Herbert Smith will do it next month, Allen & Overy will have done it by the autumn, and several hundred hedge fund positions have done it already.
Getting out of London is suddenly top of the to-do list for some occupiers. Law firms and financiers no longer believe that they must be in the City or West End and are looking elsewhere in the UK and at capital cities overseas.
But do London’s agents and landlords need to worry?
As much as 100,000 sq ft of demand from hedge funds is said to have left the capital, or “deflected” to other European cities. At least as much floorspace from legal firms is said to be heading to the UK’s regions.
According to those making the decisions, a combination of cost and regulatory pressure is encouraging them to think about relocating.
Lawyers are in the vanguard. Last month, Allen & Overy announced that it would transfer 180 staff from London to a new support and legal services centre in Belfast. The centre, expected to house 300 staff by 2014, will open this autumn.
Meanwhile, Herbert Smith will open an outpost in Belfast next month, as it shifts volume legal work out of the capital.
They both follow in the footsteps of fellow law firm Nabarro, which has had an outsourcing office in Sheffield since 1996. However, this must be tempered by the fact that Nabarro occupies 118,000 sq ft at 84 Theobald’s Road, WC1, on a lease that expires in 2014, and it also has a 150,000 sq ft central London office requirement.
Nabarro managing partner Nicky Paradise says that, like all law firms, they are always looking at transferring more work outside London.
“It’s about cost,” she says. “Everyone is cost-conscious. Rents are so much lower outside London, and everyone is looking for efficiencies.
“And it isn’t just rent. We have found that having some staff outside London is a real advantage. We find some excellent people just don’t want to work in London – they don’t want that lifestyle.”
Today, around 300 of the firm’s 620 staff are in Sheffield.
Paradise says: “We’re looking at the balance between the two offices all the time. We’ve just relocated all our switchboard and document production to Sheffield, and more will probably follow. Moving things out of London is a one-way process as long as London stays so expensive.”
While lawyers are moving staff to the regions, hedge funds are giving the UK a miss altogether.
According to one informed source, around 100,000 sq ft of demand from hedge funds has been put off from locating in the capital. This is not a large number in the context of the entire London market, but in the tiny world of Mayfair, where hedge funds like to locate, it feels like a blow.
The list of “deflected” requirements is modest, but significant. In June last year, Brevan Howard, the London-based hedge fund, chose to expand in Geneva rather than at home, while Moore Capital decided to invest in Zurich.
George Roberts, head of London occupier representation at Cushman & Wakefield, says that a growing feeling among financiers that the burden of regulation makes London a less friendly place to do business has prompted a number of moves.
“The loss of hedge funds in a small area, predominantly Mayfair, means a loss of occupiers prepared to compete to drive rents up. So the market is revising down its rental expectations,” he says.
Like many observers, Roberts is careful not to overstate the trend. However, he is convinced that occupiers are looking more closely than ever at moving some or all of their staff out of London.
“The effect of corporate moves away from London is not so much the total floorspace involved, as the sentiment it creates,” he says.
“My gut feeling is that we are over the worst, as far as occupiers moving out of London, and that the moves we have seen have been confined to the top end of the financial sector, along with some professionals and corporates. I do not think it has involved more than a few hundred thousand square feet, but it has made London look vulnerable.”
Roberts says that London is still at risk, especially to relocation decisions by membership-based bodies or quangos. Several are known to be closely examining the cost savings they could make by moving away from the capital.
While the risk that another 100,000 sq ft of occupier floorspace could move out is real, it is not very serious, says Bradley Baker, head of central London tenant representation at Knight Frank.
“It is just logical, part of due diligence, for occupiers to look at their property portfolio and ask if they could gain by moving some or all of their staff out of London. Most occupiers do this kind of exercise at some time or another, and the sheer cost of occupying offices in London is what motivates them,” he says.
“But moving, say, 20% of your staff out of London may save rent, and perhaps wages, but its effect on the business might not be exactly what the occupier expected.
“It could be good for the bottom line, but not so good for the business.”
Baker suggests that occupiers should look at the historic costs of occupying a London base – and if they do, they will notice that London rents are relatively cheap.
“Back in 1989, it cost more than £72 per sq ft to occupy a City office. Bearing in mind inflation over the past 22 years, today’s rents are not at all bad,” he says.
“My guess is that occupiers worried by costs will look at Midtown or Canary Wharf, but they won’t leave London.”
London’s cheerleaders know that it has to work hard to maintain its position as an attractive place to do business. But it might not have to work quite as hard as some of the alarmist headlines suggest.
Lawyers everywhere
Allen & Overy is the largest law firm to decant staff from London to the provinces.
This autumn, it will move 180 London-based technical and support staff to Belfast.
Herbert Smith’s volume disputes office opens in Belfast in April.
The small team of up to 30 staff will be led by Libby Jackson, who will relocate from London. Overall management responsibility will rest with the firm’s global disputes head Sonya Leydecker and London-based partner Jenny Stainsby, who herself comes from Northern Ireland.
The firm has strong Irish links. Clients include the Bank of Ireland and the republic’s National Asset Management Agency.
Major firms, including Baker & McKenzie and Clifford Chance, already have service centres overseas: Baker in the Phillipines; Clifford Chance in India.
