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Frankfurt and Brexit

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Following the Conservatives’ clear victory in the UK election in December 2019, British Prime Minister Boris Johnson has reaffirmed his plan to lead Britain out of the EU by the end of January 2020. With the clear victory, a second referendum on leaving the EU is now clearly off the table. Boris Johnson now wants to “complete the Brexit on time”. This seems to end an existing game of suspense regarding Brexit. It is precisely this part of the slope that explains why Brexit has so far not been felt in Germany’s office property market. Let’s take a look at the German banking metropolis Frankfurt.

Positive Trend in Office Demand

The market for office properties in Frankfurt has developed positively in recent years. With around 640,000 square meters (6,888,900 square feet) of space taken up, the office market had the third best result since the turn of the millennium in 2018, according to the Frankfurt Real Estate Exchange at the Chamber of Commerce Frankfurt (Frankfurter Immobilienbörse bei der IHK Frankfurt). In the cities around Frankfurt, cities like Bad Homburg, Eschborn and Kronberg consistently have high take-up, even if this is smaller than in the core city of Frankfurt.

First Movements Recognizable

So far, there are only a few large-scale leases on the office property market in Frankfurt which can be specifically attributed to Brexit. Banks and financial service providers have increased their office space, but there are still a number of large leases due to Brexit. One of the noteworthy Brexit transactions to date has been Goldman Sachs’ rental in the Marienturm.

Marienturm Goldman Sachs HQ

New headquarters of power: Goldman Sachs moves into the top ten floors of Marienturm (autumn 2019).

As of now, up to 700 employees can start working in the Marienturm, more than twice as many as would have been available in the previous domicile, the Frankfurt MesseTurm. Whole teams of London bankers have already moved to Frankfurt, but the big boom is still a long way off. Because there is still uncertainty.

Instead of the Brexit, noticeable new leases have recently taken place in Frankfurt, especially through new coworking providers. Coworking providers rent office space in various sizes with short terms, so that companies can rent as flexibly as possible. However, these rentals mainly take place in new office buildings.

In comparison to the 7 largest cities in Germany, Frankfurt still has the highest percentage of vacancies in office space, as it has for many years. This vacancy rate has decreased in recent years, but is primarily due to the demolition of outdated office properties and the replacement of office buildings with residential properties.

Preparation for Increased Demand

According to the Financial Centre Study conducted by the Hessische Landesbank (Helaba) in October 2019, 31 foreign banks from 14 different countries have chosen Frankfurt as their new location. Helaba economists expect around 3,500 jobs to be created by Brexit in the main metropolis by the end of 2021. Dr. Mitropoulus participated in the Financial Centre Study and comments:

“Brexit already has and will continue to create additional jobs in Frankfurt’s banking district.”
Dr. Stefan Mitropoulos

Dr. Mitropoulos has been leading the economic and real estate analysis in research at Helaba, the state bank of Hessen-Thuringia, since 2009. More about this person

Dr. Stefan Mitropoulos

Regardless of the Brexit, numerous major banks are facing job changes in Frankfurt. Despite the Brexit bankers, the number of bank employees in Frankfurt will only increase by a total of about one percent compared to the end of 2018 by the end of 2021 – namely by around 600 to 64,500 bankers (according to the Helaba Financial Centre Study).

Building, Building, Building

Experts attribute the less pronounced Brexit signals in the Frankfurt office property market to the fact that the UK’s exit date from the European Union has long been unclear for a long time. However, Great Britain left the EU on February 1, 2020. In any case, the real estate industry is equipped with the corresponding space to accommodate Brexit bankers and related activities.

Brexit or not: The Frankfurt city region has developed into the German economic capital in the recent decades. Frankfurt’s success is based on its central location within Germany and the EU, which cannot be copied. People come to Frankfurt very quickly and from here in all areas of the whole world. The location is also the reason why Frankfurt has become the most powerful Internet hub in the world today: from here, the large amounts of data are distributed.

Unfortunately, politics at the state and federal levels have largely disregarded this development in recent decades. Most of the beneficiaries of the “Hub Frankfurt” do not live there directly. Frankfurt today has metropolitan status, but has so far been insufficiently promoted by parties due to its actual population: SPD, CDU and Greens differ little on this point.

“The federal government and the state of Hesse must promote Frankfurt’s metropolitan function much more than in the past.”
Michael Wutzke

Mr. Wutzke is editor-in-chief of SKYLINE ATLAS and is following developments in Frankfurt real estate since more than 20 years. More about this person

Michael Wutzke

But at least the private sector is investing: the construction activity in office buildings that has existed for years and will continue. There will also be numerous new high-rise buildings, including speculatively constructed office towers such as the 190-meter tall skyscraper ONE, Global Tower and the FOUR Frankfurt project in the Financial District. Frankfurt will therefore be prepared for an increasing demand for high-quality office space in the city center.

ECB and Frankfurt skyline

An article by Michael Wutzke for Der Bank Blog.

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