Brexit to Spur Frankfurt Real Estate Gains, CA Immo CEO Saysby
Banks with London hubs seen shifting staff to mainland Europe
Frankfurt among beneficiaries, Ernst & Young survey shows
A U.K. exit from the European Union will boost commercial real-estate prices in Frankfurt, accelerating a trend that has already pushed building values to record highs, according to CA Immobilien Anlagen AG.
“We’ve been in a clear upward spiral, and even without Brexit there’s a lack of supply on the investment side,” Frank Nickel, chief executive officer of Vienna-based CA Immo, said in an interview. The company is one of Frankfurt’s biggest developers, with properties including Tower 185 and the Skyline Plaza mall.
Banks with operations in London are widely anticipated to move at least some of their staff to mainland European cities such as Frankfurt, Paris or Amsterdam to counter the risk of losing unfettered access to the single market as the U.K. prepares to disentangle itself from the EU. Property investment volumes, prices and rents across Germany will all rise as a result, with Frankfurt emerging as the biggest beneficiary, according to a survey by Ernst & Young LLP published on Monday.
More than 70 percent of the respondents said Frankfurt will benefit most from the U.K.’s exit, with 13 percent favoring Dublin and 6 percent choosing Paris. EY surveyed 555 German market participants following the U.K.’s referendum, which took place on June 23. About 40 percent of respondents said they’re still unable to evaluate the impact.
“The German real estate market and the city of Frankfurt will be among the biggest beneficiaries of the Brexit vote,” EY wrote in a statement on Monday describing the survey results.
As many as 100,000 financial-services jobs could be lost in the U.K. by 2020 because of Brexit, according to an estimate by PricewaterhouseCoopers LLP. If those jobs end up in mainland Europe -- as firms move functions including securities clearing and derivatives trading to the EU -- demand for new office space could reach 1 million square meters (10.8 million square feet), Capital Economics estimates.
Yields for Frankfurt’s most desirable offices fell to 4.3 percent at the end of 2015, 20 basis points lower than a year earlier, according to data compiled by BNP Paribas Real Estate. Yields, which measure returns from property investment, move in the opposite direction of prices.
“Investors will pull back from the U.K. a little bit now and choose options in Continental Europe instead,” Nickel said.