WITH the pandemic having plunged the financial sector into great uncertainty, the one thing that seems clear is that London’s financial district (known as the ‘City’) will be contracted as a result of the crisis.
Large investment banks have been exploring ways to cut office space and costs as thousands of finance workers are keen to have permanent flexibility in their jobs.
Banks have been considering everything from shrinking headquarters, giving up back-up offices, sub-letting parts of their main London operations or pulling out of expensive properties, according to people familiar with the matter.
Credit Suisse, Deutsche Bank, Citi, Nomura and JP Morgan have all been exploring ways to cut office space, according to bankers, executives and advertisements for commercial real estate.
Financial services sector lead at CBRE (commercial real estate and investment firm), Michelle Buckman, said: “COVID-19 has been a catalyst for many companies and has pushed real estate higher up their agenda. There is now an opportunity for these occupiers to re-assess their space requirements as well as how their space is occupied and where it is located.”
With fresh calls from the UK government to work from home – which has stalled the return of workers to the offices in the financial district – banks face pressure to overhaul their working practices permanently.
A survey of 600 investment bankers, asset managers, and private equity by Humans in Finance – a lobby group set up by bankers to improve working life in the sector – found that just 3 per cent want to return to the office full-time.
Meanwhile, 75 per cent of respondents said firms would face trouble retaining talent if they did not embrace flexible working.
But banks have another motive – cost-cutting.
Deutsche Bank chief executive had said that COVID-19 had presented opportunities for the bank to cut costs by reining in real estate and staff travel.
And Citigroup looked for “further consolidation” of its real estate footprint. Credit Suisse and Japanese bank Nomura had both started planning back in October to sublet floors in their headquarters.
Since the start of the second half of this year, with the coronavirus still rampant, there has been a 9 per cent increase in the amount of “tenant-controlled” office space coming to the market in the banking sector, according to estate agent Savills.
In the broader financial sector, this has increased by 21 per cent in the same period.
Head of central London office agency at Saville, Philip Pearce, said: “Lockdown has legitimised certain ways of working previously considered unlikely to be productive.”
He added: “Even traditional service sectors, historically conservative about a tech-supported remote workforce, now understand that digital transformation offers advantages.”
Property agents Knight Frank said bringing staff back to the office safely amid the pandemic is complicated and costly.
Hundreds of firms headquartered in the City and Canary Wharf (another financial hub) will have to rent out an extra 13 million square feet of office space to ensure staff are able to follow the government’s social distancing rules.
A key target for banks has been the prospect of closing their back-up offices.
So-called business continuity sites are scattered around London in unglamorous locations. They serve as locations for staff in the event of an emergency, but have largely sat idle through the pandemic as banks instead sent staff home.
“We’re questioning whether we really need these back-up sites,” said a senior deal maker at a European Bank. “It’s a disaster recovery site that has sat empty through one of the biggest crises to hit in living memory.”
(The writer is our foreign correspondent based in the UK)
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