Many fear financial services businesses will decamp to Frankfurt or Paris once the UK’s withdrawal from the EU is confirmed, but an emerging school of thought suggests European cities have as much reason to worry as London.
At MIPIM UK this week, RBS chairman Sir Howard Davies and Terra Firma chairman Guy Hands, for many the public face of private equity, agreed London was vulnerable. But there was less unanimity about where London’s business might end up in the event of a hard Brexit.
Davies took the view that banks would “move the balance of activity that they undertake here to other European cities as a hedging strategy, just in case they find barriers put up against them here”.
He pointed to figures from DealX, which has identified almost 2,000 businesses which rely on using “passporting” to conduct deals around Europe. Collectively they occupy 13.9m sq ft in the City and 26.5m sq ft around the key London office markets, a not insubstantial volume equivalent to 26 Cheesegraters. It hammers home how damaging a failure to maintain passporting rights could be.
Hands didn’t dwell on the detail in quite the same way, but his belief is that if the UK suffers, so does continental Europe.
Because connectivity has allowed businesses to go anywhere in the world, runs his argument, the EU would not necessarily benefit if London were to lose its place as a financial centre. It would, he warned, “harm Europe immeasurably”.
“If financial services move out of London, they will move out of Europe. There is not a need to be in one specific place, except for what that one place gives you culturally. And there is no way Paris or Frankfurt will replace London in my lifetime or my children’s lifetime.”
No way? What do the numbers say?
The first European investment data for Q3 show that volumes were down sharply compared with the same quarter a year ago, according to analysis by Capital Economics. That number, however, includes the UK. Remove the UK and the picture is different; investment in European commercial property is performing well, up 13% on the same quarter a year ago.
With investment in the first three quarters of 2016 higher than in any other year since 2007, the continent appears “unperturbed by the UK’s decision to leave the EU”, says economist Andrew Wishart.
Investment volumes in Poland and Russia climbed strongly off low bases, with growth of 5%-25% in the larger markets of France, Sweden and the Netherlands the main driver of higher volumes.
But here’s the telling stat: investment in German commercial property may have been little changed on a year earlier but, in Q3, the total value of transactions eclipsed that of the UK for the first time since 2007.
So investor confidence in non-UK European real estate appears strong, so far at least. And with many continental cities seeking to advance themselves at London’s expense, the stakes could hardly be higher.
But those cities should not be complacent. If Hands is right, there will plenty of other, non-European cities looking to challenge them for London’s business. But let’s hope a hard Brexit doesn’t push us to that.
Protestors were conspicuous by their absence from Olympia this year. Could it be that the property industry is finally managing to get its message across to Joe Public that developers are not all money-grabbing fat-cats? That may be too much to hope for. But with the government’s switch of emphasis from jobs and housing to housing and housing, it’s possible the message that this industry is part of the solution may be getting through.
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