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By Sinead Cruise and Anjuli Davies
LONDON, May 13 (Reuters) - The prospect of Britain quittingthe European Union has inflicted little damage so far on demandfor space in London's financial hubs, first quarter rental datasuggests, despite some warning signs from investment banks.
A year after Prime Minister David Cameron's election winfired the starting gun on the European Union membership vote,London remains Europe's most 'in-demand' office market, andthere is little sign of an uptick in rivals Frankfurt and Paris.
Research from real estate broker CBRE shows only 2.9percent of total office space in the City, London's historicfinancial district, was available for rent in the first threemonths of 2016, compared with 12.2 percent in Frankfurt, 6.3percent in Berlin and 6.8 percent in Paris.
Rents are also rising, underlining demand among occupiers,although early second quarter indicators on yields suggestinvestor confidence has started to wane.
Such figures may assuage concerns among those worried thatfirms would slash their London operations or even abandon the UKcapital altogether, in the run-up to the June 23 referendum.
Uncertainty has infected broader market sentiment, withBritain's pound losing 5.6 percent of its value against thedollar and 10.3 percent against the euro in the past six months.
But London's real estate market is holding firm.
Prime rents in the City rose 7.7 percent year-on-year in thefirst quarter, compared with 1.3 percent growth in Frankfurt andzero growth in Paris, according to CBRE.
"Leasing is a pretty big decision for most companies and wehave seen quite a scramble for space in London over the last fewyears. Most companies are still expecting a vote to remain,"Neil Blake, CBRE head of research, said.
Meanwhile, rents in London's skyscrapers are rising fasterthan those in any other global city, according to the latestSkyscraper Index from property services firm Knight Frank.
The report, which examines the rental performance ofcommercial buildings over 30 storeys across the world, showsthat average rents in London skyscrapers rose 9.7 percent to$126 per square foot in the second half of 2015.
Skyscraper rents in Paris' La Defense financial districtwere flat over the same period, while in Frankfurt, rentsactually dropped 1.16 percent.
"There has been much debate around the future of London'sskyline but the rental performance of the capital's skyscraperspoints to the fact there is huge demand for space in landmark,tall buildings," Will Beardmore-Gray, head of Knight Frank'sTenant Rep and Agency Business, said.
"We expect upward pressure on rents to continue," he said.
WARNING SHOTS
One of the reasons is that major banks reckon there is noeasy alternative to London, home to the European headquarters ofthe likes of Bank of America Merrill Lynch, MorganStanley, JPMorgan and Citi.
"Nowhere else has scale, nowhere has a major market in thistime zone. Nowhere comes close to London," said one seniorexecutive at an investment bank, speaking on condition ofanonymity.
Reflecting this, Swiss bank UBS is preparing tomove into a newly built 65,000 square metre City base, andconstruction is underway to create a 111,500 square metreEuropean headquarters for Goldman Sachs.
But despite the resilience of London's rental market, thereare signs that investors are retreating as the referendum nears.
Average prime rental yields on UK commercial property, whichreflect investment interest, nudged up 7 basis points to 4.69percent in April, the biggest monthly change since June 2010,data from Savills shows.
This means buyers are demanding more annual income from aproperty deal to offset the risk of their investment. Thecaution follows speculation that some banks might considermoving if Britain does leave.
French finance minister Michel Sapin said on Thursday someFrench banks had told him Brexit would have consequences forsome of their London-based activities.
HSBC has said it could move around 1,000 employeesfrom London to Paris in the event of a vote to leave the EU andother banks are privately contingency planning for theactivities they may have to shift out of the British capital.
Martin Shanahan, boss of IDA Ireland, the Irish governmentagency responsible for foreign direct investment said in Marchhe had met with financial services firms who were weighingcontingency plans which could include relocation to Ireland.
Credit Suisse has already shifted some trading jobsto Dublin, and is looking at moving nearly 2,000 jobs out of theLondon to lower costs centres such as in Poland and India, atrend that started independently of the Brexit debate but couldwell be accelerated as banks continue to rationalise costs. (Additional reporting by Esha Vaish in Bengaluru Editing byJeremy Gaunt)
