Despite the recent political and economic uncertainty, London remains a leading global financial centre. The London financial sector has accounted for nearly a quarter (24%) of the capital’s office take-up for over 10 years.
According to the latest research by real estate advisors, CBRE, London is by far the most active banking centre in Europe. In 2017, 1.1 million people were employed in the UK financial services sector, 34% of which were in London. This industry contributed £119 billion to the national economy (7% of UK GDP) last year. Half of this was generated by London, which accounted for 14% of the city’s economic output.
This London office take up trend will remain steady with the banking and financial sector, accounting for 28% of active space requirements in the third quarter of 2018. CBRE’s report further identifies the key challenges and opportunities that London and other global financial hubs face in the coming years.
One of the challenges that the London financial sector faces, is the growth of the fintech industry. However, most financial hubs within the London financial sector view fintech as more of an opportunity than a threat, as 82% of incumbents were seeking fintech partnerships last year. Moreover, only 16% of respondents of the survey do not believe their customers are already interacting with the fintech industry.
With 71% of the UK’s 788 fast-growth fintech firms based in the city, London has become a leading centre for fintech, compared with 441 high-growth firms for France and Germany combined. This sector is expected grow by an additional 30% in the UK, surpassing 100,000 employees by 2030.
Brexit is another challenge for the London financial sector as well as other global financial hubs. The EU referendum result has generated an uncertainty surrounding London’s level of access to the EU market, once the UK leaves. This potentially has adverse effects on financial sector revenues and jobs.
Banks have been planning in the event of a worst-case scenario. To date, fewer jobs have been relocated from London than was initially anticipated, as banks have been reluctant to make decisions on costly moves for the time being.
Additionally, since the financial crisis, major reforms to the regulatory oversight of financial services have been introduced. In the UK, new regulation means that banks must separate their retail and investment banking businesses. In response to this, banks are using regulatory reforms to ‘nearshore’ jobs from London to cities, such as Birmingham and Glasgow.
Simultaneously, parts of the financial sector, including private equity and hedge funds, remain outside of this regulatory oversight and will be much less affected by regulatory changes and Brexit. This will account for a significant and growing sector in the London financial ecosystem, which will ultimately present itself as an opportunity for the growth of non-regulated services in London.
“there is no denying that the banking and finance industry is facing disruptors which will inevitably affect the way it operates”
Director of CBRE, Ben Mason, told Insight: “London’s favourable regulatory framework, strong capital markets and tech talent continue to help it maintain its position as a leading global financial centre. However, there is no denying that the banking and finance industry is facing disruptors which will inevitably affect the way it operates. Banks have been slow to adopt flexible space, but we expect that they will become more prominent users as the structural shift towards more flexible real estate continues, and as office space is increasingly seen as a service.
“The impact of AI on real estate demand could also range from minimal to transformational. Estimates from the World Economic Forum suggest two jobs will be created for every job lost to AI, and banks are committing large parts of their budget to developing their technology capabilities, thus creating further demand for technology professionals.”