The Financial Centre initiative Frankfurt Main Finance (FMF) welcomes the agreement reached last weekend between the European Union (EU) and the United Kingdom (UK). For it provides much more clarity, albeit not yet definitive. FMF also hopes, in the interests of all concerned, that the British Parliament will ratify the treaty on 11 December. However, a ratification is not certain, and a hard Brexit has not yet been averted. In addition, the European Court of Justice (ECJ) will have to decide whether Article 50 can be revoked before the end of its deadline. Thus, there is still hope that the UK could remain if the ruling of the European Court of Justice confirms this. Still, the probability is rather low.
“This makes it clear for financial institutions that the Brexit is coming. While it has become somewhat less likely, the extreme scenario of a hard Brexit without a deal in place cannot be ruled out due to the uncertain majority in the British Parliament. On the other hand, it cannot be completely ruled out that the UK will remain in the EU, but this should be regarded as highly unlikely. The path is now set for the financial institutions. The Brexit plans are being implemented,” says Hubertus Väth, Managing Director of Frankfurt Main Finance.
Based on a speech by Danièle Nouy, President of the Single Supervisory Mechanism of the European Central Bank (ECB), we know that 37 financial institutions, banks and securities trading banks have applied to the ECB for new licences or extended existing ones and have already received them or are likely to receive them shortly.
30 of these institutions have chosen the Financial Centre Frankfurt for their European headquarters. Since several of the banks will establish branches in multiple locations, FMF believes the actual figures will ultimately add up to more than the 37 mentioned by Ms Nouy. However, Frankfurt also benefits from this distribution since around half a dozen financial institutions that have opted for locations in other EU countries are nevertheless significantly expanding their presence in Frankfurt.
“All in all, we expect a transfer of 750 to 800 billion Euros in assets from London to Frankfurt, the majority of which will be transferred in the first quarter of 2019,” says Väth. “It will not remain that way.”
“As it currently stands, banks face the decision of either relocating only what is absolutely necessary or preparing for the relocation of their entire business,” Väth continues. The institutions have found different answers to this question. “As long as uncertainty persists, most institutions are likely to prefer the minimum solution. In any case, it is clear that considerable second-round effects will follow.”
FMF sees the bill to relax dismissals protections for high-income risk carriers as an important step. “Politicians made promises and delivered on them. Internationally, this is being observed very closely as it shows that the Financial Centre is being supported.”
“Accordingly, Frankfurt Main Finance believes that the second-round effects will be significant. We stand by the potential of up to 10,000 jobs moving to Frankfurt which we estimated on day 1 after the Brexit referendum. However, there are signs of a second transition phase, which is expected to last until the end of 2022, and thus a further delay. The originally expected 5 years for the relocation of jobs from the time of the referendum in June 2016 will now become 8 years.”
A significant factor in financial institutions’ decision to relocate business to the Financial Centre Frankfurt was the willingness signalled by German politicians to reconsider the issue of labour protection for risk carriers. Following its inclusion in the coalition agreements, the draft law, which is tailored specifically to risk carriers, is being consulted in the ministries. “Politicians have listened, promised and delivered,” says Väth. “This is a clear sign that the banks’ relocation to Germany is desired. It is a sign that is seen and appreciated.”
Frankfurt am Main – The financial centre initiative Frankfurt Main Finance is proud to welcome six new members, raising the membership number to 60. PricewaterhouseCoopers (PwC), The Boston Consulting Group, CBRE GmbH, Frankfurt School of Finance & Management and Norton Rose Fulbright LLP join as sustaining members. In addition, Werthstein GmbH joins as a FinTech member.
Frankfurt Main Finance leverages the influence of its now 60 members – representatives from Frankfurt’s financial sector, research institutes, public administration and the flourishing FinTech sector – to advocate for the Financial Centre Frankfurt and provide high-calibre dialogue platforms. Through their membership and engagement, all members demonstrate their close relationship to Frankfurt and desire to position Frankfurt amongst the top international financial centres.
“We are excited to welcome the new members. Their commitment to the Financial Centre Frankfurt and our continuous growth in membership reflects a high recognition for our daily efforts to represent and position the Financial Centre internationally,” says Dr. Lutz Raettig, President of Frankfurt Main Finance. “This growth strengthens the association and lends more power to our voice – a benefit for all members. In turn, we also provide fast, direct access to a prominent industry network.”
The new member PwC is active in the areas of assurance, advisory and tax services with 250,000 employees in 158 countries – including the Financial Centre Frankfurt. “Through our membership in Frankfurt Main Finance, we not only want to strengthen our commitment to Frankfurt as Germany’s leading Financial Centre, but also actively contribute to the local community. The location is developing in a highly dynamic manner. We would like to contribute to this positive development and further strengthening of Frankfurt. For this reason, we look forward to the exchange with the initiative’s members, with universities, banks and all other actors in the Financial Centre Frankfurt,” says Clemens Koch, Head of Financial Services and member of the management board at PwC Germany.
As a trusted partner for all real estate topics, CBRE supports real estate investors and occupiers worldwide. Since 1973, CBRE Germany has been headquartered in Frankfurt am Main. “With our membership, we are very pleased to be able to help support the many advantages of the Financial Centre Frankfurt from the perspective of the real estate industry. Numerous project developments offer ever more modern and innovative office space, allowing the skyline to continue to grow. Despite the decreasing vacancy rate, there is still excellent and representative office space available, even for demands for larger spaces,” explains Carsten Ape, Head of Office Leasing Germany at CBRE.
“As Frankfurt School of Finance & Management, we effectively have the Financial Centre in our name. As a business school, we set new standards with excellent research – for example in the fields of artificial intelligence, blockchain or sustainable finance. In addition, on our campus we train the specialists and executives needed to ensure that Frankfurt continues to be innovative and successful. A strong Financial Centre is essential for us, which is why we are committed to Frankfurt Main Finance,” says Professor Dr. Nils Stieglitz, President of Frankfurt School of Finance & Management. The research-led business school, accredited by EQUIS, AMBA and AACSB International, offers comprehensive educational programs on finance, business and management topics. Frankfurt School’s Master of Finance is the only finance master offered by a German university in the current Financial Times ranking.
Norton Rose Fulbright LLP is a global law firm providing the world’s preeminent corporations and financial institutions with a full business law service. “Frankfurt Main Finance is the voice of the Financial Centre Frankfurt. We support the initiative because it effectively positions Frankfurt in national and global competition,” explains Dr. Oliver Sutter, Partner at Norton Rose Fulbright LLP.
As a digital wealth manager, Werthstein offers its clients the opportunity to develop an individualised portfolio that is broadly diversified in terms of risk aspects and specialised in investments in current economic, technological or social trends. “The financial centre initiative Frankfurt Main Finance stands for the openness to innovation and drive that FinTechs bring to wealth management. That is why we are closely associated with the initiative,” comments Felix Röscheisen, general representative of Werthstein GmbH.
Frankfurt Main Finance authentically combines the business and social aspects of the region and financial centre
Over the past decades, Frankfurt am Main has increasingly developed into the most important financial centre in mainland Europe. This was by no means self-evident. Looking back over the same time period, Munich, Stuttgart and Düsseldorf had also their sights set on this role. However, the concentration of financial institutions and European consolidation have led to the finance providers now forming clusters on the River Main. The current developments surrounding Britain’s exit from the European Union will reinforce this development.
The initiative launched in 2008 by the Frankfurt-based banks and the policymakers in the City and region to create an independent mouthpiece for this key sector was all the more significant against this background. It was not intended as competition to the boards of the Chamber of Industry and Commerce or the banking association, but rather to establish an independent position for the people representing the so-called financial sector in a broader sense. This was not only in the interests of the policy-makers, who were seeking a neutral platform of dialogue, but also of the economic sector, which was striving to win over the policy-makers to a common future development through a unified representation overarching the individual positions of different financial institutions and their associations.
However, with its foundation also came the awareness that the initiative would be an organisation which could talk convincingly to other financial industry players outside Frankfurt and Germany about the pros and cons of the Frankfurt location. Over the years, the importance of this role has grown as well.
The Frankfurt stakeholders long ago abandoned the illusion of being able to challenge London’s pole position in Europe in terms of the number of jobs and international significance. The difference in size is just too great. However, on the European continent, Frankfurt am Main can easily outrival the competition. One reason is the presence of such important regulators as the European Central Bank (ECB), the Bundesbank and major divisions of Germany’s financial regulatory authority. Another is the internationality of the banks, and also of the City as a result of the airport. However, the comparison with the “City of London Corporation”, the representative body of the London financial centre, clearly still remains a legitimate incentive even today.
“At no time in history have more executives and employees of international banks been looking at the same time for a location in Europe as at present. Almost all of these searches end with a clear advantage for Frankfurt.”
For all the people in the companies that have agreed to participate in the Frankfurt initiative, this means additional work. We not only owe it to the president, Dr. Lutz Raettig, and the managing director, Hubertus Väth, who shaped the past decade of the initiative, but also to the many associates in Frankfurt’s society and politics, that Frankfurt Main Finance is today a highly respected and sought-after contact.
At no time in history have more executives and employees of international banks been looking for a location at the same time in Europe as at present. Almost all of these searches end with a clear advantage for Frankfurt. Nevertheless, many people – often too many – are sceptical that the quality of life, infrastructure, training opportunities and banking regulation are really good enough for Frankfurt to win the race. However, it is not all just about facts and figures. Very often it’s people’s life philosophy and experience that count. Frankfurt Main Finance has the extraordinary opportunity of being able to credibly combine the economic and social aspects of the Frankfurt region and financial centre in all presentations.
Now, after a decade, we can safely say that the foundation of such a representative organ for the financial industry in Frankfurt was right and important. We can certainly also say after ten years that the sustainability of the initiative founded at that time has been proven. On this sound foundation, it now is entering the next decade. And this decade too will be marked by challenges posed by national legislation, regional activities and the industry itself.
“Now, after a decade, we can safely say that the foundation of such a representative organ for the financial industry in Frankfurt was right and important. We can certainly also say after ten years that the sustainability of initiative founded at that time has been proven.”
Germany is still in a situation where the earnings of banks clearly lag behind those in other European countries. This will lead to cost savings, staff reductions and site closures. For the financial centre, with all the global and regional headquarters, this can certainly prove to be a boost. But it will change the demands made on the employees, the salary levels and the service providers located at the domicile of the companies. Without Brexit, a reduction in the number of employees employed in Frankfurt was to be expected, but this could now turn out completely differently.
Regardless of whether there will be more or differently trained employees, their demands on the region will change. Internationality will increase, therefore more international schools will be needed. University education in the region must adapt to the changed remit, particularly in the area of risk management and general bank controlling. The City’s cultural offer also needs to compete with other European metropolises by staging special events to boost the popularity of the region alongside the already existing superb facilities. The financial centre initiative can make a very important contribution by accurately describing the demands that will be made on the region.
From the very beginning, it was not to be underestimated that the initiative’s specific hallmark includes being recognised by savings banks, cooperative banks and private banks alike. As a result, it has also become an initiative that in terms of national legislation can speak on behalf of the whole financial sector beyond the sectoral interests. This contribution is also highly appreciated by the policy-makers in Berlin and Wiesbaden, and there is still room for expansion.
At present, we are dealing with a completely over-regulated industry, which, together with the legislator, is still struggling with the consequences of the last financial crisis. In international competition, good and secure regulation is just as important as the sector’s ability to flexibly change its business models without unnecessarily bureaucratic hurdles and adapt them to the ever-increasing rapidity of the innovation cycle. The current discussion surrounding the amendment of labour legislation to allow a more flexible deployment of by far above-average earners in investment banking could be a touchstone for this.
At the latest since the beginning of this decade, the financial industry has – understandably – no longer been popular. For Frankfurt, however, it is the most decisive vehicle, along with the airport, for prosperity and growth. At the same time, Frankfurt is home to an industry that will inevitably change in pace with rapid technical innovations. And Frankfurt will also be a good place to work for young people, who will shape their world of the future from here. It would be good if the City, the regional policy-makers and the citizens could look upon these companies and their employees with confidence and some pride.
Business and politics need the support of the citizens to create attractive conditions for the financial centre. Frankfurt Main Finance is an important facilitator between all the stakeholders and institutions. The initiative has proven this over the past decade, and this is precisely what will also be expected of it in the future.
FMF knows how to make use of expertise and appreciation in all matters and interests of the financial industry
This month, Frankfurt Main Finance (FMF) will be celebrating its ten-year anniversary – not without pride of what has been achieved, not without self-criticism as to what could have been done better, and not without respect for what foreseeably still lies ahead of us – but also with confidence and well-founded and justified hopes.
FMF has now been the voice of the Frankfurt financial centre for a decade. This does not only mean the City of Frankfurt, but the region as a whole. The initiative to establish the association is attributed to former Prime Minister of Hesse Roland Koch and the former Lord Mayor of the City of Frankfurt, Petra Roth. Both wanted to remedy an obvious deficiency. After all, according to a very apt analysis by “Börsen-Zeitung” in August 2008, what was lacking – unlike the situation in France or in Great Britain – was an effective, overarching marketing drive for the national financial centre. Another factor in this important and so vital industry for a highly developed economy like Germany was the lack of an independent and clearly audible mouthpiece.
The purpose of the association, as formulated in its founding charter, logically and primarily was to reinforce Frankfurt’s position and that of the Rhine-Main region as a business centre and, in particular, as a location for financial services in international competition. A task that those responsible have been pursuing over the last ten years and have not lost sight of to this day.
“Frankfurt Main what?” This is how the already mentioned article of this newspaper managed to pinpoint the probably most common response to the question concerning Frankfurt Main Finance – appropriate and provocative in the year of its foundation. Today, ten years later, it can be claimed with all justification, backed up by figures, that the financial centre initiative meets with a worldwide response, is appreciated as a competent contact in all matters relating to the financial industry and knows how to benefit from this for positioning the location as such.
This certainly did not happen automatically. One example: Frankfurt Main Finance was ready when Brexit triggered an absolute storm in the European map of the financial industry literally overnight. In the early hours after the officially announced outcome of the Brexit referendum, of all European financial centre initiatives FMF was the first to raise a response, succeeding in drawing the attention of the world press alone. Interviews were given every quarter of an hour.
This elevated FMF to the position of a highly coveted contact. Until today, FMF has been quoted in over 90 countries in the world in just under 6,500 articles in almost 2,000 different media in connection with Brexit alone. The media equivalent value achieved is in the region of 100 million dollars.
No Simple Task
However, in the early years after its foundation, the task at hand was to establish the association, set up work flows, establish topics and work through the financial crisis. It was important to find resonance at all, to be of relevance and to raise money to this end. This was only possible by broadening the membership base. It is never an easy task to collect private money for the public good. This was even more difficult in our foundation phase.
All of us can recall August 2008: the financial crisis had almost reached its peak with the failure of the US investment bank Lehman Brothers. The financial industry was busy reducing its risks and avoiding expenditure like the plague. Therefore, we are all the more grateful to our members, the twelve founding members and some 50 members who have joined us since. Without them, we certainly would not exist today. Many thanks!
The financial crisis and the course it took laid down the topics not only for the media, but also for FMF. To this day, it is a key interest of the financial centre initiative to regain trust and confidence lost in the financial industry, to draw attention to the indispensable services of the financial sector for the welfare of a state and its societal relevance, as well as to raise interests of budding talents for the industry as such.
Additional topics included the following: first of all, RMB Clearing, then Fintech, Regtech, Insurtech, Legaltech – the settlement, promotion and financing of young start-up enterprises in the region that transfer digitisation to the processes of all these industries. In this way, not least thanks to the efforts of FMF, it was possible to establish Frankfurt as a fintech cluster alongside Berlin, virtually at the very last minute. It goes without saying that the region justified this trust and confidence and has since regained a great deal of lost ground. Whereas at the beginning we were asked whether we knew that fintechs would compete with the established banks, today “Coopetition”, a term combining cooperation and competition, has become quite common: it has a secure future, much like sustainability. We are just as willing to lend the Green Finance Cluster our voice as well as many other invaluable initiatives.
“FMF has now been the voice of the Financial Centre Frankfurt for a decade. This does not only mean the City of Frankfurt, but the region as a whole.”
However, the last two years have been characterised by Brexit, by the possible impacts of Great Britain’s decision to leave the European Union and, immediately associated with this, the changing role of Frankfurt as the key financial centre within the EU. Brexit brought Frankfurt into direct competition with other financial locations in Europe, after it was clear that London would foreseeably surrender its role as the leading financial capital within the EU. One of the immediate consequences of Brexit was a self-reflection of Frankfurt and the region on the strengths and advantages of the city and its surroundings.
The level of cooperation with the various institutions fostering economic development, with state and municipal policymakers, as well as with consultants, lawyers and other players at this location has become closer and more efficient in recent years. This is beneficial for the work of FMF and the financial centre. An entity that is all too frequently forgotten is the supervisory sector. Yes, it is true to say that German regulators are a strength of this financial centre. The watchdogs are internationally perceived as competent, clear, challenging and reliable.
Despite the financial centre’s well-founded self-confidence, it was a wise decision not to be aggressive or even divisive when it came to competing for the relocation of jobs from the Thames to the Main River. Frankfurt wants to build bridges rather than tear them down. “Welcome to Frankfurt”“ and “Let’s build a new London Bridge” were the mottos of our campaign with which we competed for banks to settle here following Brexit, a process that is still ongoing. This orientation has certainly proved its worth.
A huge success story
Until today, 25 banks have decided to establish or expand business in Frankfurt, and jobs will be next to follow. The importance of the financial metropolis is growing. Undoubtedly a huge success story. However, it is an achievement that needs to be secured and extended if possible. A task in which the FMF will assume its role.
An anniversary is not only an occasion to celebrate, but also an opportunity to say thanks. This expression of gratitude by the FMF goes to all our fellow campaigners and critics. And of course we are also grateful to our football club, Eintracht Frankfurt. With the three Frankfurt Main Finance Cups in the years 2014 to 2016, we succeeded for the very first time in reaching a broader public in the region and – a matter that is close to our hearts – perhaps it was also possible in this context to finally bring the financial centre and the Eintracht a great deal closer again. If our football club now manages to play an enduring leading European role, that would be quite overwhelming. I now wish to close by quoting Johann Wolfgang von Goethe, one of Frankfurt’s most famous sons: “It’s not enough to want to do something – it also needs to be done.”
A reliable partner for 10 years with a strong and weighty voice – ideally geared to meet future challenges
The initiative Frankfurt Main Finance celebrates its ten-year anniversary, and it is an immense pleasure for me to express my cordial congratulations in this regard! It means a great deal as far as the status and reputation of the initiative is concerned that Börsen-Zeitung publishes special pages on this occasion. I also explicitly wish to express my appreciation and am pleased to take this opportunity to thank those responsible for their long-standing commitment.
The Financial Centre Frankfurt is a great deal more for the state of Hesse than just a significant economic factor. It enriches our federal state as an additional facet of which we are proud. For decades now, the bank towers have been a hallmark of Frankfurt’s city silhouette. You can admire them from an aircraft when taking off or landing at Frankfurt International Airport, when driving across a number of motorways in Hesse or from the elevation of the Große Feldberg.
Over 62,000 people currently work in these impressive bank towers in Frankfurt’s city centre. They are employed by 199 banks – including some 160 international institutions. The unique network of these enterprises is augmented by first-class research facilities. Moreover, the key authorities of the European Financial Markets Supervisory Authority, the European Central Bank (ECB) and our national watchdogs, namely the Federal Financial Supervisory Authority (BaFin) and Deutsche Bundesbank are assembled here at Frankfurt. A brisk start-up scene and numerous fintechs round off the ecosystem of the financial sector that has grown in the course of many years.
Identifying and exploiting opportunities
The government of the state of Hesse intensively follows the development of this financial centre and has a reliable partner in Frankfurt Main Finance. Only in constant exchange between policymakers and industry are we able to respond to current developments of the globally networked financial industry. Policymakers are responsible for creating the necessary fundamental conditions. The shared objective of Frankfurt Main Finance and the government of Hesse is to identify and exploit opportunities in tandem with early detection of risks and taking appropriate precautions. The fact that today in Frankfurt we are talking about the most important financial centre in continental Europe shows that our cooperation is successful and that we have already achieved a great deal together. This constitutes motivation to continue our work with an ambitious and confident mindset.
“Frankfurt Main Finance has always been the central platform for information and exchange of views. By today, 50 noteworthy members have joined the initiative, representing banks and fintechs as well as universities and consultancy firms.”
A stable and prospering economy has its foundations on a healthy financial and capital market. Just how powerful this relationship is was demonstrated during the Financial Crisis in 2008. The tremors of a stumbling financial sector were felt across the globe and in almost all economic areas and walks of life. Many of the errors previously committed suddenly raised their ugly heads in cumulative form, and today it is in the common interests of policymakers, the financial sector and the real economy that this crisis will not be repeated.
The fact that the initiative Frankfurt Main Finance was founded at this precise moment in time was an important signal and of outstanding importance for Frankfurt as a financial centre. This is particularly so because here in Frankfurt lies the monetary heart of Europe’s most important economy.
Since then, Frankfurt Main Finance has been the central platform for information and exchange. By today, 50 noteworthy members have joined the initiative, representing banks and fintechs as well as universities and consultancy firms. Understanding their needs, pooling resources and formulating positions is the collective mandate of Frankfurt Main Finance. Those responsible – led by President Dr Lutz Raettig – meet this requirement in an outstanding manner and, not least, due to their many years’ experience and remarkable international network.
“The Financial Centre Frankfurt is a great deal more for the state of Hesse than just a significant economic factor. It enriches our federal state as an additional facet of which we are proud.”
However, the task at hand also includes creating a bridge to companies operating in the real economy and to consumers. Understanding the mechanisms of the banking and capital market – particularly in times of rapid digital change and global networking – is not easy and at the same time represents the basis for trust and confidence. Over many years, a vacuum had originated here that could only be resolved through personal commitment, information, and the breaking down of complex facts. Frankfurt Main Finance has given a face to the financial centre of Frankfurt and the institutions to which it serves as a home. This creates credibility, reputation and reliability.
No easy tightrope act
In the past ten years, the general framework conditions for the financial industry have undergone significant change. Today, the regulation standards are much higher, and supervisory structures have been adjusted in relation to 2008. In Europe, at present we clearly are on the important path towards a capital market and banking union. In terms of all agreed measures, policymakers always focus on securing financial market stability while maintaining competitiveness in an international environment. This certainly is no easy tightrope act, which is becoming even more challenging due to geopolitical changes and the process of digital transformation.
The Financial Centre Frankfurt is ideally prepared to meet these challenges. I have already described the very special network comprising all relevant market participants at a single location, with short distances between them. The stability of the financial and economic environment and the reputation of local supervisors are high and important location factors. Another positive factor is a high-performance infrastructure. With Frankfurt International Airport and the central rail and tram traffic systems, the city is ideally connected to European and international capitals, and the world’s biggest Intranet hub in terms of sheer data throughput is “Deutsche Commercial Internet Exchange (DE-CIX)” in Frankfurt. At our local universities and specialised research facilities, we train budding junior talents of which we are proud and for which we are envied at other financial locations across the globe.
We therefore have every reason to look to the future with optimism and self-confidence. Following Great Britain’s decision to leave the EU, which we greatly regret, there is nothing to stop us from moving up into leading position within the overall European structure. At present, we are experiencing intensive location-based competition between financial centres in continental Europe. The question here is who stands to benefit most from the necessary relocation in the wake of Brexit of international banks and service providers from London to the EU 27. The fact that meanwhile many experts – not only in Germany – express their assumption that Frankfurt could become the big winner amongst all continental financial centres is a partial success story of which we are proud.
Time to abandon a stand-alone attitude
At the same time, however, I am convinced that we need to abandon this insular mindset. Europe will only be competitive on an international scale if we cooperate and can truly speak of a European financial centre. Previously, around the world London was widely accepted in this position, and I can say with all due confidence that we plan to take over this role in Frankfurt in the not too distant future. The main prerequisite for this is that we remain attractive in the long run and build bridges to Paris, Dublin, Luxembourg and other financial centres. However, our link to the City of London also remains important. And in London ambassadors like Frankfurt Main Finance certainly are in demand.
Brexit offers us a momentum that we should not leave unused. For this reason, in exchanging views with other market participants, we are taking a very close look at the local framework conditions and discussing where we can lay the foundations to remain attractive in the long term. In the process, we also take into account our high standards as well as the activities of our competitors and changes unfolding in a worldwide structure. Here are two examples to show what I am talking about: For one thing, the future positioning of the clearing business of derivatives denominated in euros; for another, ideas concerning future financial supervisory structures in Europe. This is where the guidelines are being defined for the coming years and where we adopt a clear and unambiguous stance.
We perceive the current challenges as a major opportunity. It is particularly in this process that we need the strong and weighty voice of Frankfurt Main Finance. Accordingly, I look forward to the continuation of our mutual collaboration!
Frankfurt is well equiped for this – forum creates platform for discourse on wide array of topics
Frankfurt Main Finance combines two traditions of particular significance to Frankfurt. One is the history of the city as a trade and financial location going back to the 13th century; another is its almost just as long history of civic dedication and commitment. It is part of our tradition of merchants and guilds to support our common interests through our own initiative. Frankfurt Main Finance continues this principle in modern form, which is why, as Lord Mayor of the city, I would like to express my warm congratulations on the initiative’s ten-year anniversary.
On the city’s pulse
Frankfurt’s prosperity is inseparable from its role as an international financial capital. With its clear commitment to the region as the second-largest economic area of the Federal Republic of Germany, Frankfurt Main Finance has become an irreplaceable partner for us in the field of location-based marketing.
Not only does the initiative emphasise Frankfurt’s hard location factors such as its favourable traffic hub, its location for companies of international renown as well as its role as the European centre for monetary policy and regulation. It advertises the region’s quality of life just as vigorously. FMF keeps its finger on the city’s pulse. Whoever is on the lookout for news on the city’s football team’s victory in the DFB Cup Final or about the refurbished old city district will soon discover everything they need to know on the pages of Frankfurt Main Finance. And whoever is a newcomer and needs leisure time tips will also find them here. “Financial Centre Initiative” may sound brittle, but it is not.
In its role as a forum, Frankfurt Main Finance creates a platform for discourse on numerous topics to do with the city as a financial centre. In doing so, the association involves players from business, politics, media, academia, administration and associations alike. It unites and combines many different perspectives, overcoming the boundaries of the relevant disciplines in the process. Impetus of the kind delivered in the direction of Sustainable Finance, combining economic and ecological components, is exemplary in this regard.
Both the financial centre and the city benefit from this interdisciplinary approach. Frankfurt Main Finance’s approach is just as diverse: meetings, get-togethers, trips to international locations, specialist publications available for download, social media offerings – a communication mix with an impressive, multi-faceted nature. This is where the city of Frankfurt likes to be a partner, as was the case most recently on a shared tour for business journalists on the subject of euro clearing.
FinTechs take up a broad realm in the offering presented by the initiative. These innovative businesses are particularly within the City’s focus – just as Frankfurt is becoming increasingly important as an alternative to other locations like Berlin, for instance: in 2017, the consultancy PricewaterhouseCoopers (PwC) canvassed 450 businesses throughout Germany that were established no longer than 10 years ago including 50 start-ups in metropolitan Frankfurt, also from the eCommerce and financial services sector. 90% of these anticipated a rising importance of Frankfurt as a start-up hub. Almost all respondents assessed the founder climate as “good” to “very good”.
“It is part of our tradition of merchants and guilds to support our common interests through our own initiative. Frankfurt Main Finance continues this principle in a modern form.”
The statistics certainly confirm this assessment. Berlin has 3.7 million inhabitants; Hamburg has 1.86 million. Frankfurt, Germany’s fifth-biggest city with a population of 730,000 ranks in 3rd position for business start-ups. In order to boost this development, I took the initiative to establish a large institute for artificial intelligence, which is intended to build bridges between science and theory as well as business and practice. In doing so, we will make the opportunities derived from the technological future accessible to a broad public comprising the business community and society at large.
The positive development under way in our city has also been confirmed by others. The conclusion reached in a study commissioned by the Goethe University and other partners, reads as follows: “The message is clear: Frankfurt is a highly promising ecosystem, but there are still key areas in which collaboration is urgently needed.” And here is another invaluable function of the initiative: the City has a partner at its side with a critical viewpoint when it comes to potential of improvement. After all, we cannot afford to rest on our laurels. However, this will only work in collaboration and interaction with many others. Not only do these include over 200 credit institutions – along with some 160 foreign banks – but also regulators such as the European Central Bank (ECB), Deutsche Bundesbank and the Federal Financial Supervisory Authority (BaFin).
Looking beyond our borders
The highly dense financial academic research network in the region ensures an analytical viewpoint. However, it is just as necessary to take a view beyond one’s own perimeters, such as into the insurance sector, the real economy or other financial centres. To this end, the Frankfurt Main Finance offers the suitable framework, which is why the City is one of its members. After all, we can only think of the future of the financial centre in networking mode. And the City is well prepared for this!
Frankfurt Main Finance (FMF) has reason to celebrate. The financial centre initiative was founded ten years ago and is continuously growing in importance. FMF has also grown in size since the Brexit referendum and its impacts on the financial sector; today it has more than 50 highly reputed members. Founded in 2008 as a reaction to the financial crisis and at the instigation of Roland Koch, then Prime Minister of Hesse, together with Petra Roth, the former Lord Mayor of Frankfurt, FMF lends the financial sector in Frankfurt and the region a voice that resonates across the world.
“The Financial Centre Frankfurt plays an important role in addressing the major challenges posed to the financial sector by the UK’s exit from the European Union,” says Hessian Prime Minister Volker Bouffier. “In these times, it is important for Frankfurt Main Finance to pool the interests of the financial sector in Hesse and in the federal republic and makes them heard. This also benefits trade and industry and, consequently, the state of Hesse as a whole.”
“Frankfurt is a cosmopolitan, liveable and international city. The finance metropolis is an outstanding and attractive business location. Its central location in Europe along with the requisite infrastructure and proximity to the Central Bank are additional assets that speak in its favour,” says Frankfurt’s mayor, Peter Feldmann. “Frankfurt can contribute substantially to financial stability in Europe, and Frankfurt Main Finance has communicated the city’s capabilities all around the world for years with obvious success.”
Dr. Lutz Raettig, president of Frankfurt Main Finance, says: “We are proud that our consistently growing membership has placed their trust in us throughout the years. For us, this is an incentive to tackle the tasks ahead with great enthusiasm and continue to take responsibility for the financial centre. To do this we rely on our excellent and lasting partnerships with the state of Hesse, Hessen Trade & Invest, the cities of Frankfurt and Eschborn, and their economic development agencies.”
Currently, one of the top priorities of Frankfurt Main Finance is to position the Financial Centre Frankfurt and its greater region in the competition for jobs being relocated from London to the European Union. The Financial Centre on the River Main has been the focus of worldwide attention since the early hours of the day after the UK’s Brexit referendum. Being prepared and able to speak up from the very first moment brought Frankfurt a decisive media advantage, which FMF has consequently used to showcase the city’s strengths where scepticism or ignorance towards the Main Metropolis prevail.
Since March 2016, when the topic of Brexit first began to emerge on the media landscape, Frankfurt Main Finance has been mentioned in more than 2,000 different media and 96 countries in connection with this topic alone, approximately 850 interviews have been conducted, adding up to a total of some ten billion potential readers reached. FMF representatives attended relevant events in the US, Japan, Korea, China, the Middle East and, of course, many times over in London, Paris and Brussels, to represent the position of the Financial Centre Frankfurt.
Companies on both sides of the channel are hoping for clarity on the impact of Brexit on their businesses by the EU summit in October, and no later than the possible EU special summit in November. To what extent the autumn will bring a transition agreement setting the status quo until the end of December 2020, remains unclear. Although this transitional period is foreseen in principle, it is highly dependent on conditions that remain unfulfilled which pose considerable obstacles. This is especially true for the Irish border issue.
Whether there will soon be clarity is still uncertain. From September onwards, the management of Frankfurt Main Finance expects a stormy autumn. Banks will have to make important decisions about their set-up over the next few weeks, as the time to prepare for Brexit at the end of March 2019 will otherwise be too tight. Just a few months before the UK’s exit from the European Union, the risk of a relatively hard Brexit has not been averted. This brings trade, industry and financial services alike under time pressure and pressure to move.
In the coming weeks, financial institutions expect not only increased inquiries from their customers, but also to decide for themselves which of the scenarios they are preparing for. “Time is running out,” says Hubertus Väth, Managing Director of Frankfurt Main Finance. “We’re expecting a stormy autumn: industrial and trade companies, as well as the asset management industry, must now seek to make the necessary arrangements with their financial services providers. It is important to Brexit-proof their financing and investments. That does not work at the touch of a button. We’re heading for a mass start which will lead to a bottleneck for those late to the line.”
Therefore, Frankfurt Main Finance advises companies from trade and industry as well as asset managers to actively pursue dialogue with their financial services providers to Brexit-proof their financing. This applies in particular to the clearing for euro-denominated interest rate derivatives. “Companies must take initiative themselves and approach the banks,” says Väth. “It is in their own interest, for example, to hedge their financing and hedge their interest rate risks even for a hard Brexit. Unfortunately, this case can still not be ruled out. The sooner they talk to their banks, the better the preparation will be, because companies will be the main victims in any case of doubt.”
Frankfurt Main Finance sees the Financial Centre Frankfurt as the logical first choice in the reorganization and orientation of the financial sector after Brexit. However, to make use of these opportunities under increasingly intense international competition requires further substantial effort.
Following 2017’s record results, the office market in the Financial Centre Frankfurt continues to boom with take-up in the first half of 2018 reaching third highest level of the past ten years and the best first quarter since 2000. According to experts at BNP Paribas Real Estate, CBRE, Savills Investment Management and Jones Lang LaSalle, the high level of activity in Frankfurt is leading towards the lowest vacancy rate in 15 years which will continue to fall in the latter half of 2018.
As a result of Brexit, 25 financial services firms have declared intentions to expand or move operations to the Financial Centre Frankfurt. Frankfurt Main Finance expects about 2,000 Brexit related positions will be relocated to Frankfurt by the end of 2018 and still holds its estimate of up to 10,000 potential positions in the medium-term, which have yet to impact demand on the real estate market to their full-extent.
Financial services firms affected by Brexit can still expect to find ample, modern office space in the city centre. Frankfurt remains affordable in international comparison, despite the waning vacancy rate now at 8.3% and Prime Rents increasing to 43 EUR/m2/month, according to data published by BNP Paribas Real Estate. In fact, the Financial Centre Frankfurt is just a fraction of the price of London or Paris. In the second quarter, prime rents in London and Paris topped 118 and 71 EUR/m2/month, respectively. Both cities have a vacancy rate below 6%.
These developments are discussed in detail by the Managing Director and branch head of BNP Paribas Real Estate, José Martínez, and Carsten Ape, Managing Director of CBRE, Andreas Trumpp of Savills Investment Management and Markus Kullmann of Jones Lang LaSalle (JLL), as well as Managing Director of Frankfurt Main Finance, Hubertus Väth.
The deviations in the data concerning vacancy rate, take-up or prime rents between the participating real estate firms result from the varying collection methodoligies or populations. Frankfurt Main Finance does not weight or value the individual methods, but instead presents them transparently.
José Martínez, Managing Director of BNP Paribas Real Estate GmbH and Frankfurt Branch Manager
“The upward trend in the Frankfurt office market continues. With a take-up of 273,000 m2 in the first half of 2018, the result is just under 14% above the ten-year average. Compared nationwide, take-up was higher only in Munich and Berlin.
In no other city are the results distributed so evenly across the various industry groups as in Frankfurt. First place is taken by banks/financial services with a share of 14.5%. Second place is taken by co-working providers, which contribute just over 12 % and are gaining increasingly in importance as a demand group in Frankfurt as well. The top three is completed by the group media and advertising, which is responsible for 12%. Places four to six are filled by three industry groups, which each have a share in take-up of just under 11%. These are public administration, ICT firms and consultancies. This even distribution of the result underlines impressively the very broad demand base and lively market activity. Among the most important deals were the leases of 24,000 m² by the FAZ newspaper in Europaviertel, 8,300 m² by the German Finance Agency in Heddernheim/Mertonviertel and 8,000 m² by the Bethmann Bank in the Banking District.
The reduction in the amount of vacant space has continued and currently stands at 1.28 million m². This is the lowest volume in the last 15 years. Of the total vacancy, however, just under 48% (611,000 m²) has the modern quality preferred by occupiers. The vacancy rate in the overall market has fallen to 8.3%. The biggest problem remains the shortage of space in the central, highly-sought-after locations. Due to the strong demand and inadequate supply of high-quality space, construction activity has increased. A total of 592,000 m² is under construction, but only about half of it is available to the market; the rest is already pre-let. It also needs to be taken into account that most of the supply is only concentrated on a few projects, which in some cases will not be available until 2023. As a result of the relationship between supply and demand outlined above, the top rent has increased compared to the previous year by 12% to 43 €/m². A similar dynamic upward trend has also been recorded for average rents, which have risen by just over 8% to currently 18.30 €/m².
The strong demand situation and the supportive economic environment for the occupier markets will stimulate take-up in the second half-year. This will be even more the case, because the share of major deals should increase. Against this background, an above-average take-up is again expected for the year as a whole, which should exceed the 600,000-m² mark. As the reduction in the amount of vacant space will continue, albeit at a slower rate, a further increase in rents is expected.”
Carsten Ape, Managing Director, CBRE
“Thanks to the strong economy, Frankfurt is in a dynamic state. We are observing an unwaveringly high demand in the office market. With an office space take-up of 253,700 m2 the first half of the year was 13 % above the strong previous years. That strong momentum at the beginning of the year persists throughout the first half of the year.
While the first quarter of the year was dominated by single large-scale projects such as the Frankfurter Allgemeine Zeitung leasing around 24,000 m², the current growth in Frankfurt can mainly be attributed to the traditionally strong financial sector: in addition to banks, consulting firms and law firms, companies from the real estate industry are looking for space.
Moreover, the focus increasingly lies on small-scale objects of up to 1,500 m² – a segment which made up 53% of the 106,800 m2 take-up of the second quarters. Co-working is contributing to that upsurge: within just a few years take-up increased from 1,100 m² in 2015 to 24,800 m² in the first half of this year. Especially start-ups are causing a demand in shared offices – an innovative segment giving the Frankfurt office market an opportunity to grow and ensuring its flexibility.
The high demand, the repurposing and demolition of existing office space as well as a rather modest number of completed real estate projects, caused the vacancy rate to drop to 8.5%. However, construction activity remains to be high. The pipeline is well filled. By the end of 2018, 114,000 m² of office space is to be completed in Frankfurt, of which only about 16% is still available. While the number of available office space is becoming increasingly limited, there is still room on the market.
It is likely that Brexit will have an impact in the medium term. Currently, the political developments in Great Britain are unpredictable and thus, many market participants are awaiting the outcome of the negotiations. However, it can be predicted that Frankfurt will be one of the Brexit winners.
The strong momentum of the Frankfurt office market is likely to continue throughout the second half of the year. The persistently high demand and shortage in office space located at the city centre could lead to an increase in prime rents. Nonetheless, national and international investors are interested in attractive investment opportunities in the Rhine-Main area. Frankfurt continues to be a focal point.”
Andreas Trumpp MRICS, Head of Research Deutschland, Savills Investment Management
“The outcome of the negotiation process for Great Britain’s departure from the European Union will determine the future of other Financial Centres such as Frankfurt. In 2017, the Frankfurt Office Market was marked by record results, even without Brexit-related relocations. An upward trend that persists in the first half of this year. The dynamic of Frankfurt and the Rhein-Main-Region is beneficial to real estate investors, which is amongst the reasons of why Frankfurt moved up 4 places to the 17th most dynamic city in Europe in the recently published Savills IM Dynamic Cities Index. The Main metropolis benefits from its excellent international train and airport infrastructure, above average public transport system and digital network on the local, national and international level. Real estate investors will find investment opportunities in every size category, real estate segment and risk profile. The Financial Centre Frankfurt offers unique investment opportunities that other German cities can hardly provide.”
Markus Kullmann, Team Leader Office Leasing Frankfurt am Main, JLL
“The Frankfurt Office Market reached a strong sales momentum midyear. With a take-up of 260,000 m² a comparison to the previous year (+ 9%), and both the 5- and 10-year average (+ 28% bzw. + 14%.) highlights the outstanding performance. Frankfurt has reached its third-best half-year take-up volume in the past ten years. While large scale rentals of over 10,000 m², such as the rental by the FAZ in the first quarter, do not occur every quarter, we are highly confident that the second half of the year will yield some top lettings – at prime rates. Companies seeking to hire or keep high-calibre personnel are willing to pay prime rents for excellent properties in top locations. Since the dynamic of demand continues to be high, I am confident that take-up will reach 575,000 m² in 2018.
An issue with which actors will be confronted on Frankfurt’s real estate market: vacancy does not necessarily mean vacancy. Available space does not meet the requirements in location, amenities, leasing period and rent. Meanwhile, the vacancy rate is at 7.3 %, with tendency to decrease to 6.8% by the end of the year. As quick reminder: The highest quote was at 17.9 % in 2006. From 2011 (15%) onwards, it gradually declined.
The urgently needed vacant office space did not become available on the market in the second quarter. This is unlikely to have changed by the end of the year. The supply in completed office space of around about 10,000 m² that will become available on the market in the next months is rather modest. I expect a notable relief to hit the market in 2020. By then, 485,000 m² could be constructed.”
Hubertus Väth, Geschäftsführer, Frankfurt Main Finance e.V.
“The high level of leasing activity in Frankfurt and the sinking vacancy rate show that the real estate market in the Financial Centre is booming. The extraordinary quality of life, excellent infrastructure, high concentration of innovative companies and the strong global commercial network make Frankfurt and the Rhein-Main Region one of the most popular destinations international firms. Frankfurt is able and ready to accommodate the numerous financial services firms relocating to Frankfurt from London due to Brexit.”