International banks will make their employees share desks as part of a drive to consolidate London office space in an effort to slash costs while retaining a presence in the UK capital.
A report by CBRE, the world’s largest property services company, has found that banks’ space requirements in London are dropping as they move more jobs overseas and reduce staff, pushing them to “optimise their footprint in the capital”.
Cost pressure and flailing revenues are spurring more banks to sublet excess office space, sell off their real estate portfolios and close branches.
“Lease events are being utilised to consolidate and rationalise or, where lease events are some way off, excess space is being sublet,” the report said.
Investment banks, for example, saw revenues drop 3 per cent in 2015 to $138.8 billion (€123.9bn), lagging behind 2014 which was the strongest year since 2003, according to JPMorgan.
The risk of a British exit from the EU after the referendum on June 23rd has spurred financial companies to devise contingency plans to shift functions to Europe, prompting further movement out of London. Some have suggested Dublin could be a beneficiary of this.
Strategies
But many banks and other financial services companies are creating strategies to retain key parts of their business in the capital. The report said banks were citing customer needs, recruitment, profile and presence as key reasons to keep office space in London.
Indeed, banks and finance companies leased 3.2m sq ft last year in London, which is about 5 per cent higher than the 10-year average, the CBRE report said.
In the largest deal of 2015, Deutsche Bank sublet 389,000 sq ft at 10 Upper Bank Street from law firm Clifford Chance as part of a rationalisation strategy, which has also seen them take 87,500 sq ft at the new Zig Zag building in Victoria.
The space in Canary Wharf is to be used to relocate non-core investment banking functions from its current City offices. CBRE said this deal represented almost half of all banking and finance take-up in Canary Wharf in 2015, totalling 625,000 sq ft, 24 per cent above the 10 year average.
Société Générale is also planning to consolidate most of its London offices in a new Canary Wharf headquarters.
Moving locations within London can achieve “significant rent savings”, the report said. Prime rents were £70 per sq ft in the City compared with £47 in Canary Wharf in the first quarter.
Intensive use
However, one consequence of subletting or relocating is the need to use space more intensively. “With cost-cutting a key motivator, few firms are prepared to be radical, but they recognise that investment in the working environment and in technology is important for performance,” the report said.
It said “desk utilisation” - the extent to which all desks in an office are used - was at 65 per cent. Banks could implement a “shared desk” culture to hit 85 per cent, which “could make a significant difference to the bottom line”.
Deutsche Bank, for example, is aiming to have six people to every five desks as part of consolidating a number of offices into its Canary Wharf building as part of a cost cutting initiative, the report said.
