4.2.1. Winning cities
Through time a number of cities have sought to challenge
the dominance of the leading centres such as London and
New York, but breaking their dominance has been difficult
as both cities have developed and adapted to maintain their
leading positions. But can this dominance be maintained in
the next decade?
In the wake of the global financial crisis many companies
have had to shrink their staffing levels, restructure and face
increased regulation. This is placing new pressures on how
they organise their space needs. At the same time we see
new growth areas emerging.
Established countries such as the US, Australia, UK and
Germany are all set to see GDP growth below the world
average in the next ten years. In contrast we see far stronger
growth in more emerging markets. The BRIC economies are
set to grow at close to 6% per annum over this period. China
is leading the way at close to 7%, with Brazil lagging at below
the global average. We also see stronger growth in African
nations, such as Nigeria
(Figure 7)
.
4.2.2. Changing hierarchy across Asia
One measure is to consider the expected growth in
Employment. We see little change in the rankings. Both
New York and Shanghai are expected to see strong growth
(Figure 8)
. Growth in London is more limited, as in Hong
Kong. In Singapore, employment is expected to reach close
to Hong Kong levels. But Tokyo and Frankfurt are expected
to see a reduction in employees.
This implies New York’s and London’s dominance as financial
centres are unlikely to be challenged. But we could see a
change in the mix for second tier centres. In particular across
Asia Pacific as Hong Kong, Shanghai and Singapore fight for
the leading position.
Risk (including economic, political and regulatory factors)
is also an important issue for emerging markets. The major
developed economies all show low levels of risk, both now
and in the future
(Figure 9)
. Conversely, emerging economies
such as Brazil, China and Africa, are characterised by
relatively high levels of risk. Although risk levels in many are
expected to reduce, they will still remain elevated relative
to other markets. This is particularly the case for political
stability, regulation and trade credit risk, all relevant factors
for business services companies, especially those seeking to
operate across borders.
Despite its size, in terms of employment in the financial
services sector, Shanghai is perceived as higher risk. This
reflects its relative immaturity as a global financial centre
and underdeveloped regulatory environment. However, we
expect the risk score to improve due to ongoing reforms and
increasing transparency. The same is true of Latin American
markets. For example, Brazil is challenged by market
inefficiencies. These challenges will need to be addressed to
ensure that emerging centres grow in importance.
4.2.3. Changing dynamics
Going forward we expect New York and London to remain
dominant. But we do see a changing dynamic for second tier
financial centres. Here we see emerging cities moving up the
rankings. China will battle with Hong Kong for dominance
in the Asia Pacific region. Changes to business practice,
regulation and corruption are required. That aside, Shanghai
and other cities have the potential to adapt more easily to
meet occupiers growing needs. In other regions, we will see
the emergence of centres in Brazil and Africa. These are likely
to be regional hubs, but risk will again limit their success.
The challenge for the leading centres will be the nature and
availability of space. To ensure centres maintain their leading
position, they need to ensure they create the space and
environment to attract talent and ensure the stock is flexible
for occupiers to adapt to cost challenges, especially where
occupiers have little scope to adjust space usage.
4.2.4. Back office locations
Many banks have located their back office functions in lower
cost locations, although a few have kept them close to the
business. Banks which have moved back office functions
off their main sites to business parks or secondary locations
have often seen the talent pool dry up and have struggled
to maintain enough of a flow of new employees. We believe
that a solution to this is to locate the back office in primary
locations in secondary cities, balancing the needs of cost
reduction with talent acquisition.
46
The future of the financial workplace
|
September 2014
