With the pending UK withdrawal from the EU, some London-based banks are planning to move billions of assets to Frankfurt to retain their pan-EU banking licenses. So how will that impact the hotel business both in London, and Frankfurt?
Given the current uncertainly surrounding the whole issue of the UK’s withdrawal from the EU, it is hardly surprising that major organizations, such as the large banks, are hedging their bets by either considering opening branches in the EU or moving out there. The most likely outcome is that they would not leave the UK altogether – the PR fallout could be huge – but moving some of their operations to the EU would be sensible, particularly in the event of a ‘harder’ Brexit.
Those banks which have their European operations based solely in the UK – and most of them are London-centric – are simply being prudent to ensure that they are able to do business in Europe unhindered in the event that Brexit leaves the UK more isolated economically. Frankfurt seems to be a favored location for such banks to co-locate, although Dublin has been doing its best to entice these organizations to Ireland instead of Germany, similarly Paris. Whichever cities are chosen will benefit from the eventual moving of capital/assets out of London. Depending on the scale of this shifting of assets, the effect on the hotel business could be considerable.
For many years London hotels have benefited from overseas and domestic visitors coming to the capital to do business. The banking sector, located mainly in the City and more latterly Canary Wharf, has helped to drive occupancy levels and average room rates in nearby hotels, with many new establishments opening up in their vicinity. Restaurants and bars, some of them located in nearby hotels, have also benefited from business entertaining – again, bankers have been pretty profligate in such spending (even if the recently introduced Bribery Act has curtailed some of this). Bottom line is that, if you take away the reasons for some visitors to come to London, the hotels, bars, restaurants and other establishments – shops, theatres and the like – will be adversely affected and much of this business will transfer to wherever the banks (and other organizations) relocate. So the effect of this shifting of assets could be felt positively in Frankfurt and other places like Paris and Dublin, albeit perhaps not to the same extent.
Fortunately for London, the global demand for tourism – whether for leisure or business – is still strong and will remain so post-Brexit. Visitors from around the world will still be drawn to London’s renowned heritage, pageantry, shopping and leisure pursuits, and business visitors will still want to do business here, including attending major conferences and exhibitions. The latent demand emanating from China and India alone could easily fill any voids left by a decline in business travellers so, providing the hoteliers of London are nimble and sufficiently focused, there should be only a limited amount of collateral damage arising from such a shifting of assets in the longer term. As always, it will be the cleverer ones who suffer least and will achieve above-average performance even if supply growth in London causes percentage occupancy levels to decline as demand growth catches up.
There is an underlying strength in the UK economy, which ought to be capable of withstanding any shocks arising from the impact of Brexit – in whatever form this might eventually take. There may be some short-term discomfort, some of which might continue for the medium term (3-4 years), but in the longer term I am confident that London’s hotels will overcome these effects and will once again ride high. Considering there is so much uncertainty around at the time of writing, there seems to be no shortage of investor demand when London hotels come onto the market.
Contributed by Russell Kett, chairman, HVS London