The niche financial sector, encompassing hedge funds and private equity amongst other financial institutions, represents a vibrant and crucial part of the commercial real estate landscape, particularly in London. Julian and James explore this sector's current position, the potential impact of political changes, and how occupiers can strategically adapt to the changing environment.

Overview of the niche financial market

Predominantly located in London's West End, the niche financial sector is characterised by a diverse range of entities, including hedge funds, private equity firms and family offices. Despite a challenging backdrop of high inflation, geopolitical volatility, accelerating interest rates, cost pressures and margin constraints, the niche financial sector has shown resilience. An overall increase in assets under management (AUM) has led to headcount expansion amongst market leaders. For example, the world’s top 20 hedge fund managers made record profits in 2023 of $67bn, exceeding the previous record of $65bn in 2021. Mergers and acquisitions have also created larger firms, fuelling further growth and success for some clients in the niche financial sector.

On the private equity side, historically, low interest rates and international players establishing operations in London have strengthened business models, driving high demand for prime real estate.

Whether advising clients on wholesale relocations or on Stay Vs Go office reviews it is vital to have a clearly defined project programme, with all key decision dates clearly identified. However, as a result of supply shortages, particularly in preferred locations, competition can be significant. As a consequence we are recommending clients initiate these projects far earlier than previously has been the case. When looking for space, niche financial companies are investing in high-quality office space in new or repositioned developments that reflect their brand and values to attract and retain the best talent. An exceptional workplace experience is also preferred for clients as well as space that enables or supports the delivery of a range of strategic agenda items that include digital transformation, future employee needs and a more complex and challenging operating environment.

What impact will a new government have?

London has long been a beacon for the niche financial sector, consistently ranking as a top global financial hub. Its favourable time zone and business environment, robust infrastructure, desirable living conditions, deep talent pool, sophisticated investor base and leadership in innovation and regulation are some of the reasons for its enduring appeal.

However, the changing political landscape brings both opportunities and challenges. The Labour Party has proposed tax changes in its first manifesto when forming the new government, targeting private equity and non-domiciled individuals, potentially impacting London's attractiveness for niche financial firms. Despite the headlines, their full impact remains uncertain as some policies are subject to consultations and potential modifications.

London's strengths will also mitigate some of these potential impacts. The city's leadership in the aforementioned areas provides substantial pull factors that continue attracting niche financial companies. The government’s financial services plan prioritises regulatory reform and innovation to ensure the city remains competitive. The Financial Conduct Authority (FCA) is also looking into improving asset management regulations to support technological developments, further enhancing the sector's resilience and adaptability.

The Labour Party is also building on Conservative policies aimed at steering pension funds towards investing in high-growth UK businesses and other initiatives designed to boost investment in the UK. This approach requires expanded capacity in areas such as venture capital, which would catalyse growth. Finally, political stability is crucial for business confidence within the niche financial sector, and the new government has committed to providing this stability.

They have introduced a new set of considerations within the niche financial sector. While it is still too early to predict exact outcomes, London’s role as a strategic financial centre remains pivotal. The proposals are designed to enhance the financial sector's competitiveness through innovative and coordinated regulations. This includes making the UK a global hub for green finance, embracing fintech, and encouraging institutional investments in venture capital and growth equity.

A strong majority government also offers a level of stability the UK hasn’t felt for some time. In 2024, around 49% of the world’s population will have had or will face an election. In other countries, there have been significant swings across parties, causing a level of unpredictability. The new Labour government has a clear mandate and ability to push things through swiftly. The UK is able to plan with more certainty than other countries.

The future outlook for occupiers

In the immediate future, it’s hard to tell how occupiers will respond to the  change in government, but the overall sentiment should become more apparent by the end of the year. The stability offered by a strong majority might provide the certainty needed for more decisive long-term planning. The government’s swift efforts relating to stimulating growth could encourage growth, particularly in venture capital. Recent statistics show that the UK and London continue to lead in venture capital funding of tech companies.

Supporting occupiers through transition

As the niche financial sector navigates this period of change, flexibility becomes paramount. The geopolitical and macroeconomic landscape, compounded by Brexit and COVID-19, has already necessitated adaptable strategies. Offices must offer increased flexibility in lease terms and strategic planning to help clients preserve choice in a tight vacancy market. Due to a lack of supply, all occupiers, particularly those over 20,000 sq ft, should initiate their searches earlier to avoid missing out.

How can we support you?

We’re committed to supporting you through these transitions. By integrating flexibility into your commercial real estate strategy, we can help you navigate the uncertainties and ensure you remain agile in a changing business environment.

While the niche financial sector is experiencing change, significant growth opportunities are balanced by political stability in London's dynamic market. Explore the latest in-depth analysis from our niche financial sector report, or get in touch with Julian Woolgar and James Fairweather to find out more.