Brexit and its potential impact on office demand

Transcription

1 Brexit and its potential impact on office demand New London Architecture 1 st November 2017 RAMIDUS CONSULTING LIMITED

2 Referendum: reaction and commentary Forecasts of major job losses. LSE: up to 232,000 up to 2024 PWC: 70, ,000 jobs lost by 2020 Oliver Wyman: up to 75,000 up to 2022 Bruegel Group (Brussels): c30,000 from Article 50 Japanese Government: firms to move European HQs to the eurozone? Worst case scenarios based on three assumptions. The UK is given third country status, without regulatory equivalence Severe restrictions are placed on the EU-related business that can be transacted by UK-based firms. The UK s relationship with the EU to rest largely on WTO rules.

3 Referendum: reaction and commentary Lloyd s of London is setting up an operation (20 people) in Brussels. Insurers Hiscox and AIG both chosen Luxembourg for new subsidiaries. Chubb moving EU HQ to Paris. No-one expects an exodus of insurers Lloyd s of London spokesperson Institutions: European Medicines Agency they have to move Markets: Eurocurrency clearing: the big one Banks: widespread contingency plans Goldman Sachs has leased 100,000 sq ft in Frankfurt JP Morgan gearing up in Warsaw and Dublin (130k sq ft purchase) Credit Suisse expanded back office in Warsaw HSBC, Morgan Stanley and UBS: Questions: How many posts will relocate? How much growth will be foregone? January/February 2018 will be key

4 Referendum: reaction and commentary Exclusive - Reuters survey: 10,000 UK finance jobs affected in Brexit's first wave JPM scaled back from 4,000 before Brexit

5 Referendum: reaction and commentary Some glimmers of hope.? On contingency plans, Ernst Young the majority of firms are maintaining their commitment to the UK, and still talking about moving only the resources necessary to maintain a smooth service for their clients and the spread of locations being considered only confirms the fact that the UK s financial ecosystem is unique and very hard to replicate in other European jurisdictions. On Eurocurrency clearing, Xavier Rolet (CEO, LSE) the notion of separating the clearing of euro-denominated interest-rate swaps from U.S. dollar-denominated interest-rate swaps, just doesn t make any economic sense and probably cannot be achieved, even from a regulatory or legal standpoint.

6 Referendum: reaction and commentary Job loss forecasts have been alarming: perhaps too alarming? Some resilience in economic indicators: calm before the storm? Announcements from City firms: a mixed bag. The known unknowns are manifold and the risks huge. Danger of fragmentation for the UK, eurozone and global markets. OECD: erecting new barriers to financial services in the post-brexit environment will not be in the collective interest of the global economy, where London plays such a key role in international banking, bonds and foreign exchange. Who will win: Pragmatists or Politicians? (or New York!)

7 National picture OECD: in 2016, GB was largest European recipient of FDI. DTI: since July 2016, 16.3bn of FDI across UK. Reminder to keep Financial Services in perspectives. FinTech: London & Partners latest UK data. Q1-Q3 2017, 825m of VC. Double the amount raised in whole of More than any other Euro city or country.

8 National picture

9 Economic & employment forecasts Employment in key sectors Greater London, 2001 to 2017

10 Economic & employment forecasts UK forecasts (annual % change unless specified) Source: Oxford Economics

11 Economic & employment forecasts London office economy jobs and growth,

12 Outlook

13 Economic & employment forecasts Office economy jobs growth, UK and London at different growth rates Forecasts more positive than expected. OE assume a FTA agreement, consumer squeeze and higher inflation. Oxford Economics on office economy jobs: 9% UK growth (11%, ) 12.3% London growth (23.8%, )

14 Economic and employment forecasts Post-referendum forecasts: positive for the UK economy. But faltering and fragile. A 4.8% growth in UK office jobs ; 9% A slowdown. UK to suffer more from foregone jobs than direct loss of office economy jobs? Professional & ICT jobs to grow strongly; Financial & Insurance jobs to shrink. ICT in London employs c100,000 more than Finance & Insurance (163,000 by 2027). Financial services rationalisation since the GFC to be reinforced by automation and artificial intelligence. Bigger impact than Brexit? London s agglomeration. continued success dependent on continuing comparative advantage. Fragmentation will harm both the UK eurozone economies.

15 Post-referendum office activity Occupational deals Post-Referendum +50,000 sq ft

16 Post-Brexit tech occupier deals

17 The rise of the flexible space market

18 Post-referendum office market activity Post-referendum London investment transactions Cheap London safe London Investment volumes, broadly, being sustained. 22 Bishopsgate and 1 Undershaft both proceeding. ABP s 300,000 sq m business park in Royal docks. Stanhope/Mitsui s 1bn science hub in Camden. Mitsubishi Estate got consent on 6-8 Bishopsgate/Leadenhall 570k sq ft

19 Outlook Failure to build sufficient transition arrangements could threaten growth, competitiveness and financial stability, and feed through to major disruption in property markets, particularly in London. London s agglomeration. Continued success dependent on maintaining comparative advantage. Structural change was well underway before Brexit - weakening the finance sector as the underpinning of the real estate market. AI and automation loom large.

20 Outlook Office market impact minimised if negotiations preserve passporting and equivalence. Third Country status would be far more significant. Fragmentation will harm both the UK and eurozone economies. Beneficiaries could be Singapore/NYC. Weakness of the Government exacerbates complexity and potentially makes an already fluid situation, even more so. Potential to alter the UK s negotiating position. So much depends on whether we have a Pragmatic or Political resolution to negotiations.