Credit crunch has mixed effect on bank lettings in Europe

Office take-up in the London banking sector fell drastically in the last quarter of 2007, Cushman & Wakefield said on Monday in its latest Banking Letting Activity Update. But the downward spiral was not indicative of the situation in the rest of Europe as take-up remained firm in Paris and Frankfurt, while Central and Eastern Europe experienced continued growth.

'The banking sector is a major occupier of office space in the key cities of Europe, so obviously any downturn in its activity in the leasing market would impact the overall letting activity in Europe. However, London was the only key banking location in Europe to stall in the last quarter of 2007, with activity down 92%,' said Guy Douetil, head of the EMEA Banking Group at Cushman & Wakefield.

The latest news headlines predict banking job losses in London’s City Docklands district at between 20,000 and 40,000, which will undoubtedly lead to the disposal of office space. We calculate that for every 10,000 jobs lost that this will equate to around one million square feet, or 95,000 m2, less office space needed, or 0.7% of the total office space in City & Docklands. Encouragingly this is against a backdrop of low supply, unlike during the downturn in 2000,' Douetil said. The Banking Letting Activity report revealed an increased interest from the banking sector in other UK cities, such as Birmingham and Manchester, where rents are lower than in Central London.

Overall, activity in the final quarter of last year in the six key cities for banking in Europe (London - City & Docklands, Paris - Ile de France, Frankfurt, Moscow, Budapest and Prague) was only marginally down on Q4 2006, Cushman & Wakefield said, but up when compared with the previous three final quarters.

The biggest deal in the first quarter of 2008 was in Paris, where LCL (Le Crédit Lyonnais) took 60,000 m² in Le Metropolitan building in the Paris suburb of Villejuif. Of the six locations monitored, Paris also had the highest take-up in the final quarter of 2007, at 53,435 m2, similar to the 2006 figure, while London's was the lowest.

'The main banking centres in Continental Europe, in Paris and Frankfurt, have seen take-up hold firm, with demand levels showing, as yet, no downturn as a result of the credit crunch. However, the next three to six months will be crucial. If the prevailing sentiment of risk aversion continues, the danger exists that a more severe knock-on effect will feed through to property requirements, although the scale of the effect is unlikely to be on the same level as London's,' Douetil said.

In Central & Eastern Europe, demand has been driven by both domestic and international banks looking for lower cost locations for back-office functions, and in Moscow where there has been notable growth from both the retail and investment banking sector. Take-up was at 38,000 m² in Moscow in the final quarter of 2007, an increase of 31% on the same period in 2006, with big increases as well in Budapest (236%) and Prague (665%), although these locations came from a much lower base.