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Europe’s main real estate markets feel the pain as banking crisis continues
13 Nov, 2008, London
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.
Also in Amsterdam activity has been down in the past six months compared to previous years, combined with lower volumes per transaction. The total transaction volume is composed by multiple small sized transactions which have taken place throughout the city. Again the office locations Centre, Old South and Zuidas were most popular. Centre and Old South attract mainly banks active in private banking, like Theodoor Gilissen leasing 2,500 sq m in the former ABN Amro office at the Vijzelstraat. The Zuidas atrtract more international banks, like JP Morgan Chase who has leased 650 sq m in the WTC.
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.”
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.