Europe's main markets feel the pain as the banking crisis continues
18 Nov, 2008, Europe
The global banking crisis is directly impacting Europe’s main commercial real estate markets with the City of London most affected. According to Cushman & Wakefield’s new European Banking Briefing, take-up of office space by banks in the City of London has fallen 69 per cent in the 12 months to October. The banking sector is the largest occupier of office space in the UK’s main financial district and its reduced demand for space has led to a - 4.2 per cent fall in rents over the last three months alone.
The crisis is also leading banks to embark on the sale and leaseback of property portfolios to raise capital. Cushman & Wakefield research shows that the leading 43 European banks have a combined €63 billion of land and buildings on their balance sheets which could be sold.
Across the European banking occupational market it is a mixed picture with, like London, Brussels, Moscow and Madrid all seeing significant falls in office take-up by banks over the last 12 months with rents in all these markets either falling or experiencing slower growth. In Brussels’ Quartier Leopold, rents have fallen by -3.6 per cent over the year.
The major banking centres of Paris and Frankfurt have demonstrated most resilience to the crisis. In Paris take-up of office space by banks actually increased by 110 per cent in the year to October although rents in the Paris CBD market fell -4.4 per cent as demand was concentrated in the city’s cheaper peripheral locations where banks have relocated back office functions to reduce costs. The largest transaction in Europe in the last six months was in Paris’s Eastern Suburbs with Société Générale taking 76,000 sq m of accommodation. Take-up in Frankfurt rose by 31 per cent with BNP Paribas, Commerzbank AG and Dresdner Bank all agreeing major deals.
Budapest and Prague have also seen a significant increase in activity and both are likely to benefit in the future from banks in Western Europe relocating back office functions to these lower cost locations.
Guy Douetil, head of Cushman & Wakefield’s EMEA banking group, said: “The banking crisis has led to merger, acquisition and effective nationalisation of major banks across Europe. We are entering some uncharted waters and until we know the extent of banking job losses, and therefore the amount of surplus office space that might be released, it is difficult to predict accurately how Europe’s main financial centres will be affected. Real estate, however, is a major cost centre for all banks and it is those that are prepared to manage their portfolios efficiently that will be best placed to ride out the current crisis.”
James Young, head of Cushman & Wakefield’s City office, said: “Despite the reduced demand by banks for office space in London, we don’t expect to see the same levels of vacancy that we did during the last downturn in the early 1990s or post-Dotcom. We have had a low vacancy rate across the City & Docklands markets in recent years as banks have become much more efficient in their occupation and disposal of surplus space. Banks that acted quickly to dispose of any surplus space once the credit crisis began last year are now in a stronger position. Citi, for example, has been able to sub-let over 150,000 sq ft of space in Canary Wharf before many of its major competitors have put space on the market.”
Cushman & Wakefield also expects a number of major European banks to raise capital by selling and leasing back significant portfolios of real estate across all European markets. Spanish banks BBVA and Banco Sabadell and Belgian bank Fortis are all currently in the process of selling major property portfolios. Merrill Lynch estimates that European banks require an additional €73 billion to shore up their capital. Cushman & Wakefield figures show that there is currently €63 billion on bank balance sheets in the form of their own property assets which could be sold.
Matthew Stone, head of Cushman & Wakefield’s EMEA occupier strategy team, said: “Most European banks need to raise cash but the traditional routes of equity or debt are now significantly more expensive. The 43 leading European banks have extensive branch and office networks which together have a book value of over €63 billion. Although the sale and leaseback of these assets has become more common (over £2.5 billion in the UK alone last year), there is huge potential to realise value from these with equity buyers looking to invest in prime properties with strong covenants.”
For further information, please contact:
Chris Bond, UK Media Relations Manager
Cushman & Wakefield
Tel: + 44 (0)20 7152 5006 / +44 (0)7793 808 006