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Chinese banks could fuel next boom in City of London

Tuesday 29th October 2013

Chinese financial institutions are capable of taking over 2 million sq ft of office space over the next decade, which equates to nearly half of the city’s annual average take up, according to international real estate advisor Savills. The property consultants believe that this could take the city back to similar levels of the bank boom times where the sector accounted for a significantly higher level of take-up than the 2% recorded in the past couple of years.

The report, written in conjunction with Savills market leading China operation, examines existing financial institutions in China and factors shaping the locational preferences of these occupiers. It finds that property is considered one of the best investment options open to Chinese financial institutions with China Taiping, China Merchants Bank, Ping An, Taikang Life, Bank of China and Bank of Communications being amongst the biggest buyers of office units across Shanghai and Beijing in recent years.

In addition, Agricultural Bank of China and China Construction Bank were among the top buyers in Hong Kong – buying for occupation has become a means of investment. This investment case is further strengthened by the high rents in Beijing, Shanghai and Hong Kong and short lease lengths.
 
Stephen Down, head of Central London investment at Savills, says: “China’s financial sector grew from 472% of GDP in 2008 to 612% in 2011, and this number is expected to reach almost 800% in 2016.  Chinese investment into the West has been speculated to exceed US$1 trillion by 2020.  Boasting the largest institutions in the world, demand for requirements in the City of London are anticipated to be registered as these businesses become more integrated into the global economy.” 
 
In terms of office space, Savills research suggests large central locations are preferred with Bank of China occupying an entire tower in Hong Kong Central comprising 941,000 sq ft, whilst China Merchants Bank has acquired a site with a buildable area of 614,000 sq ft in Beijing’s financial street for RMB 3.9 billion (£400 million).  In the context of London’s office market, £400 million would have bought the freehold of 30 Gresham Street, EC2 (£335 million), the freehold of 5 Canada Square (£383 million) and the Lloyds Building (£260 million).  Furthermore, Chinese financial institutions are willing to pay a premium, on the Mainland they have been known to pay 30-50% over market rates to secure suitable premises in a desired location whilst others have secured large en-bloc buildings in fringe areas in order to consolidate staff and factor in future growth.
 
Philip Pearce, head of Central London leasing at Savills, adds: “Whether in Pudong or Hong Kong Central, by means of leasing, buying, or in conjunction with a fringe office, being in the centre of the financial district is a must for Chinese banks. Whilst China’s biggest banks have already begun taking premises in London, with capacity to house more staff than they currently employ, we expect China’s less developed financial institutions to build up their presence in London more gradually over the next decade starting initially with smaller headquarters.”

Existing Chinese financial occupiers in the City of London total just 200,000 sq ft and include Bank of China at One Lothbury, ICBC at 81 King William Street and CICC at 125 Old Broad Street.

              

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