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A Brexit to where for businesses?

Even if threats from business to leave Britain are real, there might not be anywhere else for them to go, Sarah Moore.

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Those fleeing might find themselves squeezed

"Red carpets are being rolled out all over Europe by cities seeking to attract large departments of blue-chip businesses," writes Judith Evans in the Financial Times. And already several companies are hinting at potential moves abroad to pre-empt the UK's exit from the European Union, especially in the financial sector.

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Indeed, several bank heads' hands are "quivering over the relocate button", says Anthony Browne, head of the British Bankers' Association. Yet even if the threat to leave is real, it's becoming increasingly evident that there might not be enough space for them.

European cities flagged as likely relocation destinations include Dublin, with its favourable tax regime and shared language with the UK, and Paris, whose financial regulator is offering fast-track registration. However, despite a clear willingness from other cities to court UK-based companies, office vacancy rates across Europe's major cities are currently at their lowest rate for a decade, says Evans, in part because developers have been slow to embark on new office buildings following on from the 2008 financial crisis.

One million square metres of office space could be needed by 2020 to house financial services jobs that end up in mainland Europe, estimates Capital Economics. At the moment, this is equivalent to the entire vacant office space in Paris, while Dublin only has 300,000 square metres available.

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If you run a bank looking for office space to house 2,000 people in the central business district of a European city, there are currently only eight options for companies of this size in Paris and five in Frankfurt, says Evans. Dublin, Madrid and Amsterdam each only offer one option, according to research from real estate company Savills. Options may be more numerous if banks are looking to house fewer people, says Evans. But even then, there's not a great deal of choice.

That means that if any significant number of businesses relocate jobs to Europe, the increasing demand for office space on the continent may be good news for investors with exposure to European commercial property. Some investment firms are already positioning themselves to take advantage of this trend. For example, Schroder's European Real Estate Investment Trust is looking to buy office space in Frankfurt, while Bloomberg reports that CBRE Global Investors and Standard Life are seeking to acquire office buildings in cities such as Dublin and Amsterdam.

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