As UK businesses prepare their operations for the uncertainty of a post-Brexit world, locations throughout Europe are reporting a surge in interest from firms that do not want to leave anything to chance. The German state of Hessen is one that is apparently benefiting from the strength of its financial services sector, with more and more businesses opting to invest in Frankfurt and the wider region.
Already home to the European Central Bank (ECB); Germany’s central bank, the Deutsche Bundesbank; the European Insurance and Occupational Pensions Authority; the Frankfurt Stock Exchange; Eurex; and many international banks and global financial services institutions, Hessen is well placed to benefit from financial services firms’ Brexit-related decisions.
“It’s the capital of the eurozone, and as the financial centre of continental Europe, we see companies in the financial services sector coming to Frankfurt,” says Dr Rainer Waldschmidt, chief executive of Hessen Trade & Invest. “We call this the first wave. We’re seeing highly regulated companies from the financial sector who are thinking about what they are going to do next year – maybe without EU passporting – so they’re already here.”
Mr Waldschmidt says that since the UK’s 2016 referendum on leaving the EU, about 25 banks have announced they are strengthening their presence in Frankfurt. They include Citigroup, Goldman Sachs, JPMorgan Chase, Nomura, Daiwa Securities, Sumitomo Mitsui, CICC, State Bank of India, Westpac, Lloyds Banking Group, Bank of Scotland, Standard Chartered and UBS.
“Banks can’t continue to do parts of their business from the UK, so they’re deciding to come here,” he says. “Sometimes they choose Frankfurt because they already operate other parts of their business here. The clock is ticking. It’s not long until March 2019 [when the UK is set to leave the EU], so more decisions will be executed in the third quarter of this year.”
Investors in the region have traditionally been attracted by Germany’s strong fundamentals, such as its political and economic stability, which have made the country a popular choice of location. It is one of the largest economies in the world, and according to Hessen Trade & Invest, accounts for about 21% of the EU-28’s GDP, and about 25% of the EU-27’s. In 2015, Hessen was among the top three German FDI destinations for global investments, boasting a per capita GDP significantly above the national average, and it is a major destination for FDI from the US, China, the UK, France, Japan, South Korea and India.
The region is ready to accommodate the firms looking to broaden their base or set up shop in the region, says Mr Waldschmidt. “Frankfurt School of Finance & Management is already producing lots of highly skilled people,” he adds. “What is also available – and has never been a problem – is high-quality office space, and this is much cheaper than in London.”
Of Frankfurt's other attractions, Mr Waldschmidt says: “One of the big advantages of Frankfurt is that everything is very close together in the financial centre, so you can walk everywhere. We also have a great number of international schools – more than 30 of them – with [the UK’s] King’s College the latest to open its doors in the north of Frankfurt in 2018.”
Another of Hessen’s strengths is its transport infrastructure. “You’re 90 minutes from London, so you can go there in the morning and come back home in the evening," says Mr Waldschmidt. "Frankfurt airport is well connected internationally, so there are lots of flights to major business destinations. Travel in the area is easy – you can live outside the city and still have only a 15- to 20-minute commute into the centre. The airport is well connected to the city via roads and public transport. Internet infrastructure is also excellent: we are the world’s leading internet exchange point.”
The Brexit challenge
Although Hessen is making the most of the opportunities being provided by Brexit, Mr Waldschmidt points to the challenges facing businesses in the region. “Brexit means uncertainty for companies in Hessen,” he says. “We have conducted a study on this, which has revealed increasing uncertainty.”
Increasing talk of a cliff-edge Brexit means local firms must ensure they are ready for a variety of outcomes. “They are having to rethink a lot of things,” says Mr Waldschmidt. “They are having to think about tariff and non-tariff costs, and these need to be researched and will have an impact. Time is running short and they are starting to prepare for a cliff-edge Brexit, even if they don’t like it. Preparing means delaying decisions and rethinking potential activities in the production and research process.
“We were well prepared for the Brexit decision, but we were extremely unhappy about it. Most of our German colleagues would have liked things to have continued the way they were, but we have to accept it and do our best.”
“All the local, regional and state economic development agencies are working very closely together to set up a structure where people who are coming from wherever are taken care of, and we’re talking about how we can help them solve their problems. In this regard, we have a theory that there are two to three waves taking place, and this depends on how firms are regulated. In the first wave, we’re seeing firms from the highly regulated sectors such as financial services and pharmaceuticals.”
Mr Waldschmidt adds that the region fares well when it comes to soft factors for choosing a location. “It’s easy to get around here. Someone recently told me that it could take two hours to get from the centre of Shanghai to the next area where they could go mountain biking. In Frankfurt, it takes just half-an-hour to be in the hills. It’s a popular region for tourism, being close to the River Rhine, and it is home to the very popular Rhinegau festival.”
Industry reports highlight Hessen’s popularity with visitors. The latest figures reveal an increase in tourist numbers in Frankfurt, with the number of overnight stays in the city set to exceed the 10 million mark for the first time this year. There are now almost 53,000 beds being offered by 289 Frankfurt accommodation businesses, an increase of 2955 on 2017.
In the first few months of this year it has welcomed an increasing number of visitors from the US, China and Japan, while there has been a double-digit growth in overnight stays by tourists from Spain, the UK, Netherlands, Italy and France. And, although business travel continues to shape tourism in the city, hoteliers are having no problems filling rooms at weekends.
Costs of this report were underwritten by Hessen Trade & Invest. Reporting and editing were carried out independently by fDi Magazine.