Real Estate Investors Seek Shelter for Brexit's Finance Refugees

Posted in Google Brexit News
at 2016.10.24
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Real Estate Investors Seek Shelter for Brexit's Finance Refugees

A property company managed by Schroders Plc is bidding for an office building in Frankfurt, anticipating the banking fallout from Brexit will boost values in the German financial center.

The London-based property investor isn’t alone preparing for an exodus from the British capital, with both CBRE Global Investors LLC and Standard Life Plc seeking to purchase office space in cities from Dublin to Amsterdam.

“The potential additional growth as a result of companies relocating from the U.K. enabled us to be firmer on pricing and financial underwriting,” Tony Smedley, a fund manager at Schroders, said of the proposed Frankfurt acquisition by Schroder European Real Estate Investment Trust Plc.

About 70,000 jobs could leave the U.K. finance industry if the government sacrifices unfettered trading access to European markets to regain immigration controls, according to lobby group TheCityUK. Those seeking to move overseas face a problem — the lack of development and growing domestic demand has already pushed vacancy rates for prime space in the business districts of Paris, Frankfurt and Amsterdam to the lowest levels in about a decade, according to broker Savills Plc.

Real estate investors are now seeking to capitalize on that shortage by buying partially vacant offices and plots with the potential to develop buildings the banks may need.

“We believe that there will be strong occupational demand” from banks and financial services companies, said Jeremy Plummer, chief executive officer for Europe, the Middle East and Africa at CBRE Global Investors, which manages about $88.6 billion of real estate globally. “We believed that before Brexit, but we believe it even more now because of the inquiries coming from companies seeking to locate some functions in other locations.”

Schroder European Real Estate Investment Trust raised funds through a share placing this month to purchase about 150 million euros ($165 million) of assets throughout Europe. The company is positioning to “capitalize on any structural change which may result from a progressive shift of occupiers from the U.K. to major EU cities,” according to a statement.

It has already bought a number of German properties and would have bid for the Frankfurt office regardless of Brexit, Schroders’s Smedley said. He declined to identify the building.

The financial crisis curbed development in many European cities and so now it’s time for investors to take more risk, according to James Rushworth, who oversees about 4 billion euros of assets as European property director at Standard Life. Demand will outweigh supply, pushing up rents, he said. The company is in the process of raising about 300 million euros for a new European property investment fund.

In Amsterdam, banks have already put “previously vacant swathes of modern office space under option” in case London based institutions lose the right to conduct business throughout Europe, Mike Prew, an analyst at broker Jefferies Group LLC, wrote in a Sept. 26 note after a visit to the city. He declined to comment further.

“There are a number of reasons why Amsterdam in particular could do well,” Standard Life’s Rushworth said. “It has that historic global trading outlook like London, good connectivity, it is attractive as a place to live, it has good quality transport, it has a well-educated population and English is so well spoken.”

France’s labor and tax laws make Paris a less popular bet among investors seeking to build new homes for bankers, CBRE’s Plummer said. It’s also expensive, with prime yields lower than those in London’s financial districts, making it less attractive to buy existing buildings.

Still, it will probably get a boost because French banks currently have significant operations in London and, if they were to move, they would most likely head for Paris, said Wolfgang Behrendt, head of global real estate for Europe at UBS Group AG’s asset management unit. That suggests no single city will emerge as a clear winner from Brexit, he said.

“In the current situation there is too much dust in the air to have a clear view,” Behrendt said. “One thing is clear, to build up Frankfurt or Paris or Dublin to be on a similar scale to London would take about 20 years.”

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Published at Mon, 24 Oct 2016 06:39:33 +0000

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