In the financial services sector, there is a current trend toward more conservative thoughts and ideas. This is especially true in their leasing activity, where these firms find they are leasing smaller amounts of space and reducing the number of leases they are offering. But what is the cause of this? And what does it mean for the future of these firms?
There are four main factors that are affecting the leasing of space, and that are pushing financial service firms toward a more conservative leasing angle as they struggle to remain competitive in a changing world.
1. More Government Regulations
According to BisNow, financial regulations such as the Dodd-Frank Act and others have tightened what financial service firms are able to do.
Lending standards have changed and tightened up considerably, and the government has also required an increased level of transparency for financial services. That has affected the bottom line of the majority of financial service firms, and left them looking for ways to improve their bottom lines. Leasing does not factor into that improvement, so it stands to reason that there has been less leasing as the regulations have changed and become more restrictive.
It does not appear that restrictions will be eased on these types of issues, which would have allowed many financial service firms to improve their bottom lines and start moving forward again. With this not being the case, these firms will have to continue based on the tighter levels of regulations under which they are currently operating.
2. Fintech Firms Are Suddenly Booming
The overall demand for the financial sector has been slowing down, but there is one place where that is not happening. The financial services technology sector is booming, and will likely continue to do so for years to come. This area of financial services has earned the term “fintech,” and it includes Stripe, PayPal, NerdWallet, and related types of sites. Forbes has stated that as much as 40% of financial services revenue could be eventually lost to the fintech sector.
This part of the financial sector is likely going to drive much of the demand in the future, especially where leasing is concerned. Companies want office space for their fintech needs, but that space has to be right for everything they have to do and the way they run a company. They require particular types of setups, and when financial service firms own real estate that does not match when fintech companies need, that real estate can end up sitting empty.
3. A Change in the Utilization of Space
Large firms are merging together, and many are downsizing as the economy shifts and changes over time. Because of those types of changes, there is less space needed for companies that are leasing. They are moving out and moving away, as they are absorbed by other companies or as they consolidate their operations to a central hub and shift their goals in the face of changing internet usage and other factors.
InformationWeek has shown that even tech companies are doing this, not necessarily because they are performing poorly, but because they are looking for ways to cut costs and save space.
In short, less space is required, so fewer leases are requested. Landlords that need new tenants are offering extras and perks, but financial service firms are still left struggling in the leasing department.
4. Initiatives That Help with Cost Saving
Like many companies today, the financial services sector wants to save money. It does this by reducing its real estate and leasing in order to lower its overhead and other costs. The more real estate it has, and the harder it is to keep that space leased, the more financial risk the company has over time.
Financial service firms are seeing this issue appear again and again, and it is becoming a common theme throughout the sector as a whole.
An article in the Winston-Salem Journal recently indicated that financial institutions are turning to artificial intelligence and data mining, neither of which require a lot of real estate or take up much space, but both of which can help with cost savings. With the changes that need to be made in order to remain financially viable, reducing the real estate owned makes sense as a cost-cutting move with some big benefits.
Regards,
Ethan Warrick
Editor
Wealth Authority
