Wait and see? Not exactly.
Such problems and a lack of visibility
have already prompted Panasonic to
move its European headquarters from
London to Amsterdam. These reasons
were also put forward by Muji, another
Japanese company, to justify a possible
relocation to Germany. Other companies
are currently at the starting blocks. In
the aeronautics (Airbus) and automotive indicated that about one thousand of has led them to make major cuts to their
sectors, several large companies its UK-based jobs could be affected by staff numbers. For example, the Irish
(BMW, Jaguar, Ford, Nissan, etc.) have Brexit, primarily moving to Frankfurt. A banking sector is estimated to have lost
expressed their concerns. few months later, the bank mentioned more than 26,000 jobs since 2008.
only 250 positions. Moreover, the
MOVES THAT NEED TO BE German city will also not host the And this movement is far from over.
PUT INTO PERSPECTIVE? thousands of jobs that Deutsche Bank Whilst not all types of positions or
had initially announced it wanted activities have been affected in the
As we can see, Brexit poses a major to transfer to the continent. Their same way, banks continue to cut their
challenge for a wide range of activities. relocations will in fact only involve staff. In addition to Deutsche Bank
Given the climate of uncertainty facing a few hundred positions, spread and its 7,000 job losses worldwide,
companies, many have been forced over several European cities. These there are also job losses of varying
to fumble in the dark, and to consider downward revisions may explain why numbers from other banks that are
various scenarios. While several of the Frankfurt has, over the months, moved well established in the British capital,
company moves we identified have down in the ranking of cities best such as Credit Suisse, Barclays, HSBC
already taken place (staff have been placed to benefit from Brexit. According and RBS. The effects on the real
transferred from the United Kingdom, to Reuters forecasts, the city was in estate market seem obvious. A source
profiles have been recruited locally, the lead in the fall of 2017, with an recently quoted by the Daily Telegraph
offices have been leased, etc.), most estimated gain of 5,150 jobs...with only has estimated that the total amount
of them are still at the planning stages; just over 1,500 jobs expected after an of office space vacated in the British
some projects are more advanced than update in the fall of 2018. capital by the banking sector would
others, ranging between hypothetical be close to 400,000 sq m within three
movements and announcements that The case of Deutsche Bank is to four years3.
have not been acted on, to requests sent noteworthy: it confirms that the
to local regulators for approval to operate withdrawals made by some banks in the Within the current context, it therefore
in one of the EU countries. United Kingdom may have causes other seems particularly difficult to isolate
than Brexit, and that they will therefore Brexit from other factors that are
Whilst a trend in itself, the large not necessarily result in the relocation potentially destructive to financial
proportion of potential projects obviously of an equivalent number of jobs within jobs in the UK.
limits the scope of our analysis. In the EU. To ignore this would be to forget
addition, there are often fluctuating the profound restructuring process in
estimates of the number of positions which banks have been engaged since
involved in a company relocation. At the fall of Lehman Brothers and the
the beginning of 2017, for example, UBS sovereign debt crisis in Europe, which
3
The Daily Telegraph, January 2018.BREXIT
UNDER PRESSURE
13
Another key factor in particular In certain situations, Brexit is just
FINANCE JOBS MOVING FROM LONDON
results in the need to put the Brexit one of many factors explaining the BANKS' PROJECTIONS BY CITY
effect into perspective: that of the company relocations recorded by
digital revolution, whose impact on Knight Frank. Whilst it may not have Frankfurt
the British financial workforce could be been the original cause, Brexit may
““
on a completely different scale to the notably have accelerated a job 5150
result of the June 2016 referendum. transfer or creation project that was
already in the pipeline before the June
“It’s not just Brexit that’s shifting 2016 referendum. Several projects are
the tectonic plates under therefore not directly related to the loss
banking – digitalisation and of the European passport, but rather
1570
regulation are two other key
1470
the opportunity that Brexit may have
drivers of change". created in certain cities.
Joachim Wuermeling,
Member of the Executive Board "We have been evaluating
of the Deutsche Bundesbank Dublin for some time, and
through consultation with our
Finance is not immune to the rise of clients and our partners have Paris
digitalisation, robotization and artificial decided now is the right time
2308
intelligence, which are all tools used for DLA Piper to enter the Irish 2200
by banks to improve their productivity. market. Dublin is an important 1800
By allowing them to perform repetitive legal market and a key global
and time-consuming tasks that do not hub for the financial services
necessarily require significant skill, the and technology sectors […]
impact of these technologies on back- and will continue to be so,
office functions is considerable. Indeed, particularly in the context of
as new needs emerge, leading banks Brexit, as we expect more
and insurance companies are increasing institutions to have or develop a Amsterdam
their efforts to secure the hiring of presence in the country”.
developers and data scientists, and this 250 262
Simon Levine, 150
job revolution in the finance industry Global Co-CEO of DLA Piper
will lead to significant job losses in
more traditional and less skilled roles. Positions are therefore far from
More complex roles are also affected being uniform, and are as diverse
by this fundamental change. As such, and complex as the reasons behind
the use of artificial intelligence and the companies’ decisions as to their Dublin
rapid expansion of algorithmic trading final destination: dynamism of the
local market, regulatory context and
796
have profoundly transformed investment 612
banks. In the early 2000s, Goldman sometimes also the nationality of senior
Sachs' cash equities trading desk in managers who, if they are not British, 200
New York had 600 traders who bought will tend to favour their city or country
and sold shares on behalf of the bank's of origin…
largest clients, compared to only 2
today4. In total, headcount reductions
related to the digital revolution and Others
automation are expected to continue,
affecting several hundred thousand 2000
financial jobs worldwide. As an example,
33,000 jobs will in this way be lost over
the next ten years from Japan's largest 830
banks (Mizuko Bank, Mitsubishi UFG and 407
Sumitomo Mitsui).
Autumn
Automne
Spring
Printemps
Autumn
Automne
2017
2017 2018
2018 2018
2018
4
MIT Technology Review, As Goldman Embraces Automation,
Even the Masters of the Universe Are Threatened, 7th February 2017. Source: ReutersHeroes
14
AND THE WINNER IS…
NUMBER OF COMPANY MOVES RELATED TO BREXIT, BY CITY / BY COUNTRY
Dublin 48 +2 Cork
Ireland 50
Luxembourg 39
T
A MULTIPOLAR SYSTEM
Luxembourg 39 he breakdown of the 200 or so company moves
recorded by Knight Frank does not show an
“
upheaval of the European financial system. Our
Paris 24 analysis is more in line with that of François Villeroy
de Galhau, Governor of the Bank of France.
France “Brexit will result in the reorganisation of the
Munich European financial system. There will not be
a single continental “City”, but a polycentric
Frankfurt 24 +3 Berlin
integrated network, specialised by competencies.”
François Villeroy de Galhau,
Germany Governor of the Bank of France
This polycentric network does not, however, suggest
Amsterdam 18 Rotterdam a breaking-up of the European financial system. The
five cities that have accommodated, or are likely to
accommodate, the most job creations or moves related to
Netherlands Brexit thus concentrate almost 80% of all recorded projects.
Dublin and Luxembourg alone account for a little under half.
Barcelona
Companies tend to favour a limited number of European
Madrid 10 +2 +1 Seville
cities, chosen for the strength of their financial market
(Paris, Frankfurt, Luxembourg), their status as a world
city (Paris), a particularly attractive regulatory and fiscal
Spain framework (Luxembourg, Dublin, Amsterdam), recognised
expertise in certain types of activity (Luxembourg and
Dublin in the field of fund management) or their cultural
Brussels 5
proximity to the UK (Dublin). At a national level, this
phenomenon is particularly pronounced. Whilst other cities
Belgium 5 have spared no effort – Lille, for example, applied to be
home to the European Medicines Agency5 – only Paris has
5
In the end they chose Amsterdam.BREXIT
UNDER PRESSURE
15
so far benefitted from Brexit. Certainly fewer in number, some not transfers of jobs that are today based in London, but rather
announcements of job creations or company expansions involve hiring projects for roles that are often recruited locally;
related to Brexit underline the advantages of other European movements that, in any case, remain modest compared to the
cities such as Madrid, particularly sought-after for the access number of jobs that are today found in the UK. For example,
it offers to Latin American countries, or Malta, whose tax the 150 or so jobs with Crédit Suisse that are being relocated
framework is particularly attractive to a certain number of to Europe need to be compared to the estimated 5,500
activities, such as online gambling. positions that the bank currently has in the City.
Some companies favour this creation of a multipolar European
system and are disseminating their relocations and job
creations in several cities, such as JP Morgan and Citigroup in
Paris, Luxembourg, Frankfurt, Dublin, Amsterdam and Madrid.
This “scattering” of jobs necessarily results in the need to
put into perspective the idea of the weakening of London
to the benefit of another European financial market. This is
all the more true since a significant proportion of projects are
SELECTION CRITERIA FOR A NEW COMPANY LOCATION,
WITHIN A CONTEXT OF COMPETITION BETWEEN EUROPEAN FINANCIAL MARKETS TO ATTRACT COMPANIES
A DIVERSE A RECRUITING APPROPRIATE A STABLE TAX DYNAMIC A DESIRABLE A STRONG
FINANCIAL GROUND FOR LABOUR SYSTEM REGULATORY REAL ESTATE INTERNATIONAL
ECOSYSTEM QUALIFIED LAWS AUTHORITIES SUPPLY DIMENSION
TALENT
Source: Insitut Friedland16
25%
#1 Dublin
25 % OF COMPANY MOVES
It is well documented that Ireland is expected, in varying scale, to move jobs
likely to be the most negatively affected to Dublin include Morgan Stanley, Wells
country by Brexit, with the Irish Central Fargo, Bank of America and Goldman
Bank recently estimating that it could Sachs. All in all, however, Brexit relocation
cost the economy 40,000 jobs over the announcements from the financial
next ten years. However, while Brexit is industry have been modest in scale so
set to represent a negative shock to the far, with minimal transfers taking place at
Irish economy as a whole, the Dublin this stage until a clearer picture of Brexit
office market is one of the few areas emerges. In the event of a hard Brexit,
that stands to benefit due to relocation we could see firms scale up these initial
activity from London. So far, Dublin has footholds to larger footprints.
been on the receiving end of 48 Brexit
relocation announcements, 9 ahead In fact, we believe that the largest
of the next nearest city of Luxembourg positive impact for the Dublin office
which had 39. market will be in the tech sector, with
Brexit offering the opportunity for the
JP Morgan have been among the more city to further enhance its reputation
high-profile announcements, having as a global tech hub. For an industry
paid €125 million for 200 Capital Dock, that is reliant on drawing its workforce
a new flagship development on Dublin’s from a wide pool of international talent,
south docklands that will extend to we feel that the uncertainty regarding
128,000 sq ft when completed later this UK work visas post-Brexit is inducing
year. However, estimating how much of tech companies to choose Dublin.
this space has been acquired as a result Google are an example of a company in
of Brexit is a difficult task. JP Morgan expansion mode in Dublin, having taken
already has substantial operations in 380,000 sq ft across four deals this year
Dublin and it is believed that the majority alone to grow their presence to over
of the new building will be utilised 1 million sq ft. Whether or not this would
to consolidate and provide room for have happened in the absence of Brexit
expansion of these existing functions. is hard to say, but continued certainty of
Indeed, many of the companies selecting access to workers from across Europe
Dublin for their post-Brexit base already is undoubtedly a factor that is playing
have existing operations here. Barclays in Dublin’s favour at the moment. Thus,
is another such example having elected while the relocation announcements by
Dublin as their main EU hub outside the big financial firms are grabbing all the
of London, with relocated staff joining headlines, we feel it is the tech industry
the existing Dublin team at their new that holds the greatest potential for a
premises at One Molesworth Street. Brexit bounce.
Other major financial institutions that areBREXIT
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20%
#2 Luxembourg
20 % OF COMPANY MOVES
A particularly attractive tax system, rate in Luxembourg was slightly
the highest average salaries in the below 4%, equating to an immediately
OECD, a central geographic location available office supply of approximately
and a high degree of political stability: 150,000 sq m.
Luxembourg has many advantages
and logically takes second place Nevertheless, the Grand Duchy is a
with regard to company moves. The favourable breeding-ground for finance
Grand Duchy closely follows Dublin given its long tradition in wealth
with 39 installation projects, among management, and its globally recognised
which several company moves have expertise in asset management.
already taken place, accounting for Luxembourg therefore fully intends to
a total of several dozen jobs. At the capitalise on its historic relationship
beginning of 2018, STATEC1 indicated with London, as a large number of funds
that Brexit was behind the creation designed, registered and administered in
of 250 jobs and, in 2017, Brexit was the Grand Duchy are currently managed
partly responsible for the 10% increase in the City. Asset management indeed
in the number of people working in accounts for a large share of company
the Luxembourg investment sector, as moves related to Brexit, including large
well as the arrival of new entities – last companies who are already present
year, 15 investment fund managers but who want to consolidate or expand
received their accreditation to practise their activities there (M&G, Carlyle,
in Luxembourg2. Job creations and Blackstone, MFS, etc.). Luxembourg is
relocations related to Brexit are also sought-after by insurers who have,
expected to increase in 2018 and 2019. for a long time, made the country their
A few months ago, Nicolas Mackel, focal point for distributing their products
General Manager of “Luxembourg for throughout the EU. Insurers thus
Finance”, predicted a total increase of account for a little more than a quarter
3,000 jobs, compared to the 46,000 of company moves related to Brexit in
or so people currently working in Luxembourg (AIG, Aiso Nissay Dowa,
the finance and insurance sectors in Hiscox, CNA Hardy, etc.).
Luxembourg. Certain features could,
however, limit job gains potentially
related to Brexit. These include a small
local workforce and the lack of depth
of the country’s real estate market. At
the end of the 1st half 2018, the vacancy
1
The Grand Duchy of Luxembourg’s National Institute of Statistics and Economic Studies.
2
Source: CSSF (Commission de Surveillance du Secteur Financier – Financial Sector Supervisory Board).18
Wish you
were here
Renewed appeal
Paris was recognised very early on as a destination of choice for jobs that were
likely to be relocated or created as a result of Brexit. An international financial
centre, the city has notably benefitted from the improvement in its image within
the business community, attracted by the election of President Emmanuel Macron,
as well as by the new government's strong commitment to reform.
In November 2017, the choice of Paris for the new EBA headquarters embodied
this return to the forefront and was followed by several other company
announcements, enabling the French capital to be well placed in the rankings of
the most sought-after European destinations, just behind Dublin and Luxembourg
and neck and neck with Frankfurt.BREXIT
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19
12%
#3 Paris
OF COMPANY MOVES
RENEWED APPEAL… European metropolitan areas. Finally, whilst
foreign investment projects in France showed
FOR GOOD? a strong increase of 31% year-on-year, Germany
Can we talk about a “Macron effect”? and the UK showed increases of 6%. France is
Undoubtedly, given the media coverage of particularly trying to assert itself in the digital
the presidential election in May 2017 and the economy and innovation sectors. Although the
increase in reforms aimed at fundamentally UK maintains a clear lead in Europe, France
reforming the labour market and stimulating has serious advantages and shows a certain
investment by reducing taxes (reduction of dynamism; this goes beyond the interest
corporate income tax, the flat-rate capital generated outside of its borders by Station F,
gains tax (PFU), transformation of the job the start-up incubator that opened in June 2017
competitiveness tax deduction (CICE), Major in Paris’ 13th district, and is demonstrated by the
Investment Plan etc.). The first few months of strong increase in fund raising. This totalled 1.95
the President’s five-year term were also filled billion euros as at 1st half 2018, an increase of 61%
with hope because they coincided with the year-on-year, partly due to the doubling of deals
recovery of the French economy, as shown by over 20 million euros.
the increase in GDP of 2.3% in 2017 and the
creation of 330,000 jobs. Beyond this economic The coming months will tell us whether
improvement, and the new government’s reform the return of France to the forefront was a
programme, the period was also characterised temporary phase or a fundamental trend whose
by the open discussions with foreign investors, effects will continue, allowing Paris to attract
highlighting the benefits of France and its a new, maybe even larger, wave of company
ability to innovate. This seduction strategy moves related to Brexit. It is still too early to
peaked in January 2018: Emmanuel Macron took say with certainty if this will happen, even if
advantage of the “Choose France” summit held the recent deterioration in France’s economic
in Versailles to host 140 senior managers from conditions and business climate could jeopardise
large foreign companies, thus signalling the or weaken this recovery. Indeed, forecasts for
French economy’s return to favour. GDP growth have been significantly decreased,
with annual increases of 1.6 % between 2018 and
These efforts seem to have paid off in recent 2020, and a smaller contribution to growth from
months. According to the latest EY attractiveness global demand and household consumption. In
survey on France, eight out of ten investors spite of all this, the government has committed
find France more attractive because it is to continue with the pace of reforms, thus
more competitive. The pendulum swing is continuing their structural transformation of the
radical following years of “French bashing”, French economy.
and this of course benefits Paris. In this same
survey, and for the first time in the history of
the publication which was launched in 2003,
foreign decision-makers ranked Paris (38 %, +10
points year-on-year) ahead of London (34 %,
+2 points) in the ranking of the most attractive20
THE MOST POPULAR EUROPEAN CITIES FOR FOREIGN INVESTORS
37
34
24
14
7
2013 2014 2015 2017 2018
Paris London Frankfurt Amsterdam Brussels
Source: EY, Attractiveness survey France 2018. Three possible answers / Question not asked in 2016
PARIS IS MAKING EYES “traditional” finance and the country strength of its financial sector and
AT THE FINANCE INDUSTRY is also betting on FinTech companies, the positive impact of the election of
“
determined to capitalise on the large Emmanuel Macron have, without a
It was primarily to the finance world that number of start-ups and to build on the doubt, worked in favour of the French
the talks to promote the advantages success of “French Tech”. capital. As such, almost 25 creation or
of a regenerated “French model” were relocation projects related to Brexit
addressed, with a view to welcoming “France must be the first European went to Paris, equating to 12% of all
new jobs related to Brexit. Public country to create conditions for an European movements recorded by
and private players worked together, open and secure European market Knight Frank. Whilst this share is lower
multiplying the initiatives through for innovative FinTech companies. than those of Dublin and Luxembourg,
“Paris Europlace”, an organisation that It is this vision that I share with Paris appears to be ahead of these
promotes the Parisian financial market. Bruno Le Maire within the scope two cities in terms of potential job
Effective accompanying measures of the PACTE law, which will favour gains, with an estimation of new job
have also been announced: reform of the development of ICOs and fund creations ranging between 2,500
the inpatriates system, simplification of raising by start-ups. Finally, we and 2,800. This estimation, higher
accreditation procedures, removal of are working on the introduction than that complied by Reuters recently
the upper marginal portion of income of open-banking standards which (2,308), remains below that of figures
tax, opening of European schools, etc. will enable third-party payment released a few weeks ago by Paris
In doing so, France is trying to improve services to securely access Europlace and Bruno Le Maire, the
its image and make its regulatory and account data via programming Minister of Economy and Finance. They
fiscal framework more flexible, although interfaces (API)” maintained that Brexit could be behind
it is still lagging behind its main Delphine Gény-Stephann, the creation of 3,500 jobs – and even
German, Dutch, Irish and Luxembourg Secretary of State to the up to 20,000 taking into account the
competitors with regard to this. Minister of Economy and Finance direct and indirect benefits of Brexit.
Either way, these two figures only
The choice of Paris for the future EBA account for a very small part of the
headquarters, and the announcement RESULTS ARE French finance industry’s total size
of other significant company moves (between 1 and 1.2 million jobs, and
(Bank of America, HSBC, etc.) seem to
STILL LIMITED almost 5% of French GDP).
be good omens for the future of the Its status as a world city, its geographic
Parisian financial market. But efforts to proximity to London (at around 2 Other factors put this breakdown, which
promote France are not just limited to hours from Paris by Eurostar), the is particularly complicated given theBREXIT
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uncertainty that still surrounds some this sense, and is more in line with the be put into perspective by taking into
company’s plans, into perspective. It is situation seen in Frankfurt (79 %). account the very large deal that was
worth noting that these figures include in no way related to Brexit: the letting
the 1,000 jobs that could potentially This imbalance is not surprising: it to Natixis of 90,000 sq m in the Duo
be created by the increased presence reflects the maturity of the two main towers in Paris’ 13th district during 1Q
of HSBC in Paris, which is almost one European financial markets and the 2017. The letting volume of this single
third of all job gains related to Brexit! strategy of companies who tend to deal was almost five times higher than
This project, that the bank recently favour markets in which they are that of all company movements related
confirmed at the same time as their already present. The impact of Brexit to Brexit, which to date total a little
decision to move almost all of their on the Parisian real estate market over 20,000 sq m, and are essentially
continental activities to France, is should, for the same reason, remain comprised of the letting to Bank of
without doubt the most symbolic of limited. With offices already in Paris, America of 10,000 sq m at 49-51 rue
all announcements to date. However, some companies are likely to be able La Boétie at the end of 2017, and the
the project has not yet been fully to densify their office space to absorb 4,400 sq m let to Chubb in Carpe Diem
implemented, like most other bank additional personnel which, in most in La Défense during 1Q 2018.
announcements. The example of cases, will be quite modest in numbers.
HSBC shows another trend: projects Indeed, take-up of offices by the What can be expected of the Parisian
that favour Paris are primarily financial sector has not yet recorded market in the coming months?
consolidation or expansion projects a sudden increase due to Brexit. Since Ongoing negotiations indicate that
of existing establishments (75 % of the British vote, the financial sector other companies will soon finalise
the total number of movements), rather “only” accounted for 9% of total take-up large rental movements, beginning
than the creation of new activities from in Paris and the Western Crescent, the with the expected installation of
scratch. Paris stands out from cities main locations of such companies. This EBA on almost 5,000 sqm in Tour
such as Luxembourg and Amsterdam in share is not negligible, but needs to Europlaza. It is also rumoured that a
renowned bank, taking advantage of
BREAKDOWN BY TYPE OF MOVEMENT (NUMBER OF MOVES, IN %) the impetus from Brexit, is about to
consolidate its Parisian workforce and
some new recruits within a refurbished
building in the Paris CBD. However,
finance is unlikely to become THE
future driver of the Greater Paris
Region office market due to Brexit.
Firstly, because the sector remains
subject to significant streamlining
and downsizing requirements in
France, as in the rest of the world and,
secondly, because the 3,500 new jobs
predicted by Paris Europlace, if they
are finalised, would only account for
a high estimate of between 50,000 to
60,000 sq m of office space, barely
5% of take-up in Paris and the Western
Crescent during 1H 2018.22
CHANGE IN OFFICE TAKE-UP IN PARIS AND THE WESTERN CRESCENT BY ACTIVITY SECTOR (IN SQ M, AREAS >1,000 SQ M)
120 000
Banking/Finance
Coworking
100,000 New Tech/Media
80,000
60,000
40,000
20,000
0
2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 2017 Q3 2017 Q4 2018 Q1 2018 Q2
This volume is also 17% below that let to
coworking players in the same period
and geographic sectors. The comparison
enables us to put into perspective the
impact of Brexit on the Greater Paris
Region office market, whose activity is
depending more and more on sectors
that are booming, such as coworking and
tech companies.
However, Tech, coworking and Brexit are
not unrelated. As previously stated, Brexit
could promote the expansion of FinTech
start-ups, which Paris has been courting
for some time. It could also fuel demand
for shared work spaces, perfectly suited to
the flexibility requirements of companies
forced to anticipate the effects of Brexit in
a climate that remains very uncertain. The
trend is not limited to the Parisian market.
Regus, for example, announced that
they want to accelerate their expansion
in Frankfurt in order to anticipate the
increase in demand from financial
companies based in London.BREXIT
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Good times
bad times
Brexit and the London real estate market
Since the UK voted to leave the EU in June 2016, there has been a significant gap
between what was initially expected to occur in the Central London office market,
and what we are seeing in the statistics. In the summer of 2016, the expectation
was that demand for central London offices – from both occupiers and investors –
would slump. However, the reality has been very different, indeed leasing demand
is running ahead of the long-term average level, while the investment market has
drawn billions of pounds from overseas.BREXIT
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Office market take-up in Central London weakened in the TECH REVOLUTION
run up to the referendum and its immediate aftermath – the
Three factors have supported occupier demand through the
period that covered Q2 and Q3 2016. However, since then
uncertain post-referendum period.
take-up has generally been above the long-term (ten years)
average figure of 3.1 million sq ft per quarter. For Q1 2018, Firstly, technology firms have remained committed to
take-up stood at 3.7 million sq ft, while the Q2 2018 figure London, with firms like Apple, Amazon, Google, Facebook,
was 3.4 million sq ft. and Linkedin, all signing large office deals since the vote
to leave. Second, London has experienced the coworking
revolution, which is connected to the rise of tech. This began
pre-referendum with the arrival of US giant, WeWork, but
OFFICE TAKE-UP IN CENTRAL LONDON (IN MILLION SQ FT) has flowered to encompass a range of operators serving the
growing army of start-up firms.
Q3 2014 4.59
Third, and most surprising, has been the relatively low
Q4 2014 4.12 number of jobs transferred from London due to Brexit.
The expectation immediately after the referendum was
Q1 2015 2.87 that financial and insurance firms would move significant
parts of their operations to cities in the EU. However, most
Q2 2015 3.82 of the major banks and insurers have now opened new
post-Brexit trading hubs in Europe, but have generally
Q3 2015 3.47 only transferred dozens of jobs per institution. The Bank
of England this year estimated that Brexit will cost the UK
Q4 2015 3.63 (not just London) 5,000-10,000 financial and insurance jobs.
This is far lower than the 100,000 figure that some were
predicting back in 2016.
Q1 2016 3.06
MAJOR TECH FIRM OFFICE DEALS SINCE JULY 2016
Q2 2016 2.38 Brexit
FIRM OFFICE SIZE (SQ FT)
Q3 2016 2.73
Facebook 600,000
Q4 2016 3.64 Apple 500,000
Expedia 155,000
Q1 2017 3.12
Google 120,000
Q2 2017 3.19 Amazon 89,000
LinkedIn 83,000
Q3 2017 3.47
Spotify 66,000
Q4 2017 4.05
Q1 2018 3.72 RENTS RISE AGAIN
In the immediate aftermath of the referendum, some
Q2 2018 3.34 parts of central London, particularly those associated
with the financial industry, saw office rents fall. Mayfair
and St James’s, which is the centre of London’s hedge
fund industry, recorded a 13% decline in prime rents. The
neighbouring North of Mayfair sub-market saw an 8% fall
in rents. Incentive packages also became more generous
across all London’s districts.26
However, more recently we have seen by the recent purchase of the
rents begin to rise in districts linked to under construction Goldman Sachs
the tech industry, with prime rents up headquarters for £1.2 bn by pension
5% in Shoreditch, 6% in King’s Cross fund, NPS.
(where Google has offices) and 8% in
Southbank. Paddington, which is on the This is a reminder that London has
new Crossrail train line, which begins a wide appeal that stretches beyond
services in 2019, has recorded a 15% the European investment community.
increase in prime rents. Across London, It has historic commercial links
incentive packages have stabilised. around the globe, and the similarity
in business practices and legal
A constrained development pipeline system make London an attractive
means that landlords are now place for investors from many nations
optimistic rental growth will be beyond Europe, especially the British
recorded elsewhere in the future. Commonwealth.
While central London to the eye
appears to be littered with cranes, in DEAL OR NO DEAL?
fact 42% of the space being developed Much will now depend on the outcome
is already let to tenants. There is of the Brexit negotiations, and whether
currently 6.7 million sq ft of available we are heading for a deal or no deal
space under construction, which will scenario. If a Withdrawal Agreement
complete over the next three and a half is brokered this year, the UK will then
years. In the last twelve months, take- enter a transition period to December
up of newly built office space was 2020, in which the country continues to
7.5 million sq ft. operate in the EU’s single market and
customs union. So, very little will initially
ASIAN INVESTMENT change for the London economy. We
Global investors have been quick would then expect a subsequent trade
to notice the disparity between the deal to maintain strong economic ties
gloomy expectations and the actual between the UK and the EU. In this
conditions in the market. While the scenario, London should continue to
investment transaction volume was prosper, and draw large occupiers and
weak in Q3 2016 at £2.3 billion – the investors to its real estate market.
long-term average figure is £3.5 billion
– it then rebounded to £4.2 billion A no deal scenario will mean greater
in Q4. In 2017 and 2018 only one volatility, particularly in the first half
calendar quarter has seen sales fall of 2019. Both occupier and investor
below the long-term average. demand will probably weaken during
this period of maximum uncertainty.
Interest has been particularly high However, we believe that a further
from Asia, with investors from Hong re-pricing of the pound could persuade
Kong and China especially active overseas investors to buy in London
in the market. Investors from Hong again further down the line. We also
Kong accounted for three of the five view it as unlikely that the major tech
largest investment purchases in firms would abandon London, which still
central London since the referendum; offers a large, high-skill workforce to
including two iconic towers, The international firms.
Leadenhall Building and 20 Fenchurch
Street. Hong Kong investors have a
long-term track record in London, and
the weaker pound has persuaded
many to view Brexit as an opportunity
to buy in.
South Korean investors are also
now active in the market, as shownBREXIT
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2728
Friends will
be friends
Joint interview
William Beardmore-Gray
Global Head of Occupier Services and Commercial Agency, Knight Frank
Philippe Perello
Managing Partner, Knight Frank France
Elvin Durakovic
Managing Partner, Knight Frank FrankfurtBREXIT
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William
Beardmore-Gray
Global Head of Occupier
Services and Commercial
Agency, Knight Frank
How has occupiers’ and investors’ In what ways is uncertainty weighing on the London
LONDON
perception of London’s financial centre market, and what could the ultimate consequences
and its real estate market changed of a hard Brexit or a no-deal scenario be?
since the vote in favour of Brexit?
William Beardmore-Gray: The recurring theme for both
William Beardmore-Gray: The main the occupier and investment markets is that deals are
change has been that in 2015 it was taken taking longer and require more due diligence. Everyone is
for granted that London would always advancing more cautiously, and by reducing deal velocity
be one of the top three global financial we are not seeing instances of occupiers or investors
centres; and the dominant city for Europe. feeling panicked into gazumping. Without Brexit this would
Occupiers are now conscious of the need probably be happening now due to limited supply for both
to have additional outposts to support leasing and investment. A no-deal scenario will cause near-
EU business traffic; so London is now the term volatility. It will encourage a pause in activity while
leading rather than the dominant European occupiers wait to see how well the UK economy performs,
centre. This does not diminish the need to and investors monitor sterling. In the medium-term, we would
have an office in London, and a large one at expect investors to re-enter the market once the pound
that. Investors are buying in London based stabilises. For the occupier market, we see London’s world
on several motives, not just because of its class talent pool keeping global corporations based here.
financial cluster. Wider motives include:
exposure to the tech action, diversifying
portfolios, acquiring long and secure
income streams, and creating a global
platform. Therefore, Brexit is not undermining London, but
encouraging occupiers and investors to think carefully about
why they want to be here. The good news is that even after
time for reflection, they are still finding reasons to want to
be in London.You can also read
