LONDON: The giants of Wall Street and European banking are giving up their stronghold on London.
In the coming months alone, Barclays Plc may ditch its investment bank’s headquarters in the capital; Credit Suisse Group AG is offloading nine floors of office space; and Morgan Stanley is reviewing its entire London footprint.
And all of those moves were planned before the coronavirus hit. Now, with thousands of job cuts likely to follow what’s forecast to be the worst recession in three centuries, the tenants of the glass and steel towers that dominate the City of London and Canary Wharf may face an even bigger retreat.
“Larger banks are clearly a higher risk for landlords, ” said Rogier Quirijns, head of European real estate at Cohen & Steers Inc, who oversees more than US$2bil of property funds.
“For London, there are the threats of recession and a possible no-deal Brexit to deal with, and I expect Covid-19 will most likely accelerate those risks.”
The pandemic has given banks further impetus to downsize and preserve cash after already spending a decade quietly offloading space as jobs vanished in the wake of the financial crisis. In the past nine years, their London footprint has been slashed by about six million square feet – or the equivalent of a dozen Gherkin skyscrapers, according to broker CBRE Group Inc.
Layoffs accelerated in the first quarter, with headcount across the 12 biggest investment banks dropping 5% – the steepest decline for that period in at least six years, according to Coalition Development Ltd. Much of that’s been driven by troubled European lenders, which were already shrinking long before the virus struck, according to Amrit Shahani, head of research at Coalition.
Shahani predicts that by the end of this year, the continent’s banks could have 20% fewer staff than at the start of 2019.
As well as job losses, the future of the office itself is on lenders’ minds. It’s taken the arrival of a deadly pandemic to convince bosses that working from home can be both effective and relatively easy, and that’s provided a timely opportunity for an industry neck-deep in cost rationalisations.
Bank executives from Barclays chief Jes Staley to Morgan Stanley boss James Gorman have even begun to question whether the corporate headquarters may become outdated. UBS Group AG has said that as many as a third of its employees could work remotely on a permanent basis.
For many banks, “their five-year plan was to cut their floor space by 20% pre-Covid, ” said Mat Oakley, head of commercial research at broker Savills Plc. “So this is not Covid-related – it is just suddenly they find a way of achieving that plan because of Covid.”
Firms in central London have sought to offload almost one million square feet of office space since the lockdown began in mid-March, with about 16% of that coming from banks, according to latest data from Savills. Just over a third of offerings through mid-June were directly in response to the virus.
Real estate bosses are playing it typically cool. While lockdowns across the world threaten office values and many rental payments will be missed, they’re still counting on global firms chasing trophy headquarters. The industry is also betting that being home-bound has made people appreciate human interaction even more.
“Real estate is all about long-term planning, ” said Toby Courtauld, chief executive officer of landlord Great Portland Estates Plc, which owns two neighbouring office towers in the City.
“London remains a super important centre globally, and we think the extrapolation of short-term issues into long-term trends is overdone.” — Bloomberg
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