A BNP Paribas Real Estate survey has found that 82% of respondents consider London to be the world's leading financial centre, helping to assuage fears that the financial crisis had weakened its position.
Despite the turmoil in the financial sector over recent years, and in contrast to the somewhat pessimistic outlook of some commentators regarding the London market, BNP Paribas Real Estate's latest banking survey shows that London remains the world’s leading financial centre.
Eighty-two per cent of respondents cited the capital as the global leader, compared to just 16% who specified New York. Indeed, the outlook for London is positive, with 60% of respondents confirming the UK as their focal point for growth over the next three years.
Permanent advantages
While this sentiment should bolster confidence across the UK capital, it is not altogether surprising, as London benefits from two key advantages that can never be taken away.
First, London's central position in the time zones means that throughout the working day it is possible to speak to, and do business with, the markets in Hong Kong and Singapore in the morning and New York in the afternoon. No other financial centre in the world can provide such connectivity to the global markets. Second, London also remains the centre of the English-speaking world and is therefore a magnet for English-speaking talent.
Sector aspirations
With independent research consultancy Lighthouse, BNP Paribas Real Estate conducted 67 interviews with key decision-makers in London’s major banking and financial companies to uncover the sector’s property aspirations, expansion plans and, most importantly, its demand for property over the next few years.
Seventy-five per cent of respondents said they expected to increase their volume of business in their London operations through to 2014; and on average this growth in business volume will be about 40%.
However, while the volumes of business are expected to increase over the next three years, a smaller number of companies expect their employment levels to grow, with just over half of those surveyed planning to increase their headcount.
It is anticipated that this growth will translate into good demand for high-quality London office space, with the majority of growth likely to come from front office expansion.
Need for space
The greatest demand looks set to be from smaller institutions, with office requirements below 929 square metres – good news for the central London office market, as these requirements perfectly match the type of supply that is readily available.
The surge in growth from smaller banks could, in some part, be attributed to reductions in the administrative restrictions that they face, which in turn has made them more confident.
The negative public sentiment and potential regulations that the larger corporations are facing means that they are less likely, in the short term, to commit to large-scale expansion. The public backlash may also have encouraged a number of talented individuals within the sector to set up on their own, or join smaller and more nimble practices.
Deciding factors
Our survey was also able to pick out where these new developments may be located, with transport links emerging as the number one factor influencing decision-makers.
Sites close to overground stations will be in particularly high demand, as repeated industrial action on the underground network has heightened occupiers’ awareness of the importance of proximity to mainline stations.
Looking back over the past five years, despite the recent turmoil in the banking and financial sector and effectively no new job growth, there has still been an average of 287,999 square metres of central London office space transacted each year by this sector.
This has been driven primarily by lease expiries and merger and acquisition activity. This trend is set to continue, with a large number of known lease expiries over the next five years.
In addition to this demand, we can realistically expect to see another 11,500 extra jobs created in London, which could translate into demand for at least 148,645 square metres of extra space. To put this into perspective, it essentially means the equivalent of four Shards or five Heron Towers, two office/retail blocks recently built in the city.
Dan Bayley is head of central London at BNP Paribas Real Estate
