The escalating cost of office space in London is forcing many businesses to re-evaluate which roles can warrant a permanent desk in the capital. According to the DTZ 2015 Global Office Thermometer, the average annual cost of a workstation in London hit $29,340 (£19,820), a 16% hike on 2014. The same money could buy you almost four desks in Birmingham, or five in Newcastle.
“There are huge savings to be made by moving at least part of your workforce elsewhere,” says Knight Frank’s James Roberts. “Occupiers have become more scientific in assessing what roles people have, the profit they bring in and who can justify having a London desk.”
Some occupiers are prepared to take the hit of escalating costs to continue to satisfy clients, and attract and retain talent. Yet many are opting to locate at least some staff elsewhere.
For some time law firms have been farming out support functions and routine work to regional offices. Some are even relocating more senior roles and using lawyers in lower-cost locations as an extension of their London teams.
Be it Allen & Overy opening a Belfast centre in 2011, or Hogan Lovells improving competitiveness with a new office in Birmingham (see box), finding ways to reduce the London footprint is a growing priority.
Magic circle firm Freshfields Bruckhaus Deringer is to open an 80,000 sq ft global service centre at Salford scheme One New Bailey.
The firm, which occupies a 230,000 sq ft office on Fleet Street, EC4, has been taking temporary space in Manchester since 2005. Freshfields declined to comment on the move, but it is thought the centre will handle support services as well as basic legal work.
The banking sector has also moved some divisions out of London. In March 2015 HSBC announced it would relocate around 1,000 staff from Canary Wharf to Birmingham. HSBC’s decision was driven by new rules requiring banks to separate business and personal banking operations, yet others have chosen to open in the regions under no such duress.
Deutsche Bank opened in Birmingham in 2006 and now employs around 1,500 people across two buildings. The bank occupies around 250,000 sq ft, including a trading floor, from which it is servicing a number of clients managed previously from London.
A spokesman from the bank says: “There’s a strong talent base in the region and we’re impressed by the calibre of employees we’re able to recruit. Our presence in Birmingham allows us to serve a mid-market client base in a cost-effective manner. We can also cover clients that would be uneconomical to service out of London.”
Manchester boasts similar credentials and was selected by BNY Mellon, formerly Bank of New York, as one of its three global growth centres. The bank opened with 50 staff in 2015; that number has now grown to more than 1,100.
BNY Mellon’s Matt Wells says: “Manchester is a true alternative to London for many roles.” The bank has demonstrated that the regions offer far more than a place to ship out low-margin work. Manchester is home to very senior positions and it is possible for staff to climb right up the career ladder without the need to move to London.
As London lease expiries loom and occupational costs in the capital rocket, there is plenty of incentive for other banks to follow suit.
“The roles that are relocated will certainly not all be back office,” says CBRE’s executive director Mark Pollitt. “HSBC will be bringing some quite primary functions to Birmingham.”
He adds: “We are working with another clearing bank that is looking at either taking space around London or out to one of the major university regional cities.”
A key driver for the bank is finding a location where it can access a talent pool of IT professionals to perform roles which don’t need to be in London. As well as saving money, access to skills is a critical factor behind decision making with such a fight for talent in the capital.
Winding the clock forward, the impact of this “near-shoring” phenomena won’t simply be relocating all lower-value back office work. Those delivering the most profit in client-facing roles may well keep their desk in London, but the line between who does and doesn’t justify a London desk will be blurred.
Carter Jonas’s head of tenant advisory, Michael Pain, is advising a number of clients considering relocating staff. He says: “It requires very careful analysis of which teams need and don’t need to be in London. Those who remain are likely to be the ones who make the greatest contribution to the income of the business and need a face-to-face relationship with London clients.”
Yet getting the nod to remain in the capital won’t necessarily mean you keep your own desk.
Pain is advising a firm of management consultants facing a near 100% rental increase on renewal of its London lease. It is planning to retain about a third of its workforce in a smaller office in London, with the rest relocated to Oxfordshire.
But not everyone in the London office will have a desk. Some will spend much of their time working remotely from home or clients’ offices. There will be a limited number of desks in the London office, but once they are full in the morning, employees, including senior partners, will have to find a breakout area in which to work.
As the way we work evolves, there is less need for the allocation of a permanent desk and a greater requirement for informal communal space where people can interact. Although there will always be roles that require a permanent workstation, in the future far fewer London workers will have workspace to call their own.
Nearshoring: Two case studies
Two law firms which have already taken parts of their business out to the regions reflect on their decisions
Allen & Overy
In 2011 Allen & Overy opened an office in Belfast to improve efficiencies across the firm. Today the office, which houses business support functions and a legal services centre, employs 400 people.
“About 180 roles were transferred from London to Belfast,” says a spokesman: “For a global business, it did not make sense to have a large amount of support services in London, one of the most expensive property and labour markets in the world.”
The firm claims the efficiencies achieved by the relocation have helped improve competitiveness, and in 2014 announced it would create another 100 jobs in Belfast over the next five years.
Together with functions such as finance, HR and IT, the site employs nearly 80 fee earners and a number of other legal professionals. It is more than a low-cost back office enclave. The spokesman adds: “We have shown that many front-line tasks can be performed effectively from Belfast.”
Hogan Lovells
When global law firm Hogan Lovells opened its Birmingham office in 2014, the intention was to provide an extension of its London teams in a lower-cost location. Partner Alan Greenough relocated from London to lead an office covering corporate law, litigation, real estate and finance.
“As time goes on the firm will be doing less recruiting in London,” says Greenough. “Our salary costs in Birmingham are around 60% of those in London and occupational costs are around 35% lower. We can pass those savings on to clients, which then helps us win more work.”
By the end of 2016, all of Hogan Lovells’ back-office operations will be carried out in Johannesburg. The Birmingham office staff are front line. The office now employs 22 lawyers – 14 solicitors and eight paralegals.
“We do London work led by London partners,” says Greenough. “Staff go to the same events and training sessions as those in London and there is a lot of to-ing and fro-ing between offices. We chose Birmingham because it is near the capital and has great pool of legal talent.”
