The London property market is having to make room for US firms which are moving in and spreading out, says Mark Lethbridge. Mark Lethbridge is divisional director of international property consultancy Richard Ellis.
Over the past two years there has been a significant expansion in the number and size of US firms practising in London. Most of this expansion has come from firms already in London, but a number of practices which had no presence here before have acquired units as large as 20,000 sq ft in the capital.
Part of the attraction of the UK for US firms is a change in Law Society regulations in the early 1990s. This opened the door to the establishment of multinational partnerships, paving the way for local capacity. Since that point, US firms have never looked back.
From a commercial property perspective, it seems as if a quiet invasion is taking place. Of course, a strong foreign presence is very much a feature of London, particularly the City, which plays host to more than 500 foreign banks.
However, banks tend to set up with small representative offices, gathering information and researching the market before subsequently applying for a licence from the Bank of England to upgrade to full branch status. In the case of US lawyers, the influx has been more rapid and is more recent.
A number of US firms have moved offices in the past 18 months. Almost all have done so as a result of substantial expansion. These include Skadden Arps Slate Meagher & Flom, which has moved into 19,000 sq ft of office space in Canary Wharf, and Shearman & Sterling, which has taken 24,000 sq ft at 199 Bishopsgate in EC2. In the same 18-month period, 730,000 sq ft of grade A-quality accommodation in the City in the 5,000 to 15,000 sq ft range has been taken up.
So, in this bedrock sector of the market, the impact of US firms is obvious. Indeed, many of the highest rents have also been paid by this sector of the legal profession, with a number of firms paying rents of £40 per sq ft or more.
For example, rents of £45 per sq ft are being quoted by the International Financial Centre (IFC), formerly known as the NatWest Tower, which is due to be launched in November following major refurbishment. Richard Ellis, acting for NatWest as joint letting agent, is in negotiations with US firms for a number of floors, each comprising about 10,000 sq ft.
In many ways the IFC typifies the high-profile accommodation sought by US firms. Most require floor space of around 10,000 sq ft with a high level of natural light to allow a cellular fit-out. Most also require a central City location.
In addition, US lawyers and US companies in general tend to negotiate hard for flexible leases which incorporate early tenant-break options, principally to allow for expansion.
In the US, such leases are common and over the past seven years the same has been true for much of the UK. But as the UK's commercial property market has emerged from the recession, these tenant-led leases have become more scarce. In many of the top City developments, landlords are seeking a minimum term of 15 years before the first break, whereas a year ago it might have been 10 and in the depths of the recession it would have been five.
One of the attractions of the IFC is that it will offer flexible leases, which helps explain the high level of interest from overseas organisations.
It seems likely that there will be no let-up on the expansion of Us firms in the UK. Much of the activity involves the poaching of individuals, and even whole teams, from other, mostly UK, firms. There is also a number of mergers in the offing between UK and US partnerships. Whatever happens, one thing is clear: US firms are over here, and here to stay.