Which City Is Winning the Race to Be Europe’s Next Finance Hub? None

Frankfurt’s proximity to the European Central Bank gives it an advantage. UBS is among firms collectively moving 250 bn Euros in assets to Frankfurt from London. People cross a road past a sign of Swiss banking giant UBS hanging outside a branch in Lausanne, France.

Source Fabrice COFFRINI / AFP / Getty

Why you should care

From Madrid and Milan to Frankfurt and Paris, cities bidding to replace London as Europe’s financial hub are struggling to adapt. 

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British Prime Minister Theresa May’s ordeal in trying to secure a deal for Britain to come out of the EU appears unending. But there’s a parallel race against time unfolding: A growing list of European cities are battling it out to become the continent’s next big finance hub. Financial institutions are charting their departures from London, unwilling to wait around on the chance that there may be no Brexit deal at all. And no one city is winning just yet.

In the race are cities from Frankfurt, Paris and Dublin to Madrid, Milan, Amsterdam and Luxembourg — cities that long stood in the financial shadow of London. But even as they jostle for a slice of the industry leaving London, these cities are also bracing for the fallout from the influx of these financial institutions on their public infrastructure — from housing to schools. And they’re laying the groundwork for a new reality: London may slip off its pedestal, but there may be no single city that replaces it.

Frankfurt’s proximity to the European Central Bank gives it an advantage. Goldman Sachs, Morgan Stanley and UBS are among the firms collectively moving $280 billion worth in assets to Frankfurt from London. Credit Suisse is moving $200 million from its market division from London to Frankfurt. And that’s just the start. These banks are among 25 financial institutions moving to the German city, according to a survey by commercial bank Helaba.

Bank of America is persuading staff to move to Paris, while French firms BNP Paribas, Crédit Agricole and Société Générale are together moving around 500 employees back to Paris from London. In all, Helaba’s survey indicates nine firms are set to move to the French capital. Over in Dublin, more than 100 Britain-based asset managers and funds have applied to the Irish central bank to authorize their move there. Barclays is moving $280 billion worth of assets to Dublin. 

frankfurt europaviertel with grand tower rising germanys tallest condo tower as of oct 2018

Is Frankfurt the next London for finance? Maybe, but it’s not alone in the running.

Source Skyline Atlas

Meanwhile, others are eyeing Madrid. Credit Suisse, which was initially planning to move 50 jobs there from London, is now tentatively considering the Spanish capital as its post-Brexit hub. Citibank plans to move 150 jobs from London to Madrid. The city offers a rare advantage — its industry is the most closely connected to Latin American markets out of all the European cities. Milan’s also in the game: The London Stock Exchange has declared plans to move its European government bond trading to the Italian city, which Morgan Stanley is also considering for some jobs. 

Then there’s Luxembourg, where Citibank, JPMorgan and Northern Trust are moving their private banking and wealth management units from London. And the Royal Bank of Scotland in December applied to Scotland’s supreme civil court to move its London assets to Amsterdam. The Commonwealth Bank of Australia has also applied for a license in Amsterdam — it plans to move at least 50 staffers there from London.

 

But where London built its stature as Europe’s financial capital over many years, these cities are now trying to expand to take that slot within a period of a few months. That challenge is spawning a race that none of them may truly win in the foreseeable future. In Frankfurt, the local government has declared plans to accommodate 30,000 new inhabitants, but investment management company Jones Lang LaSalle estimates housing prices might still increase by 10.7 percent due to the influx of finance professionals. In Paris, the arrival of a glut of finance professionals is leading to plans for seven new skyscrapers in the La Défense business district. Property prices in different parts of the French capital have risen by between 2.7 and 10.6 percent in 2018. In Dublin, where Helaba expects nine firms to move from London, the government is trying to facilitate multiple greenfield sites around the city. These are expected to grow into new suburbs and towns about 25 miles from the city, according to Eoin O’Malley, associate professor of politics at Dublin City University. In Amsterdam, 52,500 new homes are being planned in the next seven years. And Luxembourg City is scrambling to try and find new residential and office space. 

Whenever you’re bringing in relatively high-paid jobs, it’s probably displacing the people living in those areas.

Eoin O’Malley, Dublin City University 

These growing pains — overpopulated cities, purpose-built towns and spillover into neighboring areas as well as soaring rents and property prices — aren’t surprising, says O’Malley. And how governments deal with them could determine whether these cities can truly cash in on the opportunity presented by Brexit, he adds.

“Whenever you’re bringing in relatively high-paid jobs, it’s probably displacing the people living in those areas to the outskirts of the city,” says O’Malley. “There’s a lot of pressure on the government to build more social housing, and that’s probably the big issue in Irish politics at the moment.”

For sure, many of these cities were on the radar of multinationals even before Brexit. Ireland’s “favorable tax conditions” and business-friendly climate made it attractive even without Brexit, says Lisette van Doorn, CEO of the Urban Land Institute. Michael Wutzke, editor at Skyline Atlas, a website that tracks Frankfurt’s real estate development, says his city’s location in the center of Germany, at the crossroads of “all the major transportation routes,” makes it an automatic choice for foreign firms.   

But what about London’s own future? Not everyone is convinced that finance professionals will quit London en masse. “I don’t think London will become a ghost town, so to speak,” says Kashif Hussain, a treasury analyst. Finance professionals have built a life in the city, and “they’re not likely to up and move their families lightly,” he says. Hussain doesn’t expect a “huge dent” in London’s position as a financial hub. “The bond market is still here. It may be a little while before things start moving.”

And it will take time for the cities bidding to replace London to be able to fully absorb the incoming demand from foreign firms and professionals. O’Malley says Dublin, for instance, currently lacks adequate affordable housing, transport infrastructure and non-Catholic schooling. 

Still, the signs are increasingly clear. In London, the property market is slowing, and prices have dropped even as they rise in the cities bidding to replace it — in Dublin, property prices are rising by about 5 percent each year. And these cities are trying to build the infrastructure that can accommodate those they want to attract. Dublin’s largest residential housing project since the onset of the recession is now coming up in south Dublin.

In Frankfurt, 29 tower blocks are currently under construction, according to Skyline Atlas. Premium architects like BIG and UNStudio are planning luxury work and living spaces in the German city. Paris, which is seeing a rise in property prices even on its outskirts — such as Neuilly-sur-Seine in Hauts-de-Seine on the city’s western edge — is preparing for what O’Malley warned would become the gentrification that pushes residents from the city to its suburbs. The city, meanwhile, is expanding the Paris metro system to cover a “Greater Paris” metropolitan area.

There may not be a single winner in the race to replace London. But there’s too much at stake for any of these cities to quit running.

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