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Will the City forever be financial? Don’t bank on it.

11th June 2013

Will the City forever be financial? Don’t bank on it.

That once stalwart of the City, the financial institution, looks like it may be leaving home. Indications from a recent CBRE survey are that banks are looking to reduce overheads as well as raise capital, and moving out of the City into lower-cost areas may be the answer. 

As many as 75% of banks in the capital responded that their intention is to reduce significantly the amount of London office space they occupy. One way of doing this could be to retain a smaller square footage of space in the City and relocate the majority of its workers to areas where the concentration of buildings is less dense, less in demand, and hence, less expensive. 

The desire of the banks to tighten their belts doesn’t come just from within; regulatory changes mean that they will in due course be required to hold more capital in comparison to the amount of loans they issue. Freeing up City space is a means to achieve these targets. 

From the point of view of reducing costs, it is estimated that up to 40% could be trimmed from rents if a bank moves from £55-per-square-foot property to a more cost-efficient property costing almost half that amount. 

Naturally, commercial property landlords and investors may be more than a little concerned at this potential trend. If the banks desert the expensive properties, who, in this economic climate, will step in to take their place? 

It’s possible that, as the TMT sector increases in size and influence, and as today’s global giants such as Skype and Google have the money to spend, the City’s clientele may start to change. As banks move out, the TMT companies, rising in status and profits may move in from the fringe areas where they began. 

Eugene O’Sullivan, of Morgan Pryce, notes, “The years ahead will be interesting. No one could have predicted several years ago how much the TMT sector would expand, or that the banks would be forced to watch their pennies. Although, whether the banks end up moving out of the area remains to be seen. What is likely is that the TMT companies will have a much larger influence over the commercial property market in London in the near future.” 

It is anticipated that the level of TMT sector occupation could reach 1.2m square feet in the next year, which will provide some comfort to investors and landlords. 

Morgan Pryce is a specialist tenant acquisition agent with offices in Oxford Circus and the City. Morgan Pryce specialises in search, negotiation and project management and works exclusively for tenants.

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