[LONDON] Five years after the Covid pandemic fuelled an unprecedented boom in remote work, bank executives have become ever more vocal in their insistence that workers should return to the office.
In a growing number of cases, however, they don’t have enough desks. JPMorgan Chase has just signed up for thousands more in the UK and Paris. Spain’s Banco Bilbao Vizcaya Argentaria is running short of office space in the UK for its growing corporate and investment banking teams.
And HSBC Holdings, which touted its plans to slash space in the aftermath of the pandemic, now has a shortage that could run to as many as 7,700 desks in London. To cope, it is in talks to lease a second new building a stone’s throw from its current base, having previously agreed to vacate Canary Wharf in favour of a new and smaller global headquarters in the City of London in 2023.
These are just some examples of a real estate squeeze few predicted in the wake of the pandemic. Return to work mandates, more generous layouts to help lure back staff and growing headcount have fuelled demand for office space across the continent, upending plans by executives to cut back on desks and save costs. Supply shortages after years of developer caution, meanwhile, are limiting what space is available, further complicating the return to office.
“The ‘death of the office’ rhetoric that was commonplace during and immediately post the pandemic has proven to be completely overdone,” Kevin Darvishi, leasing director at developer Stanhope, said. “Especially in London.”
Visible reversal
Within Europe, nowhere is the reversal more visible than the UK capital, where a a long decline in banks’ need for office space that started after the global financial crisis was exacerbated by Brexit and then the pandemic – and where calls for a return to office are now the loudest.
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London remains a key hub for European investment banks, a business where office attendance is more frequently required than in commercial and retail lending.
Lenders occupied about 21.9 million square feet (sq ft) of office space in the City and Docklands back in 2011, according to data compiled by CBRE Group. By the end of the decade that had shrunk to 16.1 million sq ft, the broker’s data shows.
“A lot of the banks have been strategically looking at their resources, headcount for the last 10 to 15 years, probably post global financial crisis,” said James Nicholson, head of London office occupier transactions at CBRE.
That’s changing. Of all the businesses leasing space in London last year, banks and financial firms showed the biggest increase in size, according to data compiled by broker Cushman & Wakefield. This year, two of the eight largest tenants looking for new office space are banks, according to Savills director Josh Lamb, who advises on central London leasing.
Caught on the wrong foot
The reversal has caught some firms wrong-footed that had made plans for a less office-centric future. HSBC, which under former chief executive officer Noel Quinn wanted to slash its real estate footprint by 40 per cent, signed for a new global headquarters in the City of London in late 2023 that represented a major downsizing from its existing base in Canary Wharf.
But now executives are concerned the new building will not be big enough, with one scenario predicting a shortfall of as much as 7,700 desks, Bloomberg News has reported. The bank is in talks to rent space in another Canary Wharf building at 40 Bank Street to help deal with the shortage.
Deutsche Bank, which repeatedly highlighted work from home as a way to cut back on office expenses, has finally stopped shrinking in London after slashing its footprint in the city from 21 buildings to four including a new UK headquarters in the City.
It is weighing up options for about 250,000 sq ft of space in the UK capital that could see it maintain its current outpost in Canary Wharf or replace that office with an alternative elsewhere, a person with knowledge of the options said.
BBVA is running short of office space in London as its corporate and investment banking team expands, according to people familiar with the matter. The Spanish lender has rented one additional floor in its building to house new teams, said the people, who asked not to be identified as they were not authorised to speak publicly.
Bloomberg reported last year that BBVA was looking for a new regional headquarters for its London business, with plans to almost double its space to roughly 4,600 square metres (sq m).
“Return to the office is in full swing, with mid-week occupancy back to pre-pandemic levels,” British Land chief executive Simon Carter said last month as the landlord reiterated guidance for rental growth of 3 to 5 per cent.
Slower shift
Outside London, the shift back to the office has been slower. As the pandemic receded, European banks sought to make themselves more attractive to staff by offering greater flexibility to work from home. Many still allow employees to split their time fairly evenly between home and the office. The approach had the added benefit of cutting millions in costs.
BNP Paribas said in February that it had reduced office space including branches by 120,000 sq m since the end of 2023, equivalent to almost half the Empire State Building. Dutch lender ING Groep NV now uses 30 per cent less office space globally than it did in 2020, while Germany’s Commerzbank expects to halve its office use in Frankfurt and surrounding areas by the end of this decade.
Both ING and Commerzbank, which is scheduled to move to a new building with a smaller office footprint by 2028, aim for a 50/50 split between working from home and in the office. At French lender BPCE SA, 90 per cent of its employees can work 10 days a month from home, with a minimum of two days a week in the office. The exception are staff in trading rooms, who need to be present because of regulations.
Even on the continent, however, lenders have started to implement tracking tools and tightened policies to bring staff back to offices, in an effort to foster better communication and mentorship. Deutsche Bank last year cut the days per week that employees can work from home to two from three, despite angry responses from staff. Employees aren’t allowed to work from home on both Monday and Friday in a given week.
Germany’s largest bank cut office space in Frankfurt and nearby Eschborn by 40 per cent. Globally, its office-related expenses declined by about 17 per cent between 2020 and 2022. Since then, however, they have started to climb back up as the lender invests in existing and new buildings.
Rising demand
Some of the demand for bank offices also reflects the growth of Wall Street firms in Europe. In Switzerland, Bank of America has expanded its Zurich office space after doubling the size of its banking team there, said Thorsten Pauli, the lender’s country executive for the Alpine nation and head of equity capital markets in Germany, Switzerland and Austria.
JPMorgan, which employs more than 300,000 people globally, recently announced that it signed for a bigger building in Paris, a decision that was not driven by plans to increase headcount. In London, the bank is taking a chunk of the former Credit Suisse headquarters in Canary Wharf to deal with overspill from its own building nearby and it has an option to expand further.
The largest US bank in January told its employees to return to the office five days a week, ending a hybrid-work option for thousands of staff and returning to the attendance policy that was in place before the pandemic.
The return to office has left some firms struggling to find viable options, especially in London, after successive shocks the past decade deterred developers from making speculative bets on office developments. Morgan Stanley, whose former CEO James Gorman predicted in 2020 that the firm would have “much less real estate” in the future, decided to recommit to its existing London headquarters after scouting the market for several years.
The way banks occupy their buildings is creating further pressure, with many seeking to provide more amenities to help lure staff back. That means the overall amount of space required to accommodate the same number of workers has started to go back up.
“If you bring those two factors together, you effectively end up with more space per person than you would’ve had pre-Covid,” said Ben Cullen, head of UK offices at Cushman & Wakefield.
BlackRock chief executive Larry Fink complained in an interview with The Times newspaper in London earlier this year that he was unable to find space to accommodate recent acquisitions.
One option may be the former Deutsche Bank headquarters at Winchester House. The developers of that project, a venture led by Castleforge, had a message for Fink that they unveiled on a large banner atop the building, which overlooks BlackRock’s current London headquarters.
“Hey Larry, heard you’re having trouble finding good office space. We’re right in front of you! Call us maybe?” BLOOMBERG
