The City of London faces a post-Brexit exodus of international occupiers as they review the Square Mile’s credentials against those of other EU cities.
Although European leaders have yet to begin sorting out the details of how Brexit will work, analysts at PwC have already predicted that 70,000 to 100,000 UK financial services jobs could be lost by 2020.
JP Morgan, HSBC and Deutsche Bank have said they are reviewing options for their London offices, as has telecoms giant Vodafone.
Together they occupy more than 2.7m sq ft in the capital.
However, a raft of occupiers, developers and investors say they are committed to the UK market.
Goodwin Gaw, chairman of Gaw Capital Partners, said he did not think continental cities were a threat to the City. “Frankfurt doesn’t have a soul. Everything works, it’s German efficiency, but it’s not colourful like London. I think politics would have to really screw up to take London down that far.”
CBRE’s head of City leasing Chris Vydra said that it was too early to tell whether there would be any occupier fallout at all.
GM Real Estate’s Neal Scambler noted that City office vacancy was at an historic low of 3%, down from 17% in 2003, although there is an 8.2m sq ft pipeline – 38% of which is prelet.
The City’s occupational market has become more diversified in recent years, which may protect it from an exodus of its more traditional financial occupiers. In 2015, 23% of take-up came from technology, media and telecoms firms, while 42% was from professional, scientific and technical firms and just 16% from finance and insurance businesses.
Canary Wharf has also diversified, with the proportion of banking and finance take-up reducing from 24% to 12% between 2000 and 2015, according to CBRE.
A Canary Wharf Group spokesman said it was too early to tell what the impact of Brexit would be but admitted the “macroeconomic conditions are likely to be difficult”.
He added: “We have an average unexpired lease term of more than 14 years, more tenant diversification than people give us credit for and high occupancy.”
Brexit poses EEA threat
Passporting allows financial services firms in the UK to operate across the European Economic Area and is estimated to have a value of £10m by the City of London Corporation.
Mayor of London Sadiq Khan said its loss would be a disaster for the capital. Richard Gnodde, co-chief executive of Goldman Sachs in Europe, said banks may have to move staff.
Clifford Chance partner Simon Gleeson said that the only way to keep passporting was for the UK to sign up to freedom of movement and adopt EU laws.
Occupiers looking to minimise the disruption of the UK leaving the European Union by moving to Ireland could struggle to find space in the country.
It will be the only native English-speaking member of the EU after the UK withdraws.
Dublin could struggle to accommodate the influx
Banks have warned that Brexit could result in fewer UK jobs and prompt firms to move operations to cities such as Dublin, Paris and Frankfurt.
US bank Citigroup has already picked Dublin for its European retail bank, and Credit Suisse announced plans to move departments, including a trading floor, to the Irish capital.
Office space is in short supply, however. Current grade A vacancy in Dublin city centre stands at 3.7%, according to JLL and only 319,000 sq ft is currently unlet within developments due to complete by the end of 2017.
Mark Barr, partner and head of real estate at legal firm Arthur Cox, said there was no legal impediment or regulatory barrier stopping a company moving staff from London to Dublin, aside from normal planning associated with leasing office space, and EU health and safety concepts adapted to Irish law.
He said: “Financial services companies’ bigger issues might concern financial regulation and ensuring they are fully compliant with the Irish Central Bank. They may also be able to do this over time if the UK takes two years to leave the EU.
“Much of the financial services regulation is derived from UK law in any event and all of these major players will know what is required.”
Kevin Sammon, of IDA Ireland, the state agency in charge of attracting foreign investment, said a favourable corporate tax structure and a combination of “talent and track record” could draw companies in.
Sammon said: “Many of the large investment banks and insurers already have a significant presence in Ireland: Citigroup, JP Morgan and Merrill Lynch, among others.
“We are very confident of Ireland’s product offering for anyone from the financial services community.”
Follow our Brexit reaction blog here >>
• To send feedback, email louisa.clarence-smith@estatesgazette.com or tweet @LouisaClarence or @estatesgazette
• To send feedback, e-mail shekha.vyas@estatesgazette.com or tweet @ShekhaV or @estatesgazette
