Influx Of Chinese Banks Taking Office Space In Europe Continues

12 Nov, 2010, London

Banking office take-up levels increase over the last six months, led by London , Paris and Frankfurt
Rents rise on the back of a shortage of quality space and lack of speculative development

The European banking sector has seen a continuation of an influx of Chinese banks and a rise in office take-up during the last six months according to a new report from global real estate adviser Cushman & Wakefield.

It has been reported that two of China’s biggest banks: Agricultural Bank of China and China Bank of Communications placed under offer space at 1 Bartholomew Lane in London during the last month.

The large majority are taking space in London, although there are smaller numbers looking at Milan, Madrid, Paris and the Benelux region. As a number of Chinese banks have undertaken rights issues to raise capital and are likely to use some of these funds for future expansion within Europe, this trend is likely to continue.

Other Chinese banks that have taken office space in Europe during the last 18 months include; Industrial & Commercial Bank of China (Milan and Madrid), China Exim Bank (Paris), China Construction Bank, Industrial & Commercial Bank of China, Peoples Bank of China, Bank of China and China International Capital Corporation (all in London).

Total European banking sector take-up of office space totalled over 440,000 sq m in the six months over Q2 & Q3 2010, an increase of almost 8% on the previous half year’s total. This is the highest figure since Q4 2008 and when compared to the same period in 2009, reveals that banking take-up has more than doubled. The banking sector continues to account for 11 per cent of overall office leasing activity.

Over the past six months the top three financial centres within Europe (London – City & Docklands, Paris – Ile De France and Frankfurt) have accounted for 65% of total banking take-up. Activity in London, dominated by the large UBS pre-let at 6 Broadgate, has remained strong. Frankfurt’s banking sector has seen the highest level of take-up over the Q2 & Q3 2010 period, while activity in Warsaw and Milan has also picked up. A notable uplift in Milan was primarily as a result of a large pre-let of 35,000 sq. m agreed by Unicredit.

Locations such as Prague, Amsterdam and Madrid have seen letting activity within the banking sector decline over the past year. This follows the prevailing trend within these office markets with low economic growth, occupational demand and a general easing in market activity.

The largest deal of the past six months was the 104,000 sq. m European Central Bank owner occupation transaction in Frankfurt. This follows the trend from the previous half-year where four out of the ten largest deals were by owner occupiers. Also emerging is the rise of pre-letting transactions. Both these strategies are linked to the lack of supply of good quality stock, in particular that with high sustainability credentials, and reflect alternative strategies to secure suitable space by whatever means necessary. Two of the three largest deals in the last six months were pre-leases and in the previous half-year pre-lets accounted for over 75,000 sq. m, almost 19% of total banking take-up.

A shortage of quality office space and a lack of speculative development is emerging in many markets across Europe, and rents are starting to increase as a result. Growth is being lead by central London, where prime rents in the City are now €683 per sq. m. a rise of 29% over the year, while rents in the centre of Paris have increased by 15% to €760 per sq. m.

Guy Douetil, Head of Cushman & Wakefield’s EMEA banking group, said: “Compared to the volatile and often downright hazardous conditions experienced in 2009 and early 2010, the banking sector has experienced a relatively quiet and stable time over the past six months. We are continuing to see an improvement in sentiment in the occupational office market, although lease events still dominate and a cautious attitude still prevails.”

Matthew Knight, Senior Surveyor in Cushman & Wakefield’s EMEA banking group, said: “We believe that owner occupier and pre-let deals will continue while supply remains tight and as more and more markets are perceived to have bottomed-out. Rent rises are a danger for occupiers who wait too long and we are likely to see a growing number of banks undertaking pre-lets as they seek stability and to secure favourable terms for the future.”

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