Ireland’s International Financial Services Centre (IFSC) could be amongst the beneficiaries of a potential exodus of international businesses and finance operations from London in the wake of the Brexit vote.
While the presence of international banks such as HSBC, Morgan Stanley, and Goldman Sachs have helped cement London’s position as the finance capital of Europe over the last three decades, uncertainty post-Brexit is stymying further investment and forcing financial institutions to focus on contingency plans – or exit strategies.
Irish property broker Lisney said that Dublin’s ‘office occupational market could experience an increase in demand from international companies requiring a foothold in the EU’, noting that ‘as we will be the only English speaking country remaining in the EU, our attractiveness will grow’. Lisney added: ‘This will have ramifications for the office market and the challenge will be to have an adequate supply of office space available over the coming years, particularly in Dublin city centre’.
The Financial Times today reported that almost 11% of the City’s 360,000 workers come from other EU countries, according to the latest census. In the long-term, the status of EU financial regulations in the UK and the freedom of movement for workers from the European Union is in doubt.
On Monday, when S&P Global Ratings lowered its ratings on the United Kingdom by two notches to AA from AAA, it stated that one motive for the reassessment was the ‘lack of clarity’ over the future of its labour market and its status as a global financial centre.
‘We believe that the UK economy was able to attract higher inflows of low-cost capital and skilled labour than it would have without the preferential access that EU membership delivers’, said the ratings note. ‘We consider that significant net immigration into the UK over the past decade helped its economic performance. EU membership also helped enhance London’s position as a global financial centre’.
The ratings note also said that as part of the EU, the UK has ‘attracted substantial foreign direct investment (FDI), which has helped to solidify its role as a global financial centre’ and that FDI reached an estimated 18% of GDP in 2015.
Overall, according to S&P Global Ratings, about two-thirds of all FDI into the UK represents investment in the financial services sector, most of which is channelled into London, with foreign banks making up about half of UK banking assets on a residency basis.
Lisney speculated that the arrival of financial institutions could also have a positive effect on Ireland’s residential market, noting that ‘FDI companies by their nature employ a large number of foreign staff and this could put even more pressure on the very constrained housing market.’
The Irish broker concluded: ‘Such foreign workers generally like to live in close proximity of their work, so increasing apartment building in the city centre will be important. There could be some key opportunities here for investors in building blocks of apartments but action will be required sooner rather than later.’
