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Post-Brexit, British firms head to Luxembourg but office space is an issue

Thirty UK-based companies have already targeted Grand-Duchy

Bloomberg 

Brexit
Illustration by Ajay Mohanty

is so tiny that map-makers have been known to give up and pretend it’s not there.

So as the minuscule financial hub continues to draw firms opening up a post-presence in the European Union, there’s a nagging question: is there enough

“We asked ourselves in the beginning, right after Brexit, if will have the capacity to respond to the demand,” said Julien Pillot, a broker at Inowai SA. “It was a worry.”

The good news, according to Pillot is that “if you’re looking for 500 square meters, you’ll find it easily.” The bad news, Pillot said, is “there’s clearly a lack of larger office spaces in and around the center” of City, even if smaller sites are still readily available.

That means firms looking for a bigger footprint may need to look toward the outskirts of the city as well as smaller commuter towns, which often have little more than a petrol station, restaurant or supermarket to offer.

New developments are mostly already reserved before they are finished. A whole new area is being developed to accommodate 30,000 people just four kilometers south from the center, in the Luxembourg City district of Cloche d’Or. It will combine office spaces, residential flats, shops, a large mall, schools and a new train station.

The problem is, that project is only slated to be finished in 2025, six years beyond UK Prime Minister Theresa May’s target for completing the process.

The UK’s decision to quit the EU has already convinced more than 30 financial companies -- mainly in insurance and asset management -- to seek a foothold in Luxembourg. Statistics office says has so far brought 250 new to the country, with estimates that ultimately 3,000 new positions could be created.

For staff parachuted in from to the edge of Luxembourg City or beyond, the days of nipping to the old Spitalfields market for a pulled-pork sandwich, or heading to a swanky Canary Wharf watering hole will be over. Most cafes, bars and restaurants are still in and around the city center.

To solve the problem it’s becoming customary for more new office developments to convert ground floors into commercial spaces for shops and eateries. Some companies are creating canteens or even offering electric bikes for hungry staff willing to pedal to the next lunch spot.

The construction of a tram line, a small part of which started working in December, is turning whole sections along its route into attractive new office spots. New public transport is welcome in a country where more than 180,000 commuters travel in and out every day and add to already clogged roads during peak times.

Gilles Bindels, chief executive officer of investment firm Luxembourg Capital, said he hasn’t had Brexit-related clients who have moved to the capital city’s periphery -- where his company is increasing its focus. That’s because most relocations have so far been relatively small scale.

Brexit hasn’t had a big impact on rents, but the competition for prime spots in the city’s central district has seen a gradual increase to as much as 50 euros ($58) per square meter a month from about 26 euros over a 15-year period.

While such high prices have pushed greater numbers outside the center of town, Bindels said they won’t seem astronomical to Londoners looking to move, compared to prices back home.

As an example, it costs about $130 per month to rent a square meter of real-estate in Mayfair, one of London’s hedge-fund hotspots, according to Savills Plc, a broker. For prime sites in City of financial district rents are about $91.50; in the Docklands area they are about $53.

“When you speak about clients from London, you also speak about a market where rents are generally much higher than in Luxembourg, especially in prime locations,” said Bindels. “I think the shock will be more on our side that Londoners may sometimes even be willing to pay more.”

Nestled in between Belgium, Germany and France, the Grand-Duchy is the world leader for funds after the U.S. It’s also becoming a magnet for London-based asset management and insurance firms looking to continue to benefit from a passport to provide services once the UK leaves the 28-nation EU.

Insurance giant American Group Inc., U.S. insurer FM Global, RSA Insurance Group Plc and Lloyd’s of London insurer Hiscox Plc, as well as private-equity firm Blackstone and asset managers such as M&G Investments, were among the first to choose the country as their EU foothold.

The Luxembourg market is adapting to the new realities and new projects being developed “are of a very high level,” said Bindels.

Frankfurt, Paris and Ireland are clear competitors in the race to attract London business, said Bindels.

They may be better-known cities, “but Luxembourg definitely has charm and those who are interested should make a move now.”

First Published: Sun, July 01 2018. 10:55 IST
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