changing face of the city · the changing face of the ... business sectors ... ons, city property...
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This paper examines a range of sources that look at the City of London’s economy,in terms of its economic and fiscal contribution to the UK, and its characteristics asa financial and business centre. The paper focuses in detail on three aspects of theSquare Mile: employment, firms and industries, and property. The papersummarises the current position for the City, and projected changes.
Secondary research briefing paper
April 2015
Prepared by the City of London Corporation
The Changing Face of theCity of London
The Changing Face of the Square Mile – secondary research briefing paper is
published by the City of London Corporation.
This report is intended as a basis for discussion only. While every effort has been
made to ensure the accuracy and completeness of the material in this report, the
City of London Corporation, give no warranty in that regard and accept no
liability for any loss or damage incurred through the use of, or reliance upon, this
report or the information contained herein.
April 2015
© City of London Corporation
PO Box 270 Guildhall London EC2P 2EJ
http://www.cityoflondon.gov.uk/economicresearch
1
Summary ...............................................................................................3
1. Introduction .....................................................................................5
1.1. Outline ........................................................................................................................5
1.2. Scope .........................................................................................................................5
1.3. Usage..........................................................................................................................5
2. Employment in the Square Mile .....................................................6
2.1. The City’s employment ............................................................................................6
2.2. The City’s workforce .................................................................................................6
2.3. The City’s sectors.......................................................................................................8
2.4. The City’s employment outlook ..............................................................................8
2.5. City recruitment surveys...........................................................................................9
3. Industries and firms in the Square Mile........................................11
3.1. The City’s enterprises ..............................................................................................11
3.2. Business sectors........................................................................................................12
3.3. The City’s business population ..............................................................................12
3.4. High-growth SME firms ............................................................................................13
3.5. The City’s clusters ....................................................................................................14
4. Property, office space and infrastructure in the Square Mile ....16
4.1. The City’s office stock.............................................................................................16
4.2. Future City office floorspace.................................................................................17
4.3. Demand for City office space. .............................................................................18
4.4. City rents and vacancy rates................................................................................18
4.5. Ownership of City office space ............................................................................19
2
Summary
The City’s GVA was £48.7 billion in 2013, representing 15.2% of Greater
London’s economic output, and 3.6% of the UK’s. This is projected to rise to
£67.5 billion by 2023.
The financial services sector accounted for £31 billion or 64% of the City’s GVA
in 2013, and also plays a key role at the UK level, contributing 7.9% of GDP,
and £65.6 billion or 11.5% of total UK tax receipts in 2013/14.
The City generated an estimated £13.4 billion in tax revenues, equivalent to
just over 10% of London’s total tax take. London’s tax contribution in 2013/14 is
estimated at £127 billion, resulting in a net contribution of £34 billion to UK
public finances.
392,400 people were employed in the City in 2013, representing 8.3% of
Greater London’s employment, and 1.4% of the UK’s total employment.
There were 15,105 enterprises located in the City of London in 2014; 205 were
large enterprises (employing over 250 people). In 2012, 215 large enterprises
accounted for 52% of employees (last available statistics), demonstrating the
role of large businesses as significant employers in the City.
Total office space in the City (EC1-4) is estimated at 69 million sq ft.
Four main business clusters, defined as areas with above UK average
concentration of firms and/or employment, exist within the City; financial
services; insurance services; professional services; and technology, media
and telecommunications (TMT).
The financial services industry dominates the City of London’s economy, accounting for 38% of all employment and 64% of economic output,
comprising 2,430 (16%) firms, with 90 firms (4%) classified as large firms (>250
employees), and making up 48% of all space occupied by sq ft in 2013.
However, over 2003 to 2012 the number of financial and insurance services
firms and employment has decreased, while the professional services and TMT
sectors are showing strong signs of growth in terms of employment, firm
numbers and office space take-up, with TMT accounting for nearly a quarter
(23%) of City take-up in 2013.
Looking ahead, the City’s output is projected to continue to grow at a rate of
3.4% per year to 2018. Over the next 2 years it is forecast that 15,000 new jobs
will be created in the City, with professional services expected to account for
more than half of the new jobs. The TMT sector is also forecast to enjoy
continued expansion (an additional 5,000 jobs by 2023).
3
The City of London:
The changing profile of the Square Mile The City of London provides great value to the UK economy
But most enterprises are micro or small businesses…
MicroSmallMediumLarge
Although they make up just over 1% of the business population, large enterprises account for around 52% of City jobs.
Number of enterprises % of total
(1-9 employees)
392,400 £48.7bn people work in the City the City's total
economic output that's nearly £760
employed across the UKthat’s 1 in 100 people
generated for every single person in the UK
that's £484 for every UK resident
(250+ employees) (50-249 employees) (10-49 employees)
…and the profile of industries and employment by sector is evolving
Number of enterprises per sector
Number of jobs per sector
Job growth 2009 - 2013
25,000 (29%)
Professional, scientific & technical
Financial & insurance 10,900 (18%)
Business administration & support services 8,900 (34%)
Information & communication
8,900 (42%)
6,335 42%
2,430 16%
1,495 10%
110,700 28%
147,600 38%
34,800 9%
1,170 8%
30,200 8%
15,000 new jobs will be created in the City over the nextTechnology, media and telecommunications companies
two years. Professional services are expected to accountaccount for 23% of office space take-up. for more than half of these.
Sources: ONS, City Property Association, Oxford Economics, City of London Corporation
1. Introduction
1.1.Outline
This paper brings together a range of sources that look at the City of London’s
economy, both in terms of its local economy, relationship with the wider London
economy, and its economic and fiscal contribution to the UK as a leading financial
and business centre.
The paper focuses in detail on three aspects of the Square Mile: employment, firms
and industries, and property. The paper summarises both the current position for the
City, and, to the extent possible, the projected changes.
Within this paper, the terms ‘City of London’ and ‘Square Mile’ are used
interchangeably to refer to the local authority area of the City of London, consistent
with the ONS’ definition.
1.2. Scope
This paper provides data and statistics on the City of London’s economy and
employment, the firms and industries based in the City, and the property these
businesses occupy. As the City is one of the world’s leading financial and business
centres, the paper also provides some key statistics on the wider financial and
professional services industries across the UK, and their contribution to the UK
economy.
The paper draws on official sources of statistics from the Office for National Statistics,
other local and central government data, externally commissioned projects for the
City of London Corporation, City of London planning, reporting and monitoring
information, and other external sources are drawn on and/or referenced (such as
research reports from credible sources). The data contained in this paper seeks to
be the most up-to-date available at the time of writing.
It should be noted that with this range of sources, there are discrepancies in the
figures recorded for some characteristics, for example the number of firms in the City
and employment figures. Where these discrepancies exist, the different figures are
reported but the headline figures use official ONS sources and it is recommended
using these for public purposes, as these are regularly updated and comparable
across different geographic areas.
1.3.Usage
The intention is for this paper to pull together a range of data sources to act as a
central resource of key information, which can be used as necessary.
The intention is to keep the statistics up to date as new data emerges, although it
should be noted that where these are derived from one-off reports this may not be
possible. Likewise the facts and data from reports given here represent only a subset
of the information contained within the reports.
5
2. Employment in the Square Mile
2.1.The City’s employment
Employment in the City of London totalled 392,400 in 2013.
This is made up of 377,900 employees - 329,200 full-time workers and 48,700
part-time workers - with an additional 14,500 working owners, sole traders and
proprietors.
City employment is concentrated in financial and insurance services, with
147,600 people working in financial services1, equal to 38% of total
employment in 2013.
The City has the highest level of financial services employment of any local
authority in the UK, with the next highest being Tower Hamlets (72,400) and
Westminster (41,400). Outside of London, Edinburgh had the highest level of
financial services employment at 35,000 in 2013, followed by Birmingham
(24,700), Manchester (23,100) Glasgow (21,600) and Leeds (20,900).
Professional services2, business services3 and information and communication
services4 also account for a significant proportion of City employment:
110,700 people worked in professional, scientific and technical services, equal
to 28% of total employment. Legal activities are the strongest sub-set of this
sector, accounting for 41,600 or 38% of professional services employment in
the City.
38,400 people worked in business services, equal to 10% of total employment.
30,200 people worked in information and communication services, equal to
8% of total employment.
In 20125, over half of those in employment (209,000 or 52%) worked in the 215
large (over 250 employees) enterprises in the City, with 191,000 or 48%
employed by SMEs, broken down as follows:
o 89,900 (22%) based in medium-sized firms (50 to 249 employees).
o 70,400 (18%) in small firms (10 to 49 employees).
o 30,700 (8%) in micro firms (0 to 9 employees).
Source: ONS Business Register and Employment Survey (2014).
2.2.The City’s workforce
The City’s working population is highly educated, highly productive, and well-paid.
Official estimates place the City’s daytime working employee population in the range between 329,200 (BRES full-time employees, 2014) to 360,000
(Census workday population figure, 2011).
1 Within the employment section, financial and insurance services (Standard Industrial Classification
2007, section K) are considered together under ‘financial services’. 2 Professional, scientific and technical activities (SIC 2007, section M) covers activities that require a high degree of training and make specialised knowledge and skills available to users. 3 Unlike professional services, section N (Administrative and support service activities) covers activities that support general business operations and do not focus on the transfer of specialised knowledge. 4 The information and communications sector (SIC 2007 Section J) includes the technology, media and telecommunications sector (TMT), and the terms are used interchangeably throughout this report. 5 This data is from the 2013 BRES release, and has not been updated as part of the 2014 release.
6
The GLA (2013) estimated the City’s total daytime population to be 598,0006,
comprised of:
o 447,000 total workday population, including 378,000 employees and
64,000 self-employed people.
o 136,000 day trip visitors and 15,000 staying visitors (7,000 from overseas,
8,000 domestic).
The Census (2011) data provides an indication of the demographics of the
City’s workforce:
o 61% (220,265) of the City’s employees are male and 39% (139,810) are
female.
o 79% of the City’s working population are white, followed by 13% Asian/Asian British, 3.9% mixed/multiple ethnic groups, 3%
Black/African/Caribbean/Black British and 2% are from other ethnic
groups.
Looking at the age breakdown, the largest proportion, 35%, are aged 30 to
39, 26% are aged 20 to 29, 23% are 40 to 49, 11% are 50 to 59 and 3% are 60 to
65.
66% of the City’s workforce hold a degree-level qualification or higher7,
compared to 39% across London and 27% at the England and Wales8 level.
In 2014, 69% of City workers were classed as managers, directors or senior
officials; professionals; or from associate professional or technical
occupations9, compared to 58% across London and 44% looking at the UK as
a whole (Annual Population Survey, 2015).
Productivity per job10 in the City is £112,000, compared with a London
average of £60,245 and UK average of £42,011 (Oxford Economics, 2014). This
is due to the concentration of highly productive activities, such as financial
and professional services, in the City.
Financial services and information and communications activities located in
the City were the most productive sectors in 2013, with productivity at
£186,000 per job, and £110,000 per job respectively.
Median annual pay for full-time City workers was £54,591 in 201411, compared
to a London median of £35,069, and UK median of £27,195.
Mean pay is significantly higher; £82,559 at City of London level, £48,267 for
London and £33,475 at the UK level. This is due to the non-symmetrical
distribution of earnings data; extremely low or high values at either end of the
earnings scale can skew the mean.
Sources: ONS Annual Population Survey: Workplace Analysis (2015), ONS Census of
Population: Workday Population (2011), ONS Annual Survey of Hours and Earnings (2014),
6 N.B these figures are based on a number of sources and are based on models rather than actual data. 7 As measured by Level 4 qualifications or above: Degree (for example BA, BSc), Higher Degree (for example MA, PhD, PGCE), NVQ Level 4-5, HNC, HND, RSA Higher Diploma, BTEC Higher level, Foundation degree (NI), Professional qualifications (for example teaching, nursing, accountancy). 8 Statistics on qualifications are from the 2011 Census data which covers England and Wales. 9 Based on the Standard Occupational Classification (SOC) 2010. 10 Productivity is measured by output (GVA) per job, in 2010 prices. Labour productivity measures the amount of real (inflation-adjusted) economic output that is produced by a unit of labour input (in this case per job) and is a key indicator of economic performance. High productivity indicates efficient, skilled labour. 11 The median is the value below which 50% of employees fall. It is preferred over the mean for earnings data as it is influenced less by extreme values and because of the skewed distribution of earnings data.
7
GLA daytime population by borough estimates (2012), and Oxford Economics Economic
Outlook for Central London (2014).
2.3.The City’s sectors
The sectoral mix in the City is changing, with an increasing proportion of the
workforce being employed in professional and business services.
Following the financial crisis of 2008/09, where City employment dipped to
331,900 from 344,500, employment continued to rise across sectors to 400,000
in 2012, before dipping slightly to 392,400 in 2013. This represents growth of
18% over the period.
Employment growth in the professional services and financial services sectors
has been particularly strong, with increases of 25,000 and 10,900 jobs
respectively, equivalent to 29% and 8% growth.
Business services and information and communications employment also
increased between 2009 to 2013, by 8,900 and 8,900 jobs respectively,
equivalent to strong growth of 34% and 42%.
The rise in employment in business and professional services, and information
and communication services, points to a changing and increasingly diverse
sectoral mix in the City, with these sectors accounting for an increasing share
of total employment:
o Business services’ total share of employment rose from 7.8% in 2009
(25,800) to 8.9% (34,800) in 2013.
o Professional services’ share of employment increased from 25.8%
(85,700) in 2009, to 28.2% (110,700) in 2013.
o Information and communication services’ share of employment
increased from 6.4% in 2009 (21,300) to 7.7% in 2013 (30,200).
o Financial services share of total employment has declined slightly from
41.2% (136,700) in 2009, to 37.6% (147,600) in 2013, although
employment in financial services continued to rise from 2009 to 2012,
reaching 159,300 in 2012, but experienced a slight contraction of
11,700 jobs in 2013.
Source: ONS Business Register and Employment Survey (2014).
2.4.The City’s employment outlook
In 2013 the latest official City job figures were 392,400; including the self-employed,
Oxford Economics give this figure as 435,300. Including self-employment, City
employment is projected to have reached 444,600 in 2014 and to reach 450,700 by
2015.12
This will be driven by continued strong growth in professional services, which
are expected to account for more than half of the new jobs, generating
8,400 additional jobs by 2014.
Strong employment growth is forecast for the City over the years to 2023,
averaging 1.5% over the period 2015 to 2018 (in line with expectations for
Central London but higher than the UK average of 1% over the same period)
and reaching 456,900 in 2016 and 485,400 by 2023.
12 Employment level projections given in this section differ slightly from the ONS BRES data, due to
Oxford Economics’ projections including Workforce Jobs data, which captures all self-employed
workers, and projects employment at 415,000 in 2012, and 435,300 in 2013.
8
GLA employment projections for the City of London are less optimistic, with
employment of 418,000 projected in 2011, remaining stable at 418,000 to 2016
(albeit with a 10,000 decline in self-employment and 10,000 rise in
employment), and increasing to 432,000 by 2021.
Financial services employment in the City is forecast to remain relatively
stable over the years, declining slightly from 167,200 to 166,600 in 2023, with
particularly strong growth in professional services employment to 118,700 in
2013 to 148,600 by 2023.
This is consistent with GLA employment projections for London, which show
financial services employment across London declining slightly from 368,000 in
2012 to 362,000 by 2023, while professional services employment is forecast to
rise from 685,000 in 2012 to 857,000 by 2023.
By contrast, TheCityUK’s London Employment Survey finds that financial
services employment in London will grow faster than professional services from
2013 to 2014, with financial services increasing from 367,300 to 380,000 (3.5%
growth), and professional services increasing from 321,500 to 327,500 (1.9%
growth).
Source: Oxford Economics Economic Outlook for Central London (2014), TheCityUK’s London
Employment Survey (2014), GLA Employment Projections by borough and industry (2013).
2.5.City recruitment surveys
Recruitment surveys suggest a mixed picture in the short-term, but the consensus is
financial services jobs opportunities are up on this time last year.
Morgan McKinley recorded a 100% increase in professional opportunities,
rising from 4,620 in December (a typically quiet month for recruitment) to
9,255 in January, and a 59% increase in professional job seekers from January
to December. Year-on-year figures for January show an increase of 21% in
professional jobs against 2014 and a 22% increase in those seeking new roles.
Professional services roles, particularly accounting and management
consultancy, helped numbers of City professionals beat all records. The
Association of Professional Staffing Companies (ASPCo) reported a 29%
increase in permanent vacancies in 2014, with the demand for IT professionals
up 31%, and financial services professionals in second place.
Morgan McKinley reported increased demand for IT professionals, on a
contract and permanent basis. New IT implementations and organisational
change have been the main drivers of recruitment. Demand for data-driven
programme and project managers has increased significantly, particularly in
financial services and consulting. IT security and compliance projects are also
high in hiring priorities.
Regulation is continuing prop up demand in the financial services sector, as
critical middle and back-office/support roles return to the City. Risk and
Compliance functions continue to be of critical importance to business
planning, stoking demand in these areas.
Robert Walters’ European Job Index finding the demand for accounting and
finance professionals was strongest in London, with the number of jobs
increased by 8% year-on-year, followed by the Midlands, where jobs
increased by 7%.
9
Compliance and risk specialists continue to be in high demand the overall
regulatory framework at the UK and EU level for financial services continues to
strengthen.
Astbury Marsden estimated 3,030 new jobs were created in the City in March,
compared to 2,430 new roles created in March last year, an increase of 25%.
The number of new jobs created in the City increased by 1% in March
compared to February 2015.
Investment banks are increasing their investment in technology staff,
increasing their own technology headcount in addition to replacing staff that
have moved over to the financial technology (‘FinTech’) sector. Astbury
Marsden found evidence of a concern among financial services firms that
traditional financial services businesses could lose market share if they don’t
accelerate the pace of investment in IT – which means more IT staff.
Source: Morgan McKinley London Employment Monitor (March 2015), Robert Walters’
European Jobs Index (2014), Astbury Marsden City Jobs Review (March 2015).
10
3. Industries and firms in the Square Mile
There are a variety of definitions used in measuring the number of businesses in the
City. This paper uses the ONS’ definition of an ‘enterprise’ used in its Inter
Departmental Business Register (IDBR), and data is collected by sending
questionnaires to reporting units13 on enterprises and local units. An enterprise can
be defined as the smallest combination of legal units (generally based on VAT
and/or PAYE records) that is an organisational unit producing goods or services,
which benefits from a certain degree of autonomy in decision-making, especially for
the allocation of its current resources. An enterprise carries out one or more activities
at one or more locations. An enterprise may be a sole legal unit. This is distinct from
‘local units’ data recorded in the IDBR, which local unit is an individual site (for
example a factory or shop) associated with an enterprise. It can also be referred to
as a workplace.
The IDBR data is supplemented with TBR’s Trends Central Resource Database, which
includes those reported on the IDBR and many sole traders and micro businesses, to
give a fuller picture of City business activity.
3.1.The City’s enterprises
There were 15,105 enterprises located in the City of London in 2014.14
The vast majority (98.6%) of City firms are SMEs (for information on high-growth
SMEs, see High-growth SME firms):
o 12,080 of these firms are micro sized enterprises, equivalent to 80% of
the total business population, 2,240 are small enterprises, or 15% of the
total business population, and 580 or 4% are medium-sized.
In 2012, SMEs accounted for 48% of City employment.15
205 enterprises are classed as large, equivalent to just 1% of the total business
population.
85 of these firms employ 250 to 499 people, 65 firms employ 500 to 999 people
and 55 firms have 1,000 or more employees.
Despite accounting for a small proportion of the business population, large
enterprises accounted for 52% of jobs in 2012.16
Looking at business age in 201317, almost half of City firms (44% or 6,310) are 10
years or older. A significant proportion (30% or 4,235) of enterprises are 3 years
old or younger.
Source: ONS UK Business: Size, Activity and Location (2014), and ONS Business Register and
Employment Survey (2013).
13 Reporting Units hold the mailing address to which the survey questionnaires are sent. The
questionnaire can cover the enterprise as a whole, or parts of the enterprise identified by lists of local
units. 14 ‘Enterprise’ in this context refers to the ONS’ definition used in its UK Business: Size, Activity and
Location dataset, in which an enterprise is the smallest combination of legal units (generally based on
VAT and/or PAYE records) which has a certain degree of autonomy within an Enterprise Group. 15 This data was included in the ONS’ 2013 release of UK Business: Activity, Size and Location, and hasn’t
been updated for 2014. 16 (ibid). 17 (ibid).
11
3.2.Business sectors
As with employment, the well-represented sectors are professional services, financial
and insurance services, business services and information and communication.
Over the period 2003 to 2012, firm migration has helped diversify the City’s economy, with professional services and technology, media and
telecommunications becoming increasingly important.
Professional, scientific and technical services represent the largest industry
group in the City, at 6,335 enterprises, equivalent to 42% of City firms. This is a
much higher concentration than the UK as a whole, with professional services
accounting for 17.5% of all registered businesses.
Most of the City’s professional services firms (88%) are micro sized enterprises,
with 99% being SMEs, employing fewer than 250 people.
Finance and insurance firms total 2,430 enterprises, equivalent to 16% of firms;
96% of these are SMEs.
Although only 4% of financial and insurance firms are classed as large, they
account for 74% of financial services employment, suggesting employment is
concentrated in larger firms.
Business administration and support services enterprises number 1,495, or 10%
of firms.
Information and communication services enterprises total 1,170, or 7% of City
firms.
Source: ONS UK Business: Activity, Size and Location (2014).
3.3.The City’s business population
Looking at the City’s business population including sole traders and micro
businesses18, there are 17,750 businesses, contributing 4% or £39 billion of the UK’s
total economic output.
The City accounts for just 4% of businesses in London, but almost 16% of its output.
The City’s business population is dynamic; since 2008, net firm migration has resulted
in gains of over 200 firms, 13,500 jobs and over £3.5 billion in output.
New business activity in the City peaked in 2005/06, with 1,600 new businesses
starting each year. From 2008 to 2012, the number of new starts has remained
relatively constant, at around 1,000 a year, contributing on average an
additional 10,000 City employees a year. 27% of 2012’s business stock had
been set up in the past four years, comparable to London’s rate of 31%, and
higher than the UK rate of 26%.
From 2008 onwards, with the onset of financial crisis, business closures have
risen to 1,000 to 2,000 a year, a closure rate of 44%, also similar to London’s
closure rate of 45%, and slightly higher than the UK’s 39%.
As business closures have exceeded start-ups, there has been a net loss of
firms within the City, particularly in the financial services sector during the
financial crisis, with 18,000 jobs being lost between 2007 to 2009 and £4 billion
18 The data here on firm numbers, output and employment is taken from TBR’s Trends Central Resource
database covering the period 2003 to 2012, and therefore might differ to official 2013/4 figures
reported by the ONS.
12
in output. This is reflective of official figures (see Employment section for further
information).
Firm closures have resulted in a net loss of jobs and output of 22,000 and
£1.93billion respectively, but gains from net firm migration have brought in
13,500 more jobs and £2.6billion in output. Taken together, these figures
suggest firms migrating into the City tend to be highly productive and
migration has very positive impacts for the City’s economy.
Most of the migrating firms come from Westminster, Camden, Islington and
Tower Hamlets, with over 1,000 Westminster firms migrating to the City during
2003 to 2012 (including 282 in 2010-11 and 163 in 2011 – 12), and the majority
of firms migrating out move to South East England (30%), Westminster (15-20%,
equivalent to 169 firms in 2010-11 and 198 firms in 2011-12) or other non-
neighbouring London boroughs (10 to 15%).
The majority of businesses moving into the City tend to be larger than outward
migrators (an average of 33 employees versus 24), and are more productive,
generating £113k per employee compared to £67k per employee of outward
migrators.
Around 10-15% of all migrators are foreign-owned, with ultimate parents
tending to be from Europe or North America.
Firms from the real estate and administrative services; professional, scientific
and technical services; financial services; and information and
communication sectors are most likely to move to the City, reflecting its
existing strengths. While financial services migration contributed 40,000
additional employees and £6.1 billion in output over 2003 to 2012, these
businesses constituted a smaller proportion of incoming firms , suggesting the
City is further diversifying into professional services and technology, media
and communications (TMT).
Source: City of London, The impact of firm migration on the City of London (2014).
3.4.High-growth SME firms
High-growth SME Firms make up almost 10% of the SME business population in the
City.
Over 2008 to 2011, 9.78% of the City of London SME business population had
experienced high growth; 1.66 times higher than growth for the UK (5.87%)
over the same period.
The top strong high growth sectors in the City were management consultancy
(10.34% growth); financial services activities excluding insurance and pensions
(10.68%); computing (18.58%); legal activities (14.13%) and employment
activities (13.70%).
Future growth predictions (for the period 2011 to 2014) indicated that high
growth in the City SME business population would be more than twice that of
the UK. Projections suggested that 14.40% of the City SME business population
would comprise of high growth firms, compared to inner London (8.61%
predicted) and the UK (6.32% predicted).
Predictive analysis from 2011 to 2014 identified current high growth sectors as
continuing to feature strongly in the future – management consultancy
(14.21%); financial services excluding insurance and pensions (21.35%);
(computing (15.85%); legal activities (27.17%); employment activities (20.55%).
Insurance, reinsurance and pension funding (20.8%); and activities auxiliary to
13
financial services and insurance activities (19.15%) were also projected to
experience high growth in the City.
This is supported by official statistics, which show the number of City SMEs
engaged in these activities has grown over the 2011 to 2014 period, with
particularly strong growth in increases of SME firms in computing (an increase
of 35%) and employment activities (an increase of 19%), with the exception of
insurance and financial services activities, declining by 31% 3% respectively.
It is important to note that these sets of figures are not directly comparable as
the official statistics register a change in the number of SMEs engaged in an
activity over the period; therefore a decline in growth of insurance and
management consultancy activities could indicate industry concentration as
mergers or acquisitions may have taken place.
Source: Experian, High Growth Mapping analysis for the City of London (2012), ONS UK
Business: Activity, Size and Location (2014).
3.5.The City’s clusters
Over the past twenty years, four main clusters have developed within the City19.
Within these four main clusters, the business population has become increasingly
diverse. The data here on firm numbers and employees is taken from TBR’s Trends
Central Resource database so will differ from ONS statistics.
The Financial Services cluster: 2,230 firms, 87,000 employees producing £9.7
billion GVA output in 2012 (n.b. Financial Services and Insurance Services
have been identified as distinct clusters whereas official sources group
combine these sectors, hence firm and employment numbers reported here
differ to official source data referenced elsewhere in this paper). Over 2003 to
2012 there’s been a decrease in the number of FS firms and employment
numbers but output has increased, suggesting stronger more productive
businesses in this cluster in the City.
Insurance Services: 1,200 firms, 50,500 employees producing £10.4 billion GVA
output in 2012. Concentration is particularly strong in the east of the City, in
Tower, Lime and Langbourn wards. Firm density has reduced slightly while
employment density remained stable over 2003 to 2012.
Professional Services: 3,780 firms, 79,800 employees producing £8.1 billion GVA
output in 2012, prevalent in the west of the City. Over 2003 to 2012 there were
increases in firms, employment and output, though these remain at lower
levels than the Financial Services cluster overall.
Technology, media and telecommunications: 1,300 firms, 25,550 employees
producing £2.3 billion in GVA output in 2012. Over the period 2003 to 2012,
TMT has experienced overall growth in firms, employment and output.
19 Note – definitions applied in the cluster analysis are based on two measures. The first is location
quotients, which provide a ratio measure of the concentration of a business industry within a certain
geography compared to a larger geographic area. The second measure is Standard Industrial
Classification (SIC) codes, which categorise businesses into sectors according to the nature of their
economic activity. SIC codes have been grouped together as measures of overarching business
activity (for example the ‘professional services’ cluster consists of a number of SIC activities such as
management consultancy, legal and accounting, and market research, among others). Hence there
may be some discrepancies with the terms as used previously in this paper. For example financial
services and insurance services are each treated as distinct clusters, whereas in ONS employment data
financial and insurance services are grouped together as Section K.
14
Sources: City of London, The impact of firm migration on the City of London (2014).
Detailed maps on SME clustering in the City of London in 2012 are also available.
15
4. Property, office space and infrastructure in the Square Mile
4.1.The City’s office stock
New buildings are getting larger, with rising proportion of Grade A stock.
The amount of office space available in the City (EC1-4) is estimated at 6 million sq ft (2014). This is below the 10 year average level of 6.5 million sq ft.
The total office stock within the EC1-4 area is 88 million sq ft, this compares to an estimated 69 million sq ft in the City itself20.
The trend is towards larger buildings, 79% of the space currently under
construction in the City (EC1-4) is over 100,000 sq ft, equivalent to half of all
schemes. However, smaller occupiers are still important – in 2013 a greater
number of large buildings than large occupiers were identified, indicating
that around half of the buildings over 100,000 sq ft are split into smaller units of
occupation.
There is a trend towards tall building developments in the City, with 50
completed as at September 2014. There are ten tall buildings under
construction of which three buildings are over 150m above ordnance datum
(AOD)21 in height. Four tall buildings (75m AOD and over) and 13 buildings
50m AOD have been permitted but construction has not commenced.
Existing office supply comprises of 55% Grade A quality and 45% Grade B/C22.
The proportion and volume of the latter has fallen dramatically over the last
20 years.
Office supply is fairly evenly split between the size bands, with around 40% in
units greater than 50,000 sq ft and 5% in units of less than 6,001 sq ft. The most
popular size band in 2013 in terms of take up was units of between 12,001 and
25,000 sq ft (20%).
Over half of the City’s office stock has been built or refurbished since 1997, and over three-quarters has been built or refurbished since the mid-1980s.
The number of businesses in serviced premises has risen significantly over the
past decade, helping provide for the needs of smaller occupiers. The number
of businesses in serviced premises in the City and surrounding areas increased
from 700 in 2003 to almost 2,400 firms in 201223.
Sources: City of London, Taking Stock: The Relationship Between Businesses and Office
Provision in the City, (2013); City Property Association, City Offices: Getting the Balance
Right (2014), City of London, Tall Buildings and Planning pages, February 2015 (latest
updates can be accessed here: http://www.cityoflondon.gov.uk/services/environment-and-planning/planning/development-and-population-information/Pages/tall-buildings.aspx; The Impact of Firm Migration on the City of London, 2014
20 The EC1-4 figure includes all offices within these postcodes therefore using a slightly wider definition of
the City of London office market. 21 The height above a vertical datum point used by the Ordnance Survey as a reference point for the
level or altitude of any point (usually mean sea level). 22 Office grades can be defined as follows: Grade A – prime new and refurbished, Grade B - good
quality second-hand and Grade C – poor quality second-hand. 23 This is based on a sample of serviced premises in the City and the adjacent wards of neighbouring
boroughs provided by the Corporation of London to the authors of The Impact of Firm Migration on the
City of London.
16
See also: The City of London Core Strategy Monitoring Paper: Offices, July 2013, City of
London, Land Use pages: http://www.cityoflondon.gov.uk/services/environment-and-
planning/planning/development-and-population-information/land-
use/Pages/default.aspx (for the latest reports focussing on the spatial distribution and
quantification of the floorspace and number of units – covering office stock, retail and
open spaces).
4.2.Future City office floorspace
The City continues to maintain a healthy pipeline of proposed floorspace through its
permitted (not commenced) and under construction developments
The City is on track to achieve its 2006 to 2016 target of 1.5 million sq m growth
(approximately 16.1 million sq ft) of office stock floorspace.
At the 31st March 2014 the Office Stock Estimate of B1 floorspace was
estimated to be 8.6 million sq m. During the period 1st April 2014 to 30th
September 2014 there was a net increase of 164,800 sq m. This results in an
estimated office stock of 8.78 million sq m as at 30th September 2014.
The survey period 2014/15 (period 1st April to 30th September) witnessed:
o A large increase in the amount of new floorspace commenced from
4,600 sq m in the previous six months to 276,700 sq m. This figure is the
highest level since March 2011/12.
o A very high level of completed floorspace at 271,800 sq m comprising
five redevelopment schemes and two refurbishments with extensions.
Total B124 office pipeline declined marginally to 1.486 million sq m as at 30th
September 2014 which is a decrease of 66,400 sq m since 31st March 2014.
This comprises:
o Under construction: Office floorspace under construction increased on
a small scale by 5,000m2 from 855,200m2 as at 31st March 2014 to a
total of 860,200m2 as at 30th September 2014. This total remains
relatively high and is at its second highest level since 2008/09.
o Permitted not commenced: Office floorspace permitted not
commenced decreased from 697,200m2 as at 31st March 2014 to
625,800 sq m as at 30th September 2014.
Sources: City of London Corporation Annual Monitoring Review 2011; Department of the
Built Environment, Development Info, November 2014 See also: Office info – 2013 update:
City of London Office Floorspace, July 2013.
See also: City of London, Development pages:
http://www.cityoflondon.gov.uk/services/environment-and-
planning/planning/development-and-population-
information/development/Pages/default.aspx for the latest updates to - Development
Info (key statistics for office, retail, residential and hotel schemes) which is issued six
monthly (Apr-Sept and Oct-Mar) and Development Schedules (tables showing
development sites and planning permissions) which is published twice yearly.
24 Floorspace classifications as set out in the Town and Country Planning (Use Classes) Order 1987, B1
refers to business office space.
17
4.3.Demand for City office space.
Financial services remain key occupier and account for a significant proportion of
office space demand, but take up by the TMT sector is increasing.
Financial services make up 48% of all space occupied by sq ft, but the
remainder is made up of 11 other sectors, most prominently professional
services (19%), and insurance (14%).
The financial services sector is dominant in occupation of large units, but is still
a significant user of small space. The financial services sector occupies 66% of
the units over 100,000 sq ft and 36% of the occupied units below 20,000 sq ft.
The TMT sector has taken up a greater share of space since the recession,
reaching a high of 1m sq ft in the City in 2013. In 2013 TMT companies
accounted for nearly a quarter (23%) of City take-up, this is despite
information and communication services accounting for just 6.3% of total
employment in the City in 2012. During 2004-9 it provided between 7 to 9% of
all take up.
Agents have reported that in Q1 2014, Banking and Finance accounted for
38% of office take-up, compared to 25% in 2013. TMT accounted for 22% of all
2013 take-up, and Business Services accounted for 19% of take-up in Q1 2014,
compared to 13% of all 2013 take-up. Insurance services take-up increased
from 6% in Q4 2013 to 10% in Q1 2014.
Sources: City of London, Taking Stock: The Relationship Between Businesses and Office
Provision in the City, 2013; City Property Association, City Offices: Getting the Balance
Right, 2014; City Property Advisory Team (CPAT) City Agents’ Office Commentary,
Quarter 1 2014.
4.4.City rents and vacancy rates
Prime City rents increased for the first time in three years, while vacancy rates fell
during 2013.
City rents26 were £57.50-£60.00 per sq ft for prime A grade offices at end 2013.
In comparison, West End rents for different sub-markets were £60-£80 per sq ft.
Prime City headline rents increased for the first time in almost three years,
supported by the recovery in take-up. Agents report prime rents in the City
rose by 2.7% to Q1 2014, faster than the 1.3% during Q4 2013. Rental growth
was strongest in the fringe areas, with Shoreditch, eastern fringes and London
Bridge all seeing rental growth in excess of 5%.
TMT occupiers are relatively rent-sensitive, paying rents typically less than £55
per sq ft, though exceptions exist.
Agents reported City take‐up for Q1 2014 at between 1.00 and 1.78 million sq
ft. According to JLL (1.20 million sq ft let in 62 transactions) take-up decreased
40% on the previous quarter, was 11% up on the same period last year and
13% below the ten-year quarterly average. Total City take-up for 2013 was
recorded at 5.40 million sq ft, 32% above 2012 rates.
Agents reported the total City vacancy rate at between 6.30% and 8.50% in
Q1 2014, previously falling by 2% during the course of 2013. According to
CBRE, the overall vacancy rate decreased from 9.40% to 8.10% in Q1.
26 This figure excludes the small floor plate tower buildings which often command premium prices.
18
Sources: City Property Association, City Offices: Getting the Balance Right, 2014; City
Property Advisory Team (CPAT) City Agents’ Office Commentary, Quarter 1 2014
See also: City of London, City Agents Office Commentary:
http://www.cityoflondon.gov.uk/business/commercial-property/city-property-advisory-
team/property-professionals/Pages/the-city-property-market.aspx for the latest quarterly
digest report tracking key aspects of the City office property market).
4.5.Ownership of City office space
Continued growth in foreign ownership of office space in the City of London
In 2011, foreign ownership accounted for a 52% share of the City’s office
space. In comparison, in 1980 less than 10% of the City’s office stock was
owned by overseas interests. Foreign ownership passed 25% in the mid-1990s
and 40% in the mid-2000s.
Between 2008-2011 UK buyers accounted for 43% of purchases by floorspace
but only 34% by value. The average value of buildings acquired by foreign
investors was £91m as against an average purchase price of £27m for UK
buyers.
In 2011, Germany was the largest overseas City office investor with a 16%
share of the total stock, while Japanese holdings declined to 2% compared
with a peak of around 11% in the early 1990s. The US presence (10%)
increased and there was an expansion of Middle Eastern ownership, which
accounted for a 6% share.
There is a growing trend towards private individual ownership of City offices,
accounting for 6% of total floorspace in 2011. Even this may be an
underestimate, given the difficulty of tracing ownership through standard
searches.
Specialist real estate investors (45%) and financial firms (24%) have continued
to increase their ownership of City floorspace, while traditional owners such as
the public sector, charities and livery companies have declined. Direct
institutional ownership has experienced a sharp decline from 29% to 17%
during the period 2005 to 2011. This compares with 37% in 1995.
Source: Development Securities Ltd, Who Owns the City?, 2011
See also: City of London Corporation Annual Monitoring Review 2011; Data on infrastructure
forecasting for central London, including City-specific data on energy, electricity, gas etc.
future use is available in Central London Forward’s Infrastructure Study 2009; See also: City of
London, Development pages: http://www.cityoflondon.gov.uk/services/environment-and-
planning/planning/development-and-population-
information/development/Pages/default.aspx for the latest updates to - Development Info
(key statistics for office, retail, residential and hotel schemes) which is issued six monthly (Apr-
Sept and Oct-Mar).
19