JP Mor­gan and Cit­i­group fuel Frank­furt space race

Irish Independent - Business Week - - COMMERCIAL PROPERTY - Jack Sid­ders & Steven Aron

WITH talks about Brexit largely dead­locked, banks have be­gun putting their con­tin­gency plans into ac­tion. The fo­cus: Frank­furt.

JPMor­gan Chase & Co. is near­ing a deal to lease ad­di­tional of­fice space while Cit­i­group Inc. and Deutsche Bank AG are scout­ing the market for op­tions, ac­cord­ing to peo­ple with knowl­edge of the mat­ter. Gold­man Sachs Group Inc. has al­ready signed leases for of­fices that they won’t move into un­til 2019.

“The Brexit ef­fect is mak­ing com­pa­nies act ear­lier if they want to se­cure ex­pan­sion space,” Ben Remy, a di­rec­tor at bro­ker Sav­ills Plc, said in an in­ter­view. Law firm Baker & McKen­zie LLP signed for a new Frank­furt of­fice in a tower five years be­fore it will be com­pleted, some­thing that’s “un­prece­dented”, he said.

In­ter­na­tional banks are work­ing on plans to shift work­ers from Bri­tain to the Euro­pean con­ti­nent to pre­serve ac­cess to the world’s largest trad­ing bloc af­ter Bri­tain leaves in 2019. The amount of space be­ing leased in Frank­furt is on track to reach a 10-year high, ac­cord­ing to Sav­ills, be­cause the city’s ex­ist­ing bank­ing in­fra­struc­ture has seen it emerge as the top choice for re­lo­ca­tions post-Brexit.

De­mand for of­fices in Frank­furt and prime rents have climbed to a record as the city emerges as one of the favourites to at­tract fi­nan­cial firms from Lon­don ac­cord­ing to lobby group Frank­furt Main Fi­nance.

Ger­many’s fi­nan­cial cap­i­tal, which the group es­ti­mates could win as many as 10,000 work­ers from Bri­tain’s fi­nan­cial-ser­vices in­dus­try, has emerged as the big­gest win­ner in the fight for the thou­sands of Lon­don-based jobs that are ex­pected to be re­lo­cated in­side the EU when Bri­tain leaves the trad­ing bloc, with Gold­man Sachs Group Inc. chief ex­ec­u­tive of­fi­cer Lloyd Blank­fein last month telling his fol­low­ers on Twit­ter about “great meet­ings” he had there, and say­ing he would be spend­ing a lot more time in the city.

The in­flow into the city could how­ever be limited by a lack of avail­able hous­ing, An­dreas Trumpp of Sav­ills In­vest­ment Man­age­ment was cited as say­ing in Frank­furt Main Fi­nance’s state­ment.

The lobby group’s man­ag­ing di­rec­tor Hu­ber­tus Vath told the Press As­so­ci­a­tion ear­lier this week that they were now ap­peal­ing to in­vestors, prop­erty de­vel­op­ers and politi­cians to try to avoid a bot­tle­neck.

He said: “We want to fur­ther en­cour­age in­vest­ment and we fur­ther want to sort of speed up some de­vel­op­ment and plan­ning pro­cesses, par­tic­u­larly in the res­i­den­tial area, be­cause where we will see a short­age is in res­i­den­tial.”

He warned that with­out new homes, “it could cur­tail [re­lo­ca­tions], def­i­nitely”.

Not­with­stand­ing Mr Vath’s warn­ing, here’s what the banks are said to be do­ing so far:

JPMor­gan

The bank is close to a deal to lease an ad­di­tional floor at its Frank­furt of­fice, two peo­ple with knowl­edge of the plan said. JPMor­gan al­ready leases about 8,000 square me­tres at the Taunus­turm build­ing, the peo­ple said, ask­ing not to be iden­ti­fied be­cause the deal is not yet public.

The bank will prob­a­bly move its EU in­vest­ment bank­ing oper­a­tions to the Ger­man city, Bloomberg News re­ported in March. A spokesman de­clined to com­ment.

Cit­i­group

The lender is weigh­ing leas­ing ad­di­tional Frank­furt real estate though Cit­i­group has yet to de­ter­mine how much space it needs, two peo­ple said.

The bank has still not filled all of the space avail­able at its base in the city, where it has about 350 work­ers, and it may end up not leas­ing ex­tra space, one per­son said. Cit­i­group said in July that it may cre­ate as many as 150 jobs in the Euro­pean Union af­ter Brexit.

A spokes­woman for the firm de­clined to com­ment be­yond that state­ment.

Gold­man Sachs

Gold­man Sachs con­firmed last month it has leased about 10,000 square me­tres in a new de­vel­op­ment that is ex­pected to be fin­ished in early 2019.

The bank has also se­cured an op­tion to rent a fur­ther 5,000 square me­tres in the build­ing, two peo­ple with knowl­edge of the deal said last week.

Bank of China

Bank of China is also ex­pand­ing in Frank­furt, though man­ag­ing di­rec­tor Bernd Meist said it’s un­re­lated to Brexit. The bank re­cently rented an ad­di­tional floor at its cur­rent Frank­furt of­fice and will soon add an­other, Meist said.

The firm ex­pects to em­ploy about 300 in the city next year com­pared to 250 now, he said. If Bank of China de­cides to ap­ply for a bro­ker-dealer li­cense in Frank­furt then it will take an­other floor for about 50 more staff, the md said.

Deutsche Bank

Ger­many’s big­gest lender is scout­ing for space that could hold as many as 1,600 work­ers as it pre­pares for Brexit and would be ready for oc­cu­pa­tion within about two years, two peo­ple with knowl­edge of the mat­ter said last week.

Space Race

While the race for space has sent de­mand and prime rents for of­fices to a record, in­vestors are more cau­tious about whether the trend will con­tinue.

“The re­cent lease sign­ings in Frank­furt show that banks are get­ting ready for the changes wrought by Brexit,” said Marc We­in­stock, man­ag­ing part­ner at DKS BIG Group, a real estate de­vel­oper with a port­fo­lio val­ued at €4.3bn ($5bn). “But it’s too early to say what changes will come and how big they will turn out to be.”

The surge in de­mand is also cre­at­ing some con­cern about com­mer­cial prop­erty val­ues in the city.

“We aren’t able to in­vest at the cur­rent lev­els,” An­dreas Muschter, chief ex­ec­u­tive of­fi­cer of Com­merz Real which man­ages about €32bn, said in an in­ter­view.

“You see the Brexit fan­tasy in the Frank­furt market and it is af­fect­ing prices. The real estate peo­ple love fan­tasy and they al­ways pay for fan­tasy.”

(Bloomberg)

While com­pe­ti­tion for of­fice space in Frank­furt is in­tense, the city’s at­trac­tive­ness is be­ing chal­lenged by an acute hous­ing short­age

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