The platforms at La Défense station at 7:30am on a Thursday morning are overcrowding fast. Stepping out of the station into the daylight, the vast shadows cast by the office blocks make it hard to remember that this giant 38m sq ft business district – the largest in the world – is only a few metro stops from the charm of central Paris.
The skyline here is only going to get denser, taller and more imposing. An extra seven skyscrapers comprising 4m sq ft of space will be added to the market by 2021.
The extra space does not just mean a bolstering of the Parisian financial services sector. As UK institutions prepare for expected limitations on what goods and services can be sold into the EU from Britain, fears are mounting that banks are planning to move employees from the UK.
Now that Article 50 has been triggered, Paris is keen to capitalise on the opportunity and is rolling out the red carpet for Brexit’s banking refugees. HSBC is moving 1,000 jobs to Paris and estimates suggest as many as 10,000 financial services jobs could move out of the UK.
The French government, headed by the newly elected Emmanuel Macron, will be working hard to position itself as a premier EU banking destination. As financial institutions prepare to decide where to operate in the EU, how worried should London be that Paris could steal its share of the market?
Paris is ready
The Brexit vote may only be coming up to a year old, but Paris has been preparing for this opportunity for years. While London had its days of glory in the development boom of the 1980s and the City became one of the world’s most renowned global financial hubs, at the time Paris was lagging behind and has since struggled to keep up.
Meka Brunel, chief executive of Paris-based REIT Gecina, says: “This has nothing to do with Brexit – it has to do with the fact that Paris’ economic growth is slowly returning and getting stronger and stronger. We were so far behind London for so many years so we are far from getting to the same point, but Paris is definitely catching up fast.”
This is evident in investment levels. When François Hollande was elected president in 2012, investment volumes took a hit owing to concerns over a socialist government. After he took office the United Nations conference on trade and development reported that foreign direct investment in France had plummeted by 77% to $5.7bn from $25.1bn. Levels have since improved, with the latest reports of France’s foreign direct investment showing an increase to €32bn in February 2017.
Reformist improvements
France is notorious for having complicated business and employment laws – although chief executive of economic agency Paris Region Invest Robin Rivaton argues this is a stereotype. “There are a lot of stereotypes against Paris which we have to fight against,” he says. “It is no more complicated to relocate to Paris region than anywhere else in the EU. We need the message to go out to everyone in the world that France is reforming its labour market.”
Following the election of Macron, Paris should be in a better position to relax its labour market and taxes, which have held it back in the past. Many of the banks, such as HSBC, already have offices in Paris, which will make for a smoother transition should they decide to relocate.
Plans have also been put in place to lower tax. Current corporate tax is 15.5% for profit under €150,000 (£127,000), the competitiveness and employment tax credit represents 7% of gross payroll and a new system is planned for personal tax whereby income tax will be deducted at source in 2018. This means that any individual who goes to live in France will not pay any income tax this year. Commercial rents are also cheaper in Paris, with headline rents in La Defense at around €500 per sq m.
The region is investing heavily in new transport and infrastructure. Around €28bn is being invested into 130 miles of new railway lines for the new Grand Paris Express metro, which will improve connectivity between the centre of Paris and the surrounding region with 68 new stations.
The accessibility of Paris from London also makes it an appealing place to live and Paris has always ranked higher than London in Mercer’s quality of living surveys.
Tony Smedley, head of continental Europe at Schroders Real Estate, says: “If you are thinking on an employee level, which if given the choice could choose which city that they would prefer to live in, then you want them to be somewhere where they would be happy and so Paris ranks highly on that front.”
Can it change?
Despite claims that France in general and Paris specifically are no harder to do business in than other European countries, there are others who point out that it is very difficult to get anything over the line in French politics.
Will Woodford, head of Savills in France, explains: “In the UK you have the prime minister who sits in parliament, but the president in France doesn’t sit in parliament – they are independently elected and because of that you normally have someone who reflects the wish of the people. But if you become president without the majority on your side then it is very hard to push things through and do what you want to do, because everything has to be voted for in order to go through.”
Although the new government has said that it will improve the employment laws and taxes, many banks could well be put off by the current strict employment laws. The cost of employment in addition to the salary paid to employees in Paris is considerable.
Tim Reay, principal of international employee benefits at Mercer, says: “It is expensive and complex to dismiss people and there is a much smaller pool of experienced employees in the financial sector than there is in London. Many are still put off by the 1994 tightening up of language regulation, which restricted businesses’ ability to operate purely in English and did no favours for Paris’ international image.”
Woodford adds: “It is very difficult to create temporary employment contracts over six months. Many banking institutions work with contractors and the French law makes it difficult to do that.”
EU competition
Paris is not the only destination for Brexit refugees. Dublin has the obvious advantage of being English-speaking and Frankfurt still remains one of the strongest markets in the EU.
Brunel says that Paris would be wise to not lose sight of the competition: “There is a lot of competition with beautiful cities all over Europe which are doing everything they can to attract new entrants from the UK. We need to consider this as a competition, which we need to win, but we are still a part of.”
There may be a development surge at the moment in Paris, with an additional 4m sq ft coming to the market, but land constraints in the Parisian market mean this boom will likely be short-lived.
“Everyone talks about a development boom, but look out the window – how many cranes do you see?” says Brunel, pointing to an empty Parisian skyline. “There is a scarcity of land here. There is not much capacity for any new projects and there are so many rules and regulations that it is not going to be similar to London.”
Recent figures from the De Montfort Lending Report shows that appetite for the financing of commercial developments remains robust in London despite this.
Steve Cook of Investec Structured Property Finance believes that France is unlikely to steal the number one spot from London in this regard. “We expect any decisions by the financial services sector on whether to relocate their office premises to be a drawn out process, and anecdotally the pull of London remains strong,” he says. “London’s advantages – time zone, universal language, tight legal framework, existing infrastructure – will still be in place past any shorter-term disruption.”
Living in France?
There has been a hike of 9% in French house prices in the past 12 months, according to French researcher Databiens. The research also shows that homes would be 22% more costly for sterling buyers.
This could, in effect, deduct any economic perks of relocating to Paris. London home values grew at their slowest annual rate in five years in February, according to LSL Property Services. Prices in the UK capital grew by just 0.1% to an average of £606,780, which is the weakest growth since April 2012.
In addition, the language barriers and culture differences would not suit everyone. Paris is less international than London – more than a third of Londoners were born outside the UK, and some 600,000 of the 5m workers in London are non-UK EU nationals, many of whom are French.
Canary Wharf, like La Défense, can be daunting. But in the evening London’s financial district is crowded with workers who stay out after work for drinks. In La Défense no such culture exists – the whole place becomes a ghost town after working hours.
PARIS v UK: HOW DO COSTS COMPARE?
The best of times, the worst of times?
Paris has always tried to attract businesses from London and other financial centres. In 1993, Paris Europlace was launched to promote Paris as a financial centre, with London as a key target. It has been trying ever since.
Brunel believes the competition has been around for much longer. “You know the Charles Dickens novel a Tale of Two Cities?” she asks. “This competition did not start yesterday. I do not believe that London will disappear – London will always be London and Paris will always be Paris. All these global cities are magic and belong to the world and it is our responsibility to make these places special.”
LE TECH
In preparation for an influx of new businesses, the city is also improving its technological infrastructure. Paris will have full-fibre optic broadband coverage by 2020. Tamara Birsk, managing director of Wiredscore in France has been working with many of the developers in La Defense to ensure that their buildings are tech ready for the next wave of occupiers.
She says: “Both international and French developers are constructing buildings right now with an eye towards tenants’ most pressing needs, now and in the future. The uncertainty surrounding Brexit has emphasised the need for UK and French teams to be flexible, mobile and above all hyper-connected.
“Where Brexit threatens to put physical barriers between teams, technology (like video-conferencing) is bridging those distances. France has become an Eldorado for start-ups.
“The current government provides significant material assistance along with inpatriation tax benefits. There is a popular initiative to increase these incentives by 2020. In addition, the generous social safety net derisks entrepreneurship for young people.”
UK INSTITUTIONS AND PROPERTY FUNDS
If passporting does hurt anyone, it will be UK-based companies and funds that want to expand their business into the EU. In particular, Patterson says, UK funds trying to sell to European investors – which they can do freely at the moment – will have to comply with individual countries’ private placement rules.
SEE ALSO: Passporting – the new millennium bug?
Not only does this mean there will be more paperwork involved, but not all member states have private placement regimes. Where they do have them, some do not permit real estate funds being sold.
Bank |
UK employees |
Response to Brexit |
|---|---|---|
| Barclays | n/a | Planning to establish a main EU hub in Dublin and moving 150 staff there, according to Bloomberg |
| Citigroup | 9,000 | About 100 staff in sales and trading might need to be moved, although the bank already has a presence in Dublin, Reuters has reported |
| Credit Suisse | n/a | Dublin has emerged as a favourite for Credit Suisse’s back-office jobs, Bloomberg reported |
| Other jobs could move to Frankfurt | ||
| Goldman Sachs | 6,000 | Increasing operations in Europe, and that could mean moving staff from London |
| Looking into contingency plans but no official numbers yet, vice chairman Richard Gnodde has said | ||
| German newspaper Handelsblatt reported the bank is considering halving its London workforce to 3,000 | ||
| HSBC | n/a | About 1,000 employees “may need to be” relocated from London to Paris, depending on how the negotiations develop, the bank has said |
| JP Morgan | 16,000 | Jamie Dimon, chief executive, said up to 4,000 could move depending on the outcome of the negotiations |
| If there is no clear outcome, the bank could accelerate its move out of London | ||
| Morgan Stanley | 6,000 | President Colm Kelleher has said some people will “certainly” have to move, but no official numbers |
| About 300 staff are expected to move to Frankfurt or Dublin initially, according to Bloomberg | ||
| Nomura | 2,500 | The Japanese bank is looking for a city for a new EU headquarters, with Frankfurt reportedly the frontrunner, the Press Association has reported |
| No decisions on timings or numbers yet | ||
| Royal Bank of Scotland | n/a | The bank has looked at options to expand in the Netherlands, Ireland and Germany, but Malcolm Buchanan, a managing director at the bank, has said it will have access to Europe because of its EU banking license |
| UBS | 5,000 | Alex Weber, chairman of UBS, has said 1,000 UK employees “could be affected by Brexit” |
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