Frankfurt appears to be winning race for relocating banks
Prime office rents have stayed relatively steady in Frankfurt over the past 10 years
A plethora of announcements have come in the past few months with banks and other financial institutions signalling their relocation intentions in the aftermath of Brexit.
A clear winner, in volume terms, appears to be Frankfurt. Japanese heavyweights Nomura and Daiwa have procured office space in Germany’s financial capital to join American banks Morgan Stanley, Citi Bank and Goldman Sachs.
Dublin isn’t without its victories. Bank of America Merill Lynch chose Dublin as its EU hub in July, Barclays Bank has signed a 20-year lease for 37,000sq ft of office space, while JP Morgan bought a property at the heart of Dublin’s Docklands, allowing it to expand its Irish workforce to 1,000 staff.
But still, Dublin’s success has paled in comparison to Frankfurt’s. Is it simply the case that we’re holding ourselves to a higher standard than we’re capable of?
“Sometimes in Ireland, because we’ve been outperforming ourselves for years, we always think we should continue to outperform,” said Roland O’Connell, the chairman of Savills Ireland. “When you look at the size of the Irish economy versus the size of the German economy we’re completely outperforming them.”
Frankfurt, however, has distinct advantages, according to Sven Stricker, a managing director at BNP Paribas Real Estate in Frankfurt. It is the home of the European Central Bank, while, perhaps slightly less significantly for pan-European banks, it hosts Germany’s Bundesbank as well as the Frankfurt Stock Exchange – the largest of the country’s exchanges.
Additionally, “it has a very stable situation regarding...economic stability”, Mr Stricker said. Because of Dublin’s size “you cannot compare it with Frankfurt”, he says, referring to Ireland’s capital as a village.
Another advantage from Frankfurt’s perspective is the cost of commercial office space. According to research from Savills, prime office rents have stayed relatively steady in the city over the past 10 years, ranging from €408 to €474 per sq m per year. In Dublin the picture has been markedly different, with rents dropping to a low point in March 2012 of €305 per sq m per year to a high in June of this year of €667 per sq m per year – a price point higher than the boom time peak.
The most up to date figures show that you can pick up the exact same piece of space for €193 per year cheaper in Frankfurt than in Dublin.
Mr O’Connell does not see Dublin’s pricing as a major hurdle. “In the overall scheme of things the cost per square foot of office space, while it’s important, it’s not high up in the parameters of consideration.”
Local taxes and rates, he believes, are favourable, and although commute times for workers may be shorter in Frankfurt than they are in Dublin, he points out that they’re “a hell of a lot shorter than they would be in London and a lot of other places”
While all of this is positive for Germany’s financial capital, the stock of commercial space is starting to tighten, according to Benjamin Remy, a director at Savills Frankfurt. “Vacancy rates in Frankfurt are currently 8.4 per cent. If you’re looking for a ‘grade A’ building you’ll find that only 40 per cent of total vacancy rates are in ‘grade A’ building quality – a quality that international banks would need.”
Stephan Bräuning, a managing director at Colliers International Frankfurt, suggests that there is still sufficient office space in the city’s financial district. In any event, he is of the view that it’s not all about office space: “Most companies take care of their employees [and look at] what is most comfortable for them.”
That view is echoed by Margaret Fleming of Jones Lang LaSalle. “My own instinct is that I don’t think it has very much to do with property.”
She also believes that Ireland’s housing rental market isn’t a problem for these employees either. “The people who are coming with these jobs will be housed.”
Top financial centres
A report issued last month from the Global Financial Centres Index 22 showed that Dublin as a financial capital is highly ranked. While our capital city had pushed up the ranks of the world’s top financial centres, it still lagged well behind Frankfurt, Luxembourg and Geneva.
The latter two cities, however, don’t appear to be getting a look in on the race to secure institutions fleeing from London. “From today’s point of view, I think it’s pretty much Dublin and Frankfurt,” Mr Remy said.
Frankfurt does, however, have a “reputation as a notoriously boring place to live”, according to Mr O’Connell. That may help Dublin in the long term, but for now at least Frankfurt seems to be getting its way.