Location, location, location! How important is your FX firm’s office design, cost and location? – FinanceFeeds Investigation

Despite the FX industry being not only completely international and borderless, but also very much an online business, many prestigious firms in the industry are making more strides than ever to locate their businesses within highly luxurious offices in cities with some of the highest real estate prices in the world, and in some cases, build their own elaborate corporate headquarters.

Today, real estate giant CBRE published its London Property Perspective Report, and with London being home to the majority of institutional and interbank FX business that is conducted worldwide, the cost of remaining in the Square Mile, Canary Wharf or among the hedge funds and private equity investors of Mayfair or Knightsbridge is ever increasing.

Whilst London’s residential and commercial real estate outside of the financial sector is beginning to decline in value, investment in offices in London rose to £8.2 billion in 2015, setting a new record by being significantly higher than the pre-financial crisis figure of £7.5 billion in 2007.

What is remarkable is that in the fourth quarter of 2015, investment in office facilities in London rose by 49%, at a time during which banks in Canary Wharf such as RBS, HSBC, Barclays and Standard Chartered are focusing their attentions away from flagging Europe with its socialism, demographic problems and lack of modernity, and toward the urbane and sophisticated Asia Pacific region.

Although interest in prioritizing business in the Far East may appear detrimental to London’s economy in the future, things are never quite that simple.

Chinese investors, as well as large conglomerates in the US have represented the largest transactions with 15 out of the 22 deals worth over £100 million coming from Chinese and American entities buying offices in London.

Whilst presence in London is necessary for FX firms due to their need to maintain an FCA license, and for liquidity providers and prime brokerage companies due to the standing of London as the world’s institutional FX center, as well as proximity to important commercial partners, this is an extremely technologically advanced industry and therefore offices in other, less expensive parts of London would suffice, and provide the same connectivity via Equinix LD4, as well as have access to the same commercial partners and enable executives to reach meetings in the City.

Indeed, the UK’s FX industry is not only completely London-centric, but is actually Square Mile and Canary Wharf-centric.

New York is slightly different, as it is home to some of the largest FX firms in the US (FXCM Inc (NYSE:FXCM), along with retail giants E*TRADE and Charles Schwab) however Gain Capital Holdings Inc (NYSE:GCAP) is located across the water in Bedminster, New Jersey and has a dedicated office as opposed to FXCM’s palatial and prestigious presence within the 55 Water Street facility in Downtown Manhattan.

The Midtown office market performed strongly in the first quarter of 2015, with effective rents for Class A space increasing 5.1% from the previous quarter while Midtown South effective rents dropped after three consecutive quarters of growth.

The average effective rent – the rent paid adjusted for concessions such as free rent and tenant improvements – for Class A space in Midtown increased $3.67 to $72.44 per square foot in the first quarter according to real estate data company CompStak.

FXDD, which exited the US market completely in 2014 and established its retail FX operations in Malta, occupies the most beautiful, modern offices in Downtown Manhattan, with leasing costs for the premises, according to FinanceFeeds’ research being estimated at being between $150,000 to $200,000 per month, remain half empty, with only senior management, support and certain service related employees resident, the rest of the operations being in Malta.

FXDD has a vast presence across China. FinanceFeeds conducted extensive research in mainland China last year, and many of the large introducing brokers (IBs) and portfolio managers in tier 2 development towns in the mainland which make over 80,000 lots per month were very much in business with FXDD.

In this case, location is very important because Chinese firms with large amounts of business prioritize firms such as FXDD and FXCM which are long established and have their offices in North America or London, with the appropriate regulatory licenses and impressive office space.

However, it has been rumored that FXDD is likely to vacate its offices very soon, instead opting for nearby Jersey City, New Jersey which is very close indeed to downtown Manhattan, but with significantly lower costs, and in doing so, the company retains its New York area presence, and its ability to maintain local relationships and still provide the right criteria for potential partners globally.

London Capital Group Holdings plc (LON:LCG), a company which has been on a downward spiral for many years and is continuing to produce losses has moved its operations from Devonshire Square in the city, to 1 Knightsbridge where rent averages £85 to £100 per square foot, making a 4,000 square foot office (about average for a medium sized FX firm) cost anything upwards of £340,000 per month.

Moving away from London and New York, companies within the very upper echelons of the industry tend to do things considerably differently and in many cases build their own striking edifices.

In 2007, Innovative and technology-led Saxo Bank had a custom-designed headquarters built on the former Tuborg brewery estate in Hellerup, a northern suburb of Copenhagen in Denmark.

The building, which received an RIBA International Award, was designed by Danish architects 3XN, and is owned by Carlsberg Properties.The façade of the building is covered in diagonal white aluminium and blue glass patterns and has been heralded as “Kingdom’s finest domicile” by a national newspaper in 2010.

The interior of the building is equally avantgarde, with one of Denmark’s most valuable art collections adorning the majority of the space within the office facility, along with racing cars, motorcycles and circular kitchens, libraries, an abundance of model dinosaurs and a typically Scandinavian aura of open space combined with cosseting comfort. The facility also has a fine restaurant with different sections, and chef restaurant quality food.

This is an expensive overhead, but in fintech, clearly important.

Swissquote Group Holding SA (SWX:SQN) went down a similar path, having built its headquarters in rural Gland, Switzerland and expanded it using ultra-modern construction techniques and design recently. Being a Swiss company, Swissquote’s servers and hosting is all on site due to ringfencing requirements by the Swiss authorities, and the facility houses the firm’s R&D powerhouse for its proprietary systems, whilst a glance out of the window reminds any visitor that they are not in a metropolis usually associated with such companies, as the snow-covered rolling hills and wildlife of rural Switzerland is visible from every angle.

Relationships between vendors, liquidity providers, brokers and end user clients take considerably different forms in the West to in the Far East, therefore the cost of renting offices in Hong Kong, Singapore and Shanghai is perhaps likely to be a great consideration for FX firms in the future, as clients in those regions are very much interested in personal relationships.

It is very common to invite partners to the office, and for partners to invite brokerages to their offices for lunch, dinner and long meetings. For Western brokerages doing business in the APAC region, presence is perhaps more important than it is within their respective homelands.

The IFC Tower in Hong Kong, for example, will set you back approximately the same as a luxury office in Knightsbridge or the City of London. Virtual offices are available for around $2,500 per month but these have very little value as clients will want to visit far more often than the equivalent clients in the Western world.

The opposite end of the scale is represented by firms such as Plus500 which retain very small operations, and do not occupy luxury offices and instead drive their revenues through low-touch, hands-off methods such as digital marketing.

Plus500’s origins in Haifa, Israel did not include the rental of a very expensive office but instead the development of a very effective digital marketing solution. As a result, Plus500 rocketed from start-up to its standing as a $1 billion, publicly listed company by spring 2015.

Equally interesting is the current direction in Cyprus among some of the larger technology vendors and brokers, which are renting offices above supermarkets because these are some of the only spaces in Limassol which offer a large enough floor space to accommodate their entire operations.

The question is, as the FX industry keeps pace with technological change perhaps more rapidly than any business in any other sector worldwide, whether the need to rent palatial offices in buildings such as the World Trade Center or the Gherkin may become less of a priority, instead giving way to the global expansions and low-latency connections that are now de rigeur.

Featured photograph: Trading floor at Saxo Bank, Hellerup, Denmark. All photography copyright FinanceFeeds