A report in today’s Observer claims leading banks will pull out of London early next year. As well as the obvious impact on the financial services sector, Britain’s commercial real estate market could also be decimated.
London’s office market could have 26 million sq ft of space at risk vacancy if rules enabling companies to trade freely within the European Union (EU) were revoked, according to analysis by DealX, a property analytics start-up.
The so-called “passporting” rules enable banks, insurers and asset managers to trade in other EU countries from a UK base. They are seen as key to keeping the City alive but could lead to a collapse in rents if removed.
Research from DealX, a London and Berlin-based big data analytics start-up, estimated over 1,900 firms would be reviewing office requirements if passporting was revoked. The analysis said that 91 percent of the space initially at risk is occupied by companies in the banking, insurance and asset management sectors.
The quandary for British firms is that the next prime minister will find it extremely difficult to both satisfy demands to limit EU immigration and retain access to the single market and passporting. Freedom of movement is a key element of the single market, and other EU countries are likely to only allow Britain to maintain passporting rights under a deal which preserves the four freedoms of the single market - goods, capital, services and people.
The findings, found by crunching official data on the capital’s office occupiers and through a survey of 100 leading financial businesses in London, show:
Whether many of those voting for Brexit have an interest in the City’s bankers or property investors is highly debatable. But ministers should do and the focus therefore is for the sector – and its occupiers – to band together to help politicians make the case for a sensible outcome.
In the interim, market disruption is inevitable.
“London’s financial services industry is a crucial part of our economy and underpins a huge proportion of commercial real estate,” says Joseph Kelly, CEO and co-founder of DealX. “What these data show in great detail are the sheer number of buildings whose occupiers rely on passporting to conduct their business. Being able to understand real estate is as much about cutting and slicing the assets to see the profile of tenants. While many of the real estate investment trusts (Reits) have varied exposure to global businesses, thousands of buildings, owned by all manner of parties, will be reliant on the prime minister carving out a sensible deal to protect London.”
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