with employees (location,employee)
  as (          select 'London','James'
      union all select 'London','Eddie'
      union all select 'London','Michelle'
      union all select 'Madrid','Diego'
      union all select 'Madrid','Julio'
      union all select 'Madrid','Marta'
      union all select 'Berlin','Heinze'
      union all select 'Berlin','Rudi'
      union all select 'Berlin','Lothar'
     )
    ,tmp_location (location,rn)
  as (select location
            ,(row_number() over (order by location)-1)*3 as rn
        from employees
       group by location
     )
select todisplay
  from (select location as todisplay
              ,rn
          from tmp_location
        union all
        select b.employee as todisplay
              ,a.rn+1 as rn
          from tmp_location as a
               inner join employees as b
                       on b.location=a.location
        union all
        select '' as todisplay
              ,rn+2 as rn
          from tmp_location
       ) as a
 order by rn
         ,todisplay

WITH Employees (Location,Employee) AS (
SELECT CAST('London' AS VARCHAR(10)),CAST('James' AS VARCHAR(10))
UNION ALL SELECT 'London','Eddie'
UNION ALL SELECT 'London','Michelle'
UNION ALL SELECT 'Madrid','Diego'
UNION ALL SELECT 'Madrid','Julio'
UNION ALL SELECT 'Madrid','Marta'
UNION ALL SELECT 'Berlin','Heinze'
UNION ALL SELECT 'Berlin','Rudi'
UNION ALL SELECT 'Berlin','Lothar'
), CTE AS(
	SELECT	DISTINCT
		Location
	,	Employee = CAST(Location AS VARCHAR(MAX))
	FROM	Employees
	UNION ALL
	SELECT	
		Employees.Employee
	,	CAST(CTE.Location + Employees.Employee AS VARCHAR(MAX))
	FROM	Employees
		JOIN CTE
		ON Employees.Location = CTE.Location
)
SELECT	Location
FROM	CTE
ORDER BY Employee