25.03.11
London, 20 March 2011 – Strong growth in the investment banking sector is prompting a shift to outsource back office operations to lower cost economies, according to CB Richard Ellis (CBRE).
Andrew Hallissey, Head of Client Solutions, Global Corporate Services, CBRE, said: “As investment banks expand they are developing long term strategies relevant to their real estate occupancy requirements. Client-facing front office functions such as service delivery areas are expanding in key global hubs across Europe - a well known example is Barclays Capital’s 25 year lease agreement at Canary Wharf.
“As front office functions in key hubs grow, offshoring of back-office functions such as sales teams to lower cost labour or tax-efficient markets such as Switzerland, Ireland and areas of Eastern Europe is becoming increasingly popular.”
According to CBRE’s latest figures, take up of office space in London has rebounded impressively since the market down-turn in 2008-9, and 2010 was one of the strongest years on record, as demand rises and lower vacancy rates boost rents.
“There is no large scale exit of corporates from the UK, but we have noticed clear and meaningful rise in demand for office space particularly in markets such as Geneva and Zurich, from hedge funds and investment banks based in the UK,” continued Hallissey.
“Investment banks need to question their real estate occupation strategies for the next five years - strong economies with low vacancy rates, such as London and Paris, are the most elastic and will see rental rates increase faster than residual rates in other markets. This point in the market cycle provides opportunities for innovative companies to take advantage of cost containment options, linking real estate occupancy to the impact on their wider business operations. Near-shoring, off-shoring and relocation to low cost tax regimes in Europe are high on the agenda of investment banks at present,” commented Hallissey.
Prime rents in Warsaw rose by nearly 9%, as vacancy fell and leasing demand accelerated. With Poland among the strongest European economies, and having a limited office development pipeline in 2011, further rental growth is expected.
Vacancy in Dublin remained stubbornly high at the end of 2010, despite improved take-up during the year. Much of the vacant stock comprises floors in otherwise occupied buildings or facilities in suburban locations with limited Grade A accommodation available in the Dublin 2/4 postcode. Over 130,000 sq m of office space was let in Dublin last year, with a significant proportion of letting activity in the Irish capital emanating from the the expansion activities of existing multinational occupiers such as Google. There were many new corporate announcements in the capital during 2010 also including D&B, Bentley Systems, Facebook and Linkedin all of whom set up European headquarters in Dublin in the last 12 months.
Ireland is becoming a more attractive location as labour costs have decreased significantly. The corporate tax status, combined with a dramatic drop in rents and increase in supply makes it an attractive destination for investment banking back-office functions. It remains to be seen if Ireland have to concede to reducing their 12.5% corporate tax rate in discussion with the IMF and if so what impact this will have on foreign direct investment.
Office markets in Switzerland are strong due to its robust domestic economy and a location proving to be increasingly popular for foreign direct investment.
“Investment banks are currently able to leverage tax incentives in Switzerland, but the country also offers a ‘flight to safety’ for high earning professionals for UK organisations moving functions,” concluded Hallissey.
About CB Richard Ellis CB Richard Ellis Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services firm (in terms of 2010 revenue). The Company has approximately 31,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CB Richard Ellis offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our Web site at www.cbre.com | www.cbre.kz .