European banking sector signals recovery as office letting activity is buoyed by big deals

7 Jun, 2010, Budapest, Hungary

The European banking sector has mounted a notable recovery based on its office leasing activity in the last six months according to the new 'European Banking Briefing' from global real estate adviser Cushman & Wakefield.

Paris and London have led the recovery with total European banking sector take up of office space totalling over 400,000 sq m in the six months to the end of Q1 2010, almost double the previous six months, total and the highest figure since Q4 2008. The rate of take up has also outperformed the rise in overall office leasing activity with banking no accounting for over 11 per cent of activity, a rise of 2.5 per cent compared to the previous six months.

The rise in take up was mainly down to a number of large transactions in Paris and London which together accounted for 66 per cent of total banking take up in Europe. Paris was the most active banking location in Q4 2009 accounting for 60 per cent of total banking take up whilst London?s City & Docklands was dominant in Q1 2010 with 39 per cent of take up. The Brussels and Moscow markets were also relatively active with over 42,000 sq m and 27,500 sq m of banking letting activity recorded over the six month period.

There were nine transactions within Europe that were individually over 10,000 sq m which led the recovery in banking letting activity. Of the nine largest recorded transactions, four of them were owner occupation deals. These four deals accounted for over 130,000 sq m, accounting for almost 50 per cent of the largest nine transactions and 32% of total banking take up over the period.

Three of the four owner occupation transactions occurred in Paris with one in Amsterdam. Credit Agricole has chosen to consolidate its operations in Paris with the purchase of the former Evergreen site in Montrouge at 80,000 sq m. The development will eventually house 9,000 employees and will enable Credit Agricole to reduce costs by reducing the amount of office space it occupies.

Philippe Ravoire, head of Tenant Representation in Cushman & Wakefield France says: "This deal alone made-up for more than half of total take-up within the banking sector in 2009 in the Paris region. This consolidation-motivated move is an illustration of the priority given to real-estate optimisation strategies and the trend of financial sector jobs being transferred out to the inner suburbs".

This trend of owner occupation may continue in markets such as London and Paris where there is a lack of Grade A space and low capital values, with banks taking advantage of market conditions to consolidate their existing operations.

Sentiment within office markets across Europe has been improving with a supply-led upturn in prime rents expected later in the year as the bottom of the rental cycle is reached in important markets such as Frankfurt, Brussels and Amsterdam. Rental growth is already happening in the City of London and Paris's CBD which has encouraged banks to consolidate and rationalise for future strategies. Since the beginning of 2010, the banking industry has indeed confirmed its increasing role in the Paris property market with the pre-let by BNP Paribas of 41,000 sq m at ZAC Claude Bernard, in the Paris Centre Est. This trend is expected to fan out across the continent although in many cases banks will need to mover quickly to capitalise on the best occupier friendly opportunities.

Guy Douetil, head of Cushman & Wakefield?s EMEA banking group, said: "Although banks still face significant uncertainty deriving from a number of issues, there is definite improved sentiment in the sector with strong results for some banks and many now in a position to consider longer term business and property strategies. This has been seen with increased take up activity and the recent agreement between UBS and developer British Land to build a new HQ at Broadgate in London is an example of a bank able to commit to a strategy for the future and take advantage of market conditions. As anticipated, activity has picked up first in London and Paris and we expect other key banking centres to follow suit going forward."

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