Moving to Frankfurt After Brexit Could Be a Squeeze for Banks
Posted by hkarner - 28. Oktober 2016
Source: The Wall Street Journal
Financiers seeking new digs inside the European Union face tough building codes and a shortage of space
Frankfurt, home of the ECB and scores of financial institutions, has a limited supply of very large offices, and zoning rules make a sudden uptick almost impossible.
FRANKFURT—London banks, ready to move here when Britain quits the European Union? Mind the Arbeitsstättenverordnung.
That’s Germany’s strict office-building regulation, which, among other things, prescribes a minimum of one square meter of window for every 10 of floor space, and mandates that all desks enjoy natural light. As a consequence, many buildings are shaped like doughnuts.
Good luck squeezing in a trading floor.
Frankfurt is an obvious post-Brexit destination for London banks seeking to move some operations to keep them inside the EU. It is at the heart of the bloc and is the home of the European Central Bank, along with scores of financial institutions. It isn’t nicknamed “Bankfurt” for nothing.
But tough building codes and a shortage of space may make it harder than imagined. The city has a limited supply of very large offices, and zoning rules make a sudden uptick almost impossible. Any building over 22 meters—72 feet, or about five stories—is restricted to specific zones of the city and requires approval from a committee of local politicians.
“You can’t provide the client with a long list of offices in Frankfurt—you start with a shortlist,” said Christian Ströder, an analyst at commercial-property services firm JLL.
The question of how much banking business will leave London—and where it will go—looms large in Britain. Anthony Browne, the head of the U.K’s banking lobby group, wrote in a newspaper op-ed this weekend that bank chiefs are “poised, quivering over the relocate” button.
Greater Frankfurt has about one million square meters of office space currently available, but only about 20% of that is in the financial district, according to JLL. Many Frankfurt offices can take fewer than 10 employees.
The City of London has 360,000 square meters available and Paris’s financial district has roughly 600,000, according to JLL.
In Frankfurt’s most-desired areas, “there is already a limited availability of properties compared to a high level of demand,” said Mr. Gripp at Engel and Volker.
New office construction in Frankfurt won’t help much. The city has 143,800 square meters of office space under construction that haven’t been spoken for.
In Dublin—another suitor of displaced Brits—the figure is 260,000 square meters. There, zoning rules protect developers from legal challenges and allow fast construction. Ireland “could provide space for anyone wanting to relocate to Dublin over the next 18-24 months,” said Paul Scannell, director at HWBC, a real-estate firm in the city.
Adding to the squeeze in Frankfurt is high demand. Takeup of office space jumped 23% in the first half of this year from a year earlier, according to JLL. Banks and business-service firms now occupy almost half of the five million square meters of office space in the city, JLL says.
In September, a unit of Samsung Life Insurance Co. bought the city’s tallest building, the 850-foot-tall Commerzbank Tower, for €630 million (about $685 million), or more than 20% above the price it was widely expected to fetch one year earlier
Oliver Gripp, head of the Frankfurt office of real-estate brokers Engel and Volker, said he was “seeing individual cases of banks and companies” preparing to move from London to Frankfurt.
Property specialists expect the trend to accelerate.
“Frankfurt is seen as the big winner from Brexit,” said Christian Schulz-Wulkow, head of Ernst & Young’s Germany real-estate advisory group, which found nearly 80% of property investors it surveyed expected Frankfurt to gain from the vote.
If firms can find a suitable space, Frankfurt office rents are lower than in rival cities, according to JLL. Prime rental space per year costs €438 per square meter, compared with €530 in the La Défense business district of Paris and €753 for the City of London.
And then there are the copious windows. In Germany, local firefighters decide whether the offices meet lighting standards.
London has no guidelines on natural light, according to the U.K.’s Health and Safety Executive. Irish regulators encourage natural light in offices but concede some workers will have only artificial lighting.
There is a benefit, said Michael Schumacher, owner of Frankfurt architecture firm Schneider and Schumacher. “English bankers could look forward to the prospect of spacious and well-lit office space in Frankfurt.”