Luxembourg Runs Low on Large Offices for Insurers, Banks Seeking Post-Brexit HQs

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Luxembourg 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 London firms opening up a post-Brexit presence in the European Union, there’s a nagging question: is there enough office space?

“We asked ourselves in the beginning, right after Brexit, if Luxembourg will have the capacity to respond to the demand,” said Julien Pillot, a real estate 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 Luxembourg City.

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 new area is being developed to accommodate 30,000 people just four kilometers south of the center, in the Luxembourg City district of Cloche d’Or. It will combine office spaces, residential flats, shops, a large shopping mall, schools and a new train station.

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

The U.K.’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 Statec says Brexit has brought 250 new jobs to the country, with estimates that ultimately 3,000 new positions could be created.

For staff parachuted in from London to the edge of Luxembourg City or beyond, the days of nipping to old Spitalfields market for a pulled-pork sandwich, or heading to a 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 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 new office spots. 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.

Kirchberg, the Luxembourg district that houses the EU’s courts, is already benefiting from the new tram line. A building occupied by ABN Amro Group NV in this coveted area — with almost 6,000 square meters of office space — was sold for more than 50 million euros to Belgian real estate investor and developer Alides.

“At this moment, it is not Brussels but Luxembourg that benefits most from the Brexit,” Rikkert Leeman, director of the Luxembourg unit of Alides, said in a June 29 statement to announce the deal.

Gilles Bindels, chief executive officer of real estate 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 business 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.

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 London 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 U.K. leaves the 28-nation EU.

Insurance giant American International 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 nation of 600,000 people as their EU foothold.

The Luxembourg real estate 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.”

–With assistance from Andrew Blackman and Jack Sidders.

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