London is like a magnet, and cost is irrelevant. Office space in higher demand than ever, whilst other areas remain cheap

The whole financial services industry, large and small, continues to flock to London, pushing office space to an average price of between £85 and £100 per square foot. Here is a detailed report

MAM price war

London is home to the largest institutional FX firms in the world, as well as most of the non-bank liquidity providers and prime of prime brokers, and also hosts some of the longest established CFD and spread betting companies.

One critical thing to consider is that London’s retail electronic trading businesses are now into their third decade, and are highly capitalized, the sales teams often have a very high level of industry knowledge and are a long standing and integral part of the company’s operations.

Many sales executives in London have good relationships with suppliers of liquidity, banks and ancillary service providers, therefore hosting an all-encompassing service in London across all departments is essential for CFD and spread betting companies with their own proprietary platforms and established presence such as CMC Markets and IG Group.

London’s status is far higher than just a home to some prestigious and long established firms, however. It is home to the entire global financial services business and all of the support and ancillary services, institutional, technological and retail, that surround it.

When any global executive of any firm in any realm of the financial services or electronic markets business thinks of the UK, it is London that comes to mind. Other parts of the country are not part of any equation.

The same applies to any neighboring capital cities in Western Europe.

FinanceFeeds has made its stance clear on the reasons for this, and for London’s evergreen sustainability several times, however today a new set of figures has been determined, demonstrating that the demand for commercial premises in the Square Mile, largely from global and domestic financial services firms, is at an all time high and commercial lease prices are reflecting the demand.

Take-up of offices in the Square Mile jumped 10% over the last year, as demand for prestigious City of London commercial office space is vital to an increasing number of global firms. In the 12 months to June roughly 3.5 million square feet was taken up in London’s financial district, rising 31% higher than the 10-year average for the area.

The City “core” accounted for the vast amount of take-up, with 68% of acquisitions taking place within its borders so far this year, while demand for “fringe” areas of the City tailed off, according to high end real estate company Savills.

Such a gap between the inner and outer parts of the City has pushed the two areas to their widest difference in rental prices since 2014. Landmark deals such as the Chinese embassy move to the Royal Mint Court has also driven the rise in the City’s occupier base over the last few months, according to Savills.

Philip Pearce, head of the central London office agency team at Savills, made a public statement this week, saying “The City leasing market has got off to a strong start in 2018, and the diversity of occupiers and requirements in the marketplace signals a positive second half of the year ahead.”

Recent CBRE figures also showed that the value of City of London offices jumped to £3.6bn in the second quarter of this year, reaching a peak since CBRE began records 28 years ago.

The elevated level of activity was led by the £1 billion sale of UBS headquarters at 5 Broadgate to Hong Kong-based investor CK Asset Holdings, according to the CBRE, which pointed out that it was the third £1bn-plus building to sell in the last 18 months.

The London-centric aspect is less important for smaller brokerages, however, and this is something that no company has yet looked at\, largely because of the centuries-long association with the financial markets of the world and London.

International entrants to the UK market automatically think ‘London’ rather than ‘UK’. It is possible to hear industry executives referring to the Financial Conduct Authority (FCA) regulatory structure as a ‘London license’ when really it is a British regulatory structure for the entire country.

There is no reason why, for example, a MetaTrader 4 brokerage with an FCA license cannot have its registered office in London, and its sales and marketing team in Liverpool. That absolutely never happens, however.

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.

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, however this is an extremely technologically advanced industry and therefore offices in other, less expensive parts of the UK 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.

In some of the more prestigious streets in central London, 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.

When considering that the average deposit size from retail customers, according to research by Citigroup, was $6,600 across the world’s 4 million retail FX traders in 2015.

In Dale Street, Liverpool, office space in a very high quality purpose-built office tower, with full service, security and concierge, 5 miles from Liverpool airport and 2.5 hours from Central London by train, costs £12 per square foot.

Liverpool is just one example, however this can be singled out because it has a very good university and therefore some very good undergraduates and post graduates who could work in sales and retention, many of whom come from all over the UK including London, and the salaries would be a fraction of the cost.

Executives from London could easily visit by train when needed and vice versa, and still the savings are immense and suddenly when viewed like this, the cost of acquisition and retention comes down immeasurably.

Taking into account liability insurances, travel costs that need to be paid to employees in Central London and the cost of hiring and replacing sales staff due to high staff turnover, it could be considered that the cost of operations could almost be halved by thinking nationally.

Of course, this applies to smaller brokerages that conduct a lot of international business and use MetaTrader 4 rather than the spread betting and CFD giants of the Square Mile.

The compounding issue is that London is home to the entire infrastructure and high quality human resources that lead the world’s financial markets. In a fairly modest pub in the Square Mile, it would be entirely possible for a professional with a good career in financial services to walk in, not knowing anyone, and walk out with a six-figure job offer, or for a service provider to walk in and walk out with an institutional technology deal.

Try doing that in Leicester, Birmingham, Nottingham, Leeds or 150 other towns and cities around the UK, and you’d walk out with either the scores of the latest football match, or a fat lip.

Thus, London’s prowess, already at an all time high and at plate-glass, $200 for a plate of sushi, let’s get a private box at the Royal Ballet level of sophistication, is continuing to refine and grow, strengthening its future and ensuring that it is the home of the high and mighty giants of the financial world, thus small to medium sized firms with well considered expansion aspirations also gravitate toward London.

Yes, it is possible to rent office space in Cyprus for 1400 euros per month, and employ highly skilled and knowledgeable staff, however London appears worth the extra to those wanting to be an integral part of the global capital of financial services.

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