One man's loss is another man's gain, as the saying goes, and so it seems to be the case for Brexit. As Britain prepares to suffer an outflow of jobs from its capital over the coming years, Europe, and one city in particular, looks set to reap the benefits: Frankfurt.
Already a thriving financial hub, Frankfurt has so far emerged as the destination of choice for London banks looking to relocate staff in order to continue serving European customers after the U.K.'s EU exit.
The trend is surely a win for a city at the heart of the union. But it has also raised concerns about its ability to cope with the sudden surge in population, and nowhere will this be more acutely felt than in its housing market.
In November last year, Deutsche Bank predicted that 5,000 new residents could be expected to settle in Frankfurt as a result of Brexit-related job moves. Then, in early 2017, as Brexit discussions gathered pace, the German bank reported an almost 12 percent rise in Frankfurt property prices as the market finally awoke from a financial crisis-induced lull and supply limitations took hold. Its rate of growth was almost double that of the country's other major cities.
Today, the number of Brexit relocations is likely to be closer to 8,000, and rising, according to August research from German bank Hebala. Citigroup, Goldman Sachs and Standard Chartered are among the institutions to confirm that they will be upping their staff numbers in Frankfurt. Indeed, just last week, Deutsche Bank's chief executive John Cryan said that more so than other Brexit beneficiaries, such as Paris and Dublin, Frankfurt is the "only one European city" which can fulfil the structural requirements to match London.
Yet, despite boasting a healthy supply of office space, the city suffers from a severe housing shortage; and it's set to get worse as the city grows increasingly popular among Germany's younger workers, as well as London émigrés. In 2016, Frankfurt's population grew by approximately 16,000, while just 4,000 new properties came to the market, according to Helaba's real estate analyst Stefan Mitropoulos.
"In contrast to the ample volume of available office space, vacancy rates on Frankfurt's housing market are currently negligible," Mitropoulos wrote in Helaba's August report.
"The influx of new residents from inside and outside Germany has been accompanied by increasing construction activity over the last few years. However, it has not been strong enough to keep up with the additional demand, with the result that the gap between supply and demand on the Frankfurt housing market has widened," Mitropoulos noted. "This is leading to a significant rise in house prices."
Deutsche Bank estimates that Frankfurt is currently short around 30,000 properties – and that's before Brexit.
"If you look at the deficit of apartments in Frankfurt, we're missing around 30,000 and it's an inelastic market and the demand overhang is here to stay," Jochen Moebert, real estate analyst at Deutsche Bank, told CNBC last week.
The issue has become a key subject of debate in the country's upcoming election on September 24. Angela Merkel's Christian Democratic Union (CDU) and the smaller Alternative for Germany (AfD) and Free Democratic Party (FDP) are among the parties pledging solutions. If re-elected, as widely anticipated, Merkel has said her government will boost supply and build 1.5 million new homes in the next four years, up 25 percent on the number pledged in her previous term.
Moebert described the plan as "helpful," however, he is doubtful that it will get rid of the now escalating demand.
Mitropoulos agrees: "There is much potential for improvement in German housing policy. The most important thing is to find new land for housing. Rather than just regulating, they (the government) should be allocating more land for development."
But the process is a long one, and unlikely to accommodate a near-term surge in population. A new development was announced in Frankfurt last month, however, according to Moebert, "no one expects this (to be finished) within the next ten years."
The U.K. is due to leave the EU in March 2019, meaning that staff will need to be installed in their new European offices in less than 18 months.
Meanwhile, German property agent Sotheby's International Realty told CNBC it has seen a "considerable" uptick in interest from U.K. residents since the start of the year. Britain now accounts for the second-largest source of traffic to the firm's website after Germany.
For Brits, interest lies mainly in smaller, furnished rental properties as this stage, as City workers contemplate commuting to Frankfurt for work and retaining their main residences in the U.K. – at least while the details of Brexit are being ironed out – Sotheby's managing director, Olivier Peters, told CNBC Tuesday.
This demand for pied-a-terres is likely to especially hurt Frankfurt's younger, lower-income residents, who some fear will be priced out of the city by the influx of wealthier Brexit financiers. A system of 'rent caps', implemented in Germany in 2015 to prevent sudden price surges for tenants, looks set to be phased out by the next government amid criticism that it led to bidding wars among tenants and did little to solve the underlying housing shortage.
"Displacement of lower income groups being priced out of the city's increasingly urban districts remains a serious issue," Mitropoulos told CNBC over the phone.
"The problem won't be for London's bankers, who are used to paying higher rents. The problem might be or some other parts of the population – Brexit will just be the catalyst.
One man's loss may be another man's gain, but it seems that alongside London there are likely to be a number of losers within Frankfurt as a result of Brexit.