European financial capitals can expect subdued performance in terms of banking office take up, as the wider sector remains on the cusp of significant change. According to Cushman & Wakefield's new European Banking Briefing, the retail banking sector in the UK can also expect to undergo a sea change over the next few years with the arrival of a number of new entrants to the market.
Although the global economic crisis has pushed banks' take-up of office space in the last six months (Q2 & Q3) down by 53% compared to the previous six months, this rate of decline is markedly slower than before. Whereas previously the London market saw the biggest drop in activity in the six months to the end Q1 2009, the UK capital has remained relatively healthy and was the most active European market in the last six months. Major lettings were concluded which included 49,000 m² to Nomura in the City and 20,000 m² to Macquarie on the City fringe.
Prime office rents in London are widely accepted to have bottomed out and with an increasingly limited supply of new space coming to market, banks have begun to take advantage of their position to agree attractive terms on new buildings to consolidate a number of buildings into one or to upgrade the quality of their accommodation. Although property costs account for only a small percentage of overalls costs, savings are still available. However, the window of opportunity is closing in order to maximise the savings via renegotiating leases. Cushman & Wakefield expects in particular the better capitalised and the Asian banks to be among the movers over the next 12 months.
With rents in all other major European financial cities yet to bottom out, the trend as seen in London is not likely to spread across the continent until the latter half of 2010 at least. With banking take-up subdued to say the least in markets such as Paris (where only 1,000 m² was transacted in the last three months), pent up demand for space once economic conditions become more favourable and banks have clarity over their future, is likely to drive a spike in take-up of the best space in Europe's financial capitals.
The UK market is also expected to undergo a mini revolution within the retail banking sector over the next four years. The European Commission has demanded that those banks bailed out by the UK Government must sell significant chunks of their retail branch network to satisfy concerns over competition within the market. Lloyds Banking Group, for example, will have to dispose of 600 branches within four years. New entrants to the UK retail banking sector could include brands such as Allianz, Generali and Zurich or established domestic brands such as Virgin Money and Tesco Finance.
Guy Douetil, head of Cushman & Wakefield's EMEA banking group, said: "After 12 months of darkness with almost no take up from the banks, we are beginning to see some light at the end of the tunnel. Banks are now beginning to make major decisions where significant opportunities exist to consolidate or save money in their HQ locations. London has been the first to benefit and we expect other Western European capitals to follow in 2010.
"The retail branch landscape is expected to see a number of years of evolution, if not revolution, with many banks being forced to divest large numbers of their branches providing unique opportunities for new market entrants looking to get a foothold. At the same time we are aware of other well capitalized banks looking to substantially grow their existing branch networks either organically or by acquisition."
Source: Cushman & Wakefield