For years, Edinburgh was billed as the third financial centre in Europe, because of its headquarters status and its enormous fund management base. However, in a recent European banking report, the Scottish capital was not mentioned once.
Of 11 centres in Cushman & Wakefield’s Banking – activity returns report, Warsaw, Prague and Budapest warranted mentions, but not Edinburgh.
Given the retrenchment, loss of Scottish ownership and partial nationalisation the city’s financial sector has seen over the past two years, its omission had a certain inevitability.
But an emerging breed of financial services operators is forming a new vanguard in the city, enough at least to generate positive spin after a significant hiatus. The question remains whether these instructions from upcoming firms such as Tesco Bank will translate into deals significant enough to soften the hammer blows still being experienced by the city’s first sector.
“Yes, these deals can plug the gap comfortably in the short term,” says CB Richard Ellis director Allan Matthews. “There has been no indication by any of the major banks [of plans] to offload significant amounts of space.”
This is despite Lloyds Banking Group’s announcement last month that it was shedding 330 Edinburgh-based jobs from its IT department, because of the overlap of roles with HBOS since the 2008 takeover. In September, Royal Bank of Scotland announced 3,500 more job cuts nationwide and axed around 30 wealth management positions from the Edinburgh-based Adam & Co. It scythed away some of its Edinburgh insurance operation and has closed a couple of retail branches since its forced divestment to Santander. Local bar staff in the Dundas Street area, where RBS once employed 2,000 people, complain that there is a decline in weekday trade.
Barclays Bank announced plans to move 250 Standard Life jobs out of Exchange Crescent to other parts of the UK, following its purchase of the Scottish bank for £226m last year. It has also sublet space in the former Standard Life headquarters, Caledonian Exchange.
In stark contrast to this gloom, however, is a surge in activity from some young pretenders. Tesco Bank, née Personal Finance, is leading the charge. A spokeswoman for Tesco confirms: “Tesco Bank continues to expand as a business, and we are looking for additional office space. We are looking at a range of locations that may be suitable for our requirements and want around 40,000-50,000 sq ft of space.”
Tesco checks out six options
The supermarket giant would not confirm details but it is believed that six schemes have been earmarked as potential locations. These are Carlyle Group’s Tanfield, IVG’s The Cube, Scottish Widows Investment Partnership’s Exchange Place, the Grant Thornton-administered Westport 102, Gladedale Capital’s Quartermile development and Saltire Court on Castle Terrace.
Tesco leased IVG’s 48,000 sq ft Interpoint scheme at Haymarket for 15 years in 2009, but subsequently deluged the serviced office sector in the city following the phenomenal success of its financial products (see box opposite). It sees an opportunity to recruit good-calibre financial staff given the cutbacks among the majors. “The significance of a 50,000 sq ft letting cannot be underestimated. That would be a big deal for Edinburgh even back in the good days,” says Chris Dougray, head of Lambert Smith Hampton’s Edinburgh office.
A smaller financial services player, but one that is none the less creating a splash, is Richard Branson’s Virgin Money. It has around 4,000 sq ft in Plum Developments’ Venue Studios on Calton Road but is looking to expand.
A spokesman for Virgin confirms: “We are looking for premises in Edinburgh city centre to house our operational centre. We will start recruiting staff, initially 200, in March/April next year in readiness for launching Virgin Bank later in 2011.”
Like Tesco, Virgin would not give any details of its requirement, but it is believed to be looking for around 20,000 sq ft and has viewed the ground and first floors of German fund IVG’s The Cube on Leith Street. This would be the most obvious location, as it is a stone’s throw from its existing office and better located. It has also considered joining Microsoft and the NHS at the BDO Stoy Hayward-administered Waverley Gate scheme opposite The Cube.
A potential new instruction causing excitement is a reputed 25,000 sq ft additional requirement from investment manager Baillie Gifford. The firm had 98,000 sq ft at the private Irish-owned Calton Square scheme, but recently took over Citigroup’s 12,000 sq ft lease there after the US bank consolidated into its Holyrood building.
No comparison with past titans
“It is rumoured to be taking space, possibly the second and third floors of The Cube,” claims CBRE’s Matthews. Baillie Gifford declined to comment.
Although this activity is undoubtedly positive, there is no question of these players being the same force in Edinburgh that RBS and Bank of Scotland once were.
The other side of the coin is reduced take-up by the Scottish banks. Formally, no decision will be made until next year about whether or not BoS will build a new headquarters at Fountainbridge South. It bought a 13-acre site from Scottish & Newcastle brewery in 2008 for a reputed £100m.
However, it has been widely reported that the deal has fallen through and a global HQ for 6,000 staff seems hard to conceive in light of its takeover and public ownership. Nevertheless, savings would be realised through consolidation of some or all of its 16 Edinburgh offices, so a scheme of lesser proportions is feasible.
Another dimension to future activity from the banking and financial sector is a huge gap in the development pipeline. By the end of September, take-up had reached 476,000 sq ft, the same level for the whole of the previous year, and even bearish agents anticipate existing space running out within a couple of years.
However, there is no proposed office development until at least 2013; nor has there been any for the past couple of years. “You can talk about financial sector skills and workforce availability, but if there is a footloose 80,000 sq ft requirement for 2012, where does that go?” asks LSH’s Dougray.
Agents are advocating that occupiers negotiate deals now if they have lease expiries in the next two years. CBRE’s Matthews concludes: “Sentiment is genuinely that we are in a slightly better place than we were 12 months ago. It is still slow, it is still difficult, but there are more encouraging signs.”
serviced offices to take a hit
Take-up of serviced office space in Edinburgh has bucked the UK trend recently. In the past 24 months, there has been a surge of activity, much to do with Tesco Bank. It has more than 400 people across a number of temporary locations, with around 150 in the Abbey Business Centre in Princes Street, a similar number at the MWB Business Exchange at South Gyle in west Edinburgh, and more at the Regus and Citibase centres.
While it is good for serviced office occupiers to have a dominant tenant, having all your eggs in one basket can be a double-edged sword. The retailer wants to have a permanent location ready by spring 2011.
Julie Grieve is managing director of Abbey Business Centres, which leased space for 150 Tesco Personal Finance staff in May 2009. She says: “We work closely with Tesco and will have plenty of notice when it moves. It is scary to lose a big customer, but we provide flexible workspace – it’s what we do.”
Grieve is optimistic about the future, claiming that there is “growth to come”. She says that, in a recessionary market, firms do not want the expense of a permanent move. The feeling is that, while it will be difficult to lose such a prominent client, it was better to have one single-handedly cushioning the sector through two of the most difficult years on record.
Three options on Tesco’s shopping list: 1 Scottish Widows’ Exchange Place 2 Westport, administered by Grant Thornton 3 IVG’s The Cube
