Does HSBC’s decision to relocate its retail banking operations to Birmingham herald the start of an occupational exit from central London? Mark Simmons investigates
Last month HSBC signed a property deal that will see 1,000 head office roles whisked out of London and into the heart of the West Midlands. The bank’s decision to go for a crisp, new 210,000 sq ft building at Birmingham’s Arena Central came in the wake of regulation spurred by the various banking scandals over the past decade.
The snappily titled 2013 Financial Services (Banking Reform) Act requires banks to clearly separate their retail functions and it was arguably this legislation, rather than an inherent desire to move staff from HSBC’s 1m sq ft Canary Wharf headquarters at 8 Canada Square, E14, that prompted the relocation.
Since the announcement of the move, HSBC has threatened to leave the UK altogether because of the increased regulations.
The bank will not comment on the thought processes behind its decision to ship staff out of the capital, but Wouter Schuitemaker, investment director at Marketing Birmingham, which is working closely with the financial services giant, suggests there were several reasons.
Firstly, he points out, the bank already employs 2,000 people in Birmingham. Secondly, for an organisation keen to get closer to its customer base – and in an era of regional devolution – moving out of London sent a positive message to potential clients.
But crucially there was also a juicy financial incentive: “A big part of the motivation was the [lower] cost of real estate in Birmingham,” admits Schuitemaker.
Mass exodus?
So are the other big banks likely to follow suit and partially up sticks from London? Apparently not.
Tenant rep specialists in the capital believe that the separate entities created by other banks will not be as large as HSBC’s, so the cost-saving benefits of moving to a regional centre will consequently be lower.
Nevertheless, Schuitemaker maintains Birmingham is currently in discussion with at least one other financial services firm.
That raises the further question of whether, when one large player like HSBC decides to vacate space in London, there will be a domino-like cascade of further deals.
Certainly a handful is in the offing: law firm Freshfields Bruckhaus Deringer declines to comment on rumours that it has shortlisted buildings in Manchester for a 100,000 sq ft requirement to house staff relocated from London. And as EG went to press, Bilfinger GVA was mulling over developer submissions for its Project Jupiter requirement. Understood to involve the relocation of a government department, up to 500,000 sq ft could be taken in Liverpool and Manchester.
Are these perhaps the vanguard of a mass exodus of tenants, seeking to avoid the rocketing occupational costs of central London? Probably not.
“The whole question of being located in central London is out there and being debated, but there is no real momentum or drive behind it. That is because there is a gravitational pull towards London rather than away from it,” reports Chris Lewis, senior director at Deloitte Real Estate.
People power
A single factor is binding occupiers to the capital: people.
BNP Paribas Real Estate director Johnny Dunford notes: “Businesses are used to having fewer staff since the recession, but consequently they are more reliant on those remaining.”
Staff retention will almost always win out over savings on property costs, which are already being cut in other ways, notes JLL director Andrew Barnes.
“Occupiers are making buildings sweat more,” he says. “The majority of new buildings are based on one person per eight sq m and some are even denser. This will be an overriding trend.”
However, another option is also emerging: relocation within or on the edge of Greater London. This offers the potential of property cost savings with fewer staff retention risks. Several locations are already tipped to see this kind of movement (see boxes).
Public sector occupiers, who already have buildings in places like Croydon, may lead this move out to the periphery, though market experts are sceptical of government departments vacating their central London offices in a hurry.
Vicky Smith, public sector partner at Deloitte, says: “Moves are likely to be optional rather than compulsory. It will be a gradual change rather than a Big Bang.”
Alex Dawson, public sector director at Savills, agrees, though he adds that public sector attitudes are changing: “The government wants to be more creative with property, so landlords should look at how they can create possible partnerships.”
These deals could see civil servants moving out of prime central London space that could, in turn, be redeveloped for those wishing to remain in the core.
Croydon
Croydon is one of the locations singled out in Sir Terry Farrell’s London Masterplan, launched at this year’s MIPIM. He suggests that hubs on London’s edge should become core locations.
The London borough has for many years attempted to snare relocations from the City, so far without success. But the development of up to 1m sq ft of grade-A offices at Stanhope and Schroder UK Real Estate Fund’s Ruskin Square, next to East Croydon railway station, may be a game-changer.
“Croydon is not traditionally a place where you get prelets. That is about to change,” predicts Schroder’s fund manager James Lass.
Thames Valley
Conventional wisdom suggests that when Crossrail opens fully in 2019 it will whisk the burghers of leafy West London and Berkshire into their offices in central London and, perhaps, Canary Wharf.
Now Thames Valley property commentators are starting to wonder out loud what they have been privately daring to hope for some time: that process could work equally well in the opposite direction. Why shouldn’t residents of deepest Kent or Essex whizz under the capital to already thriving Berkshire office hubs? And could central London businesses think of shifting at least some of their staff west?
“It is something that is definitely being talked about,” confirms Matthew Battle, chair of Thames Valley Property.
The discussions will certainly intensify if rumours that Danish shipping company Maersk is to move its UK headquarters from east London to Maidenhead, Berkshire, are true. Maersk’s lease of 100,000 sq ft at 1 Braham Street, Aldgate, E1, ends in 2017.
Now the company may be under offer at Capella and Kames Capital’s 78,000 sq ft new development, Point, in Maidenhead. The town is already home to the company’s container shipping division, Maersk Line, which occupies around 10,000 sq ft not far from Point.
Battle says that the deal, if confirmed, could be the start of a trend: “Pharma and legal firms headquartered in the capital could certainly be interested in taking space in Reading.”
Stratford
For a couple of years after London 2012, the spectre of other Olympic host cities – whose dreams of Game-inspired urban regeneration never quite materialised – hovered over Stratford.
Despite the success of Westfield’s shopping centre and the construction of hundreds of new homes, the east London borough’s ability to cut it as an office location was seriously in doubt.
That began to change last year when, in the space of one month, two public sector occupiers – the Financial Conduct Authority and Transport for London – signed up for a total of 675,000 sq ft at the 1m sq ft first phase of Lendlease and London & Continental Railways’ The International Quarter.
The now widely heralded arrival of Stratford as London’s newest office district is not quite assured, though with headline rents around 50% less than equivalent space in central London it has certainly staked a claim.
