Location, Location, Location? Commercial Real Estate in 2015

Selecting real estate for financial services is all about location, location, location, isn’t it? Many firms are drawn towards established financial centers such as London or New York without considering other options. We compare recent reports on these two heavyweights, consider some key decision factors and propose that the right space could be as important as the right place.

The financial press enjoys ranking financial centers around the world. Reports are often skewed by PR or the motivation to find the next big thing but there are clear trends on show even if New York, London, Hong Kong and Singapore dominate the top 4 spots. The established financial centers are equipped with the exchanges, relevant firms, infrastructure and expertise required to work effectively. They also have great reputations that reflect well on a business. We recently tweeted about locations for financial technology when London’s mayor, Boris Johnson, claimed his city was the world’s hotspot for our industry.

Is London the global leader for financial technology or is it New York? Either way suits us!
— JP Reis (@jpreisglobal) December 2, 2014

The boast was partly based on a survey of London business leaders conducted by his own PR company. Unsurprisingly its findings virtually mirrored a New York poll from earlier this year, which had produced a reversed Top 2. That said, the financial technology statistics for London are positive. 2014 saw $539M invested in an industry that employs 44,000 people and generates around $25B annual revenue. The sector enjoyed faster growth in London than New York, Hong Kong, Singapore or San Francisco in 2014. One factor aiding London is the proximity of top universities for I.T. King’s College, The LSE, UCL and Imperial College are all in the city itself. New York boasts just NYU and Columbia from the Global Top 100 and although the likes of Yale, MIT and Cornell are within range, London has big hitters like Oxford, Cambridge and Southampton within a much tighter radius. This allows bright, London centric students to make a positive impact on firms very early in their careers. Advanced technology requires well trained people to run it but there are plenty of places where this talent is available. San Francisco has shot up in the global reckoning on this basis and the Far East is strong in this regard.

Global “follow the sun” trading is a popular theme which means international links and accessibility are important. The graphic below from Cushman & Wakefield shows New York as the global leader for real estate investment at the start of 2014. They report that London is closing rapidly and rate it top for cross border investment. A separate report by PWC for top financial centers also places New York top while ranking London a close second and goes on to place London first for international connectivity.

“Its economic clout, ease of doing business, innovation and attraction as an international gateway offset Britain’s sluggish economy and financial job losses”.

With Britain’s unemployment falling and an economy now ranked number 1 for growth amongst the developed economies (China is still “emerging”) London could find itself topping most neutral analyses in 2015. A negative consequence of London’s attractive features is its expensive office space. The reasons behind this are more intriguing than you may expect. On average, a square meter costs more in London than anywhere in the world although Manhattan can top it for ego-stroking skyscraper space. So, with warnings to maintain stable taxation, keep regulations flexible enough to trade and to stop politics becoming too xenophobic, London may edge the rankings in 2015 but what are the factors making other cities catch the eye?

Breadth and Depth

The Global Financial Centre Index (GFCI) includes Boston and Toronto on a list of centers with global connections across the full spectrum of finance but there’s nothing wrong with being either regionally focused or a sector specialist. Beijing and Geneva are considered global specialists whereas the likes of San Francisco and Sydney are labelled as regional all-rounders. Many smaller centers operate effectively on a more local basis.

Business Environment

English is no more likely to stop being the language of trade than it is the language of rock’n’roll but that is no impediment to the talented linguists of Northern Europe. Low corruption, an accessible timezone, excellent city infrastructure and well-educated workforces make cities like Zurich and Stockholm attractive. There is plenty of affordable, quality real estate for DR facilities. What’s more, the Scandinavians in particular are adept at creating pleasing, functional spaces following a design ethos that spills over into their cities. Security is an advantage for cities that can boast it. Being close to government is more attractive than it was pre 2008. Washington DC’s growth as a financial center has been exponential since the banking collapse forced the federal government to take a more central role in the industry which led financial firms to cross the 228 miles from Wall St. to position themselves closer to the decision makers.

Globalization

Several global capitals are touted for financial center expansion. However, issues with technological and transportational infrastructure, language barriers and endemic corruption will hinder growth for many.
Centers Likely to Become More Significant
This list is not entirely scientific but does suggest that Asia Pacific, with China as its beating heart, will increase its share of top financial centers over the coming years with established hubs and new entrants benefitting in equal measure.

Real Estate and Smart Spaces

Wherever a company chooses to invest in real estate it is vital to have a fit for purpose workspace that allows modern collaboration methods. Core business essentials and the need for low latency will force some location decisions. A firm will preferably locate within a wider community of associated businesses in an area with established technology infrastructure and well-planned physical transportation. Stable power supply should be available to run resilient, extensible technology architecture that is secure and cost efficient. There should be a ready supply of strong human resources for technological and other roles. An absence of tsunamis, earthquakes and ice storms is also preferable. Get all this right and the focus moves to optimizing your space because if you don’t, your advantage could be wasted.

Smart Space is an architecture concept in which technology is seamlessly integrated early to facilitate the requirements of all stakeholders – especially the employees. For new builds this means employing building information modelling to think about workflows, physical movement, power, technology and environmental control to create a space that is fit for purpose and flexible enough to support years of evolution without unnecessary expense. To a lesser extent, the same process can be followed for existing buildings – factoring in technology decisions early can save huge headaches further down the line.

When designing a space right now, the sophistication of mobile devices, the growth of 4G data networks, an aspiration for personalization and the need to cut real estate costs have made flexible working a viable, if not imperative, option for even the most conservative organizations. An aspect of this is the trend towards ‘bring your own device’ (BYOD) where employees use their own cell-phones and tablets for work, not only remotely, but also in the office. Bring Your Own App (BYOA), Dropbox or Skype for example, is also on the rise and presents an even wider set of challenges. Your technology must support an effective office layout without encroaching on workspace or costing a fortune. The project to create your new environment should include the associated business continuity plan and a disaster recovery facility local enough to be practical but distant enough to avoid suffering any misfortune that should afflict the primary building.

Our company prides itself on being able to work anywhere around the world and we are happy when our clients make wise decisions. On the assumption that your location makes sense the critical success factor is to ensure that your workspace is designed to succeed, no matter what challenges you face.

 

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