GS Goldman Sachs Group Inc

By Jon Sindreu, Art Patnaude and Jasmine Horsey 

At a construction site in central London, several cranes rear above a concrete structure that is being built into the new European headquarters of Goldman Sachs.

Three years ago, the co-chief executives of the bank's international operations said that if Britain left the European Union the U.S. bank would scale back its London operations. Last Thursday, Britain voted to leave the EU.

The Goldman Sachs headquarters is one of at least 20 new buildings being built by foreign financial services companies that were expanding in London ahead of the vote. While most say that they haven't changed their mind on construction yet, their crane-filed sites now stand as a potent symbol of post-Brexit risks and tensions for the finance industry and for Britain.

"I think a number of them will be put on hold," said Michael Ball, professor of property economics at the University of Reading.

Before the referendum, several international banks threatened to move jobs from London to other European capitals, such as Paris, Dublin and Frankfurt, if the vote was to leave. Foreign institutions can sell their services across the EU from London and had expressed fears that with Britain outside the bloc they would lose this "financial passport."

In 2013, Goldman Sachs executives Michael Sherwood and Richard Gnodde told the Evening Standard newspaper that if Britain left the EU, the bank may end up spreading its sales teams across the continent. Currently, all but 500 of the bank's 6,500 European staff are based in London. A spokesman for Goldman Sachs said the issue hadn't yet been discussed following the vote.

The stakes are high for both Britain and the banks. Financial services contribute 18% to London's economy, and construction and real estate make up about another 17%. For the finance industry, London offers a cluster of mutually dependent services, from lawyers to fund managers and bankers. London also allows a base in an English-speaking country with lower taxation than many European peers and amenities that bankers like, despite the city's high costs.

When French bank Société Générale SA announced in 2014 it would build a 26-story building in London's Canary Wharf financial district, their prospective neighbors at Morgan Stanley were riled at the thought of getting their office views obscured by a rival.

On Monday, Morgan Stanley employees were openly gloating, according to several people at the U.S. bank.

Société Générale has said that it remains committed to London. Morgan Stanley declined to comment.

But Britain's exit from the EU could potentially hit all banks, depending on the sort of deal that Britain and Brussels can come to on U.K.-based firms' continued access to the rest of the bloc.

London could lose 100,000 jobs to continental Europe, According to an estimate from Jefferies International Ltd.

On Thursday, the chairman of HSBC PLC, Douglas Flint, said that the British bank may have to move 1,000 of its 6,000 London-based investment banks to Paris if the U.K. lost its passporting rights into the single market.

Among other banks building new headquarters, Royal Bank of Canada, Canada's largest lender by assets, has signed a pre-let deal to move staff from its current two London locations into to a more central 37-story tower. This week, workers in high visibility clothing continued to work among the three cranes that towered over a site surrounded by some of London's most iconic modern buildings.

A representative for the bank said no discussions had taken place to change relocation plans.

Bloomberg LP, the financial services and media company owned by U.S. magnate Michael Bloomberg, is set to move its European headquarters into new, larger offices next year. Designed by renowned architect Norman Foster, the building had to include a double basement to protect the remains of a Roman temple found under it. A representative for the company, which competes with Dow Jones, the publisher of The Wall Street Journal, said plans hadn't changed.

But Britain's exit from the EU could potentially hit even those companies staying in London. If enough firms vacate office space in the city, commercial property prices could tumble, hitting businesses that already have built or agreed to let new offices at current high prices.

London is in the midst of a massive office-construction boom after years of supply constraint. According to a survey by accounting firm Deloitte LLP, 51 new office buildings have been started in central London since the start of the year, the highest volume since records began in 2002.

As of March, companies had already signed leases on 42% of office space being built, according to Deloitte. Of those companies, 25% are international banks.

Real-estate analysts at Swiss bank UBS said the city will see a large volume of new supply coming into the market at a time when demand from businesses is "likely to remain very weak."

UBS has plans of its own. Later this year, the bank is expected to move into a new 700,000-square-foot office in London.

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Margot Patrick contributed to this article.

Write to Jon Sindreu at jon.sindreu@wsj.com and Art Patnaude at art.patnaude@wsj.com

(END) Dow Jones Newswires

June 30, 2016 13:03 ET (17:03 GMT)

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