Financial sector is rationalising real estate to remain in London ⁰

A relentless drive to cut costs is forcing financial services occupiers to focus on reducing real estate costs and adopting strategies to use their space more efficiently in Central London. According to research from CBRE there has been an ongoing move by big banks to relocate non-core functions outside of Central London, as seen in HSBC’s decision to move 1,000 head office staff from London to Birmingham. However despite the inherent challenges, banks continue to cite client needs, recruitment, profile and presence as key reasons to keep office space in the Capital. This is reflected in last year’s leasing figures with banking and finance occupiers leasing 3.2m sq ft, 4.9 percent above the 10-year average. There are a variety of compromises companies may make as part of rationalisation strategies to maintain their position in London. Consolidation is an ongoing trend. But it is not a one size fits all approach.

Some occupiers are taking the decision to move to lower cost locations within Central London, while others will compromise on space to remain in a more expensive market. For example, Deutsche Bank is moving certain operations from the City to Canary Wharf, at the same time as moving their Wealth Management business to a new office in Victoria. Société Générale also plans to consolidate its London offices in a new Canary Wharf HQ, although their Hambro business will remain is St James’s Square.

Financial services firms are also turning to outsourcing. Areas such as risk management, trade reporting, compliance and IT are increasingly being outsourced. Last year alone, Bank of America Merrill Lynch, Citigroup, Commerzbank, JPMorgan, Société Générale and Standard Chartered joined forces last year with Swift to develop and use a centralised due-diligence system.

Katherine Bain, Director at CBRE London said: “As part of the consolidation process, financial occupiers are seeking to change desk utilisation from its current rate to as high as 85 percent. Achieving this could make a significant difference to the bottom line, but to do so would require various intensification initiatives, including different people using the same desk at different points in the day. As well as cost saving this also promotes better collaboration, which is as important to occupiers.”

She added: “In the UK, the upcoming EU referendum is a key source of economic uncertainty and potential regulatory tightening. A vote to stay means EU regulations will also stay, including the AIFMD and EU Bonus Caps which have been unpopular in the City. On the other hand, those favouring a ‘stay’ vote warn that an exit would erode London’s position as a gateway to continental Europe.”

“London’s ability to position itself as a leader in some of the growth areas of the future, including FinTech and specialist banking are a key element of the city’s resilience. However, the rapid growth of FinTech is increasingly threatening incumbent banks. In addition, the success of these companies has led to an increase in office demand and cost escalation in fringe City office markets, including the Old Street/ Shoreditch office market and Canary Wharf which is recognised as the largest FinTech cluster in Europe.”

The report highlights the numerous challenges the sector faces in maintaining its status with regulation and economic uncertainty topping the list. With Brexit looming, a key concern of potential occupiers lies in the loss of passporting, which currently makes London an attractive location for businesses to establish European or global headquarters.

A total of 3.18m sq ft of office space was let to banking and finance firms in 2015. Despite various sources of uncertainty over the year, the increase has been driven by the gradual recovery of the sector.