Greater London Business Centre Specialisation

Agglomeration and urban development:the evolving business geography of Greater London

Duncan Alexander SmithCASA Seminar- 23/2/12

OverviewCan a more in-depth analysis of real-estate dynamics and business location improve our understanding and modelling of city structure and evolution?

Empirical Analysis of London Office Real-EstateProperty tax data for analysis. Diversity and increasing polarisation in London’s urban structure evident, cannot be explained with aggregate employment models.

Agglomeration and Sub-MarketsSectors vary considerably in their locational demands, related to varying specialisation of sub-centres. Sub-centre dynamics from planning policy, development and structural economic change.

Scenarios of Future Growth in LondonPlanning policy intends to shift the focus eastwards to locations such as Stratford for greater equality in job opportunities, but how realistic is this?

Why does business geography matter?Improve Urban ModellingBusiness location driver of property markets, urban development. Aspects of complex systems- positive feedback, tipping points. New dynamics in urban structure evolving.

Policy Relevance-Economic CompetitivenessAbility of cities to facilitate knowledge economy affect growth, employment, economic success.Also speculative investment in real estate so large need to manage boom and bust cycles.

Regeneration and Access to EmploymentCommercial investment key part of regenerating post-industrial areas. Can potentially boost employment opportunities and services in more deprived areas, though equally gentrification can push out local populations.

Theoretical Models of Urban Land Use

Neo-Classical Monocentric ApproachesStatic equilibrium urban models (Alonso, Muth, Mills). Accessibility determines demand, land use and value. Monocentric accessibility structure produces steep density gradient and concentric land uses.

Land Use Transport Interaction ModellingDynamic interaction approach between accessibility and land-use (Hansen). Traditional differentiation between basic and non-basic employment (Lowry). Recent models include varying cycles of travel, location and development (Wegener).

Contemporary Cities and Economic DiversityModels yet to get to grip with increasingly specialised urban economic sectors, agglomeration processes, and spatial patterns of polycentric cities (Anas, Scott, Cervero).Need empirical evidence from which to develop new models with sectoral disaggregation, agglomeration processes.

Measuring Office Floorspace and Rents in LondonGreater London Office ScopeData currently for GLA only. Linked processes occurring across South East (see Hall & Pain, Reades, Smith). Limiting study to office activities.

Data Source- Business Rates TaxUse business rates data from VOA. Includes floorspace and ‘Rateable Value’- predicted annual rental cost of premises.Mean RV/m2 provides location rent proxy, closely matches ‘headline rents’. Discrepancy due to ‘rent free periods’- City currently offering 2-3 times rent free periods of West End (LOPR, 2009).

Valuation Office Data+ Comprehensive (all commercial property), floorspace & rateable value, fine scale.- Lacks detailed function (only office, retail, industrial), 5 year updates so no detailed dynamics.

Analysis of floorspace change achieved here using London Development Database 2000-2010.

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St James'sMayfair

Knightsbridge

VictoriaSoho North Oxford Street

Covent GardenStrand

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SouthwarkCanary WharfWimbledon

Isle of Dogs ChiswickEalingStockley ParkStratford

UxbridgeCroydonRomford KingstonWembleyEnfield

Headline Rent (£/m2)

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1. Empirical Analysis of London Office Real-Estate

Office Density 2000 and Rent 2003

Office Density 2010 and Rent 2008

Explaining Geography of London Office MarketGLA Trends-Highly centralised. Development trends reinforcing centralisation, due to market and policy factors. Fits with LUTI theory.

Division between East and West is getting bigger in price/demand terms, and to a degree in development terms. Need to explain this trend.

Modelling Office Rents-

Static Regression Model of Office Rents

Introduce Urban Development Variables


Regression Model of Office RentsHedonic ModelRevealed preference approach. Assuming location office rent results from combination of underlying factors that can be estimated in regression model. 500m grid scale; squares with 0 commercial floorspace excluded.Dependent variables- two versions of model for VOA rent proxy 2003 and 2008.

Independent Variables- Attractiveness of Office LocationsAccessibility & ConnectivityAccess to labour, access to employment, measured using Hansen indices with transport network model (Smith, 2011). Connectivity variables- airports, PT stations, motorways- travel time to nearest through same network model.

Prestige & Urban RealmHeritage area based on listed buildings proportion. Mixed-use areas with retail and restaurant activity proportion.

Office SpecificationAge, design. Data limited, use premises size, larger higher spec.


PT Accessibility to Employment

Travel time to Heathrow

Listed Buildings Proportion

Density Accessibility Urban Realm Spec.

Office FS 2000 Office FS 2010 PT Access to Employ PT Access to Popul PT Station Walk Rail Terminus Walk Airport PT Time Heathrow PT Time Listed Buildings % Mean House Price Greenspace Prox. Thames Prox. Premises Size Ave. New Office %

Office Rent Proxy 2003 .38 .36 .51 .44 -.31 -.4 -.02 -.41 .19 .34 0.3 .18 .12 .19

Office Rent Proxy 2008 .4 .4 .59 .53 -.31 -.46 -.02 -.38 .23 .42 0.6 .17 .1 .19


Bivariate Pearson Correlations

Dependent Variable Goodness of Fit R2

Standardised Coefficients Significance

Variable Name Beta

Office Rent Proxy 2003 .67

PT Access to Employment .561 .000

Heathrow PT Time -.226 .000

Listed Buildings Proportion .205 .000

Office New-build Proportion .141 .000

Office Rent Proxy 2008 .52

Listed Buildings Proportion .344 .000

Rail Terminus Time -.242 .000

Heathrow PT Time -.213 .000

PT Access to Employment .196 .000


Stepwise Multivariate Regression

Office Rent Model Results- Accessibility variables most influential, in line with LUTI theory. More prominent with increasing centralisation.- Prestige variables rated highly in multivariate regression, connected to western bias.

Reasons for higher prices in West London-• Prestige & urban realm- high quality historic architecture.• Connectivity- particularly to Heathrow Airport.

But... Why has western bias increased?In addition to growth of key West End sectors, extreme prices closely linked to urban development dynamics.

Look at development patterns...


Urban Development 2000 - 2010Massive IntensificationNew FS 2000-10 – 8 million m2

Lost FS 2000-10 – 4.3 million m2

Office FS 2010 – 26.4 million m2

Restricted development in West End for policy & heritage reasons.

Expansion Curtails Rent RisesMain expansion City of London, and Canary Wharf. Expansion curtails prices locally.

Question is why are Western End businesses refusing to move to take advantage of lower prices in City, CW?

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Canary Wharf

Chiswick

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Covent Garden

Ealing

Enfield

Holborn

Isle of Dogs

Kingston

Knightsbridge

Mayfair

North Oxford Street

Romford

Soho

Southwark

St James

Stockley Park

Stratford

Victoria

Wimbledon

Office Development 2000 - 2010 (LDD)

Change i

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Agglomeration and SpecialisationGrowth of Knowledge Economy IndustriesUrban advantages for sectors generating, transmitting and consuming information (Hall, 1999)-

i. Finance and business servicesii. ‘Command and control’- HQs of TNCs, int. & nat.

governmentiii. Creative and cultural industries, related tourism

growthiv. Information technology- software, telecoms, web

2.0.

Agglomeration Advantages- Knowledge sharing, spillovers.- Shared specialised labour markets.-Economies of scale in markets for clients/customers and intermediate inputs.

Survey evidence from London clusters.

Can use business survey data (ABI 2008-2010) to profile business centre specialisation...

Linkages amongst firms in City of LondonSource: Cook et al. 2007.

Linkages amongst firms in Soho media clusterSource: Nachum 2003.

2. Agglomeration and Submarkets


City of London 328,000

Holding company activ. 8.0

Reinsurance 7.4

Insurance 7.1

Fund management act. 5.6

Trust funds 5.3

Finance auxiliary 5.1

Banking 4.7

Legal 4.7

Security systems 4.5

Accounting 3.3

Technical testing 3.2

Financial serv. Other 2.9

West End 185,000

Radio broadcasting 7.1

Motion Picture product. 4.7

Fund management act. 3.7

Real-estate development 3.6

Sound recording 3.3

Advertising 3.1

Real-estate activities 3.1

Hotels 2.9

Prof. Membership organ. 2.6

Media reproduction 2.6

Head Offices 2.3

Management consult. 2.1

Financial and Business Serv:

Financial Services

Business Services

Information Technology

Creative & Tourism:

Creative Industries

Tourism & Heritage

Command & Control:

Business management

Central GovernmentImagery © Bing Maps.

Business Sub-MarketsVery High Degree of Local SpecialisationMuch higher diversity in the West, balances out demand fluctuations in particular sectors. City financial and business services only, current oversupply.

Clearly different sectors have varying locational priorities. Will affect probability of particular sectors relocating to new centres.

Ranking Sectors by RentLower sectors more price sensitive and more likely to be relocating to emerging centres (except government).Most likely sectors are IT industries and some creative industries- photographic, architectural.Extreme West End prices likely to push creative industries to relocate...


Sector Renta663_Fundmanagementactivities 393a941_Activitiesofprofessionalmembership 374a551_Hotelsandsimilaraccommodat 350a731_Advertising 342a643_Trustsfundsandsimilarfinan 336a701_Activitiesofheadoffices 324a411_Developmentofbuildingproje 313a900_Creativeartsandentertainme 307a661_Activitiesauxiliarytofinan 306a591_Motionpicturevideoandtelev 306a642_Activitiesofholdingcompani 303a702_Managementconsultancyactiv 298a581_Publishingofbooksperiodica 294a692_Accountingbookkeepingandau 293a942_Activitiesoftradeunions 290a683_Realestateactivitiesonafee 287a649_Otherfinancialserviceactiv 286a749_Otherprofessionalscientifi 284a691_Legalactivities 283a910_Librariesarchivesmuseumsan 280a641_Monetaryintermediation 274a721_Researchandexperimentaldev 273a561_Restaurantsandmobilefoodse 272a711_Architecturalandengineerin 271a651_Insurance 269a639_Otherinformationserviceact 263a949_Activitiesofothermembershi 260a662_Activitiesauxiliarytoinsur 258a732_Marketresearchandpublicopi 255a741_Specialiseddesignactivitie 255a620_Computerprogrammingconsult 253a631_Dataprocessinghostingandre 251a619_Othertelecommunicationsact 239a841_AdministrationoftheStatean 237a842_Provisionofservicestotheco 237a742_Photographicactivities 233a602_Televisionprogrammingandbr 221a712_Technicaltestingandanalysi 215a181_Printingandserviceactiviti 170

Higher Rent

Lower Rent


Business Location Dynamics

City Fringe North 160,000

Telecomm. Serv. 9.7

Other information serv. 7.3

Market research 5.5

Technical testing 5.1

Photographic 4.9

Printing services 3.5

Specialised design 3.1

Legal 3.1

Data processing 2.8

Banking 2.7

Architecture & engineer. 2.6

Publishing 2.1

Canary Wharf 106,000


Trust funds 10.5

Information serv. Other 10.1

Banking 8.2

Finance auxiliary 7.6

Wireless telecomm. 6.1

Office admin. Activities 2.0

City Fringe South 120,000

Market research 11.5

Accounting 5.2

Data processing 5.1

Publishing 4.3

Insurance 3.0

Sound recording 2.8

Architecture & engineer. 2.7

Prof. Membership organ. 2.7

Photographic 2.2

Libraries & Museums 2.2Imagery © Bing Maps.

Prospects for New Office CentresNew Clusters Emerging, Despite Persistence of AgglomerationsEmerging centres in City Fringe- Shoreditch, Southwark.

Can use analysis of business location patterns to try and profile growth prospects for new emerging business centres.

Rush of New Business Centres InitiatedDevelopment timeframe decades and many developments plans initiated during mid-2000’s property boom, including strong government initiatives to further regeneration in East London. Now in difficult economic conditions greater competition and limited prospects for creating new centres.

3. New Centres and Future Scenarios


New Inner-London Business Centre Developments

Imagery © Bing Maps.

Paddington 33,000

Head Offices 8.4

Hotels 7.5

Natural sciences R&D 6.0


Civil Engineering 3.9

Advertising 3.9

Data processing 3.3

Telecomm. Activities 2.1

PaddingtonStarted 1998. Completed 160,000m2, further100,000m2+ planned. Large residential and hotel role also.Highly accessible; best connectivity to Heathrow in Central London; near established business markets.

Kings Cross320,000m2 planned, also residential and retail. Pushed back by recession, now first stages under construction. Best London/UK/European rail accessibility in the UK, massive site. Poor image legacy changing.

StratfordCompleted 15,000m2, considering 85,000m2.Massive brownfield regeneration scheme in deprived area. Good transport connections already in place. Huge shopping centre & residential completed, Olympic park. No established business cluster, central government push towards IT, part of ‘tech city’.

Greenwich Reach150,000m2 planned, 30,000m2 completed. More isolated location but attractive waterside setting close to Canary Wharf.

East-West Division and Major Infrastructure DevelopmentsAdvantages to Centres with Established MarketsRapid success for Paddington. Difficult to repeat as demand more limited. Strong accessibility advantages for Kings Cross, likely to outcompete Stratford as a new office location.

More Level Playing Field with New Infrastructure?

CrossrailGreatly improved accessibility and capacity for East-West travel 2018. Direct connections to Heathrow Airport for Central and East London. Greater interchange role for Farringdon and Stratford.

New Thames Estuary Airport?Over 100,000 direct jobs at Heathrow, plus many more 000’s indirect jobs. Cost £150+ billion, great uncertainty and long timeframe of 20-30 years. Potential to completely reorientate London’s business geography.

Connectivity differences between East and West levelling outWill come down more to historical inertia of existing clusters and ability to change perceptions of East London. ‘Olympic effect’ could speed up this process. Also general UK economic performance important, as current low growth leads to oversupply and prevents new centres emerging.


ConclusionsNew Opportunities for Urban modelling with Business and Property DataDetailed analysis of commercial property markets and business location, feed into LUTI and agglomeration research. Could also be applied to other sectors- retail, residential. Indeed markets closely connected.

Strong Submarkets and Western Diversity Underlies East-West DivisionLocational asymmetry from varying demands of sectors, and rapid expansion of City-CW versus highly restricted West End. West highly diverse and City narrowly focussed; price difference persisting through recession. City-fringe balancing factor with emerging creative and IT clusters.

Difficult to Establish Major New Business Centres in this CycleOversupply and lower demand, advantages to more established Paddington, Kings Cross, White City. Stratford starting from scratch and would need to establish new specialisation, likely in IT. Medium term reorientation more promising with Crossrail and long term possibly of new Airport.

LUTI Modelling needs to include employment submarketsVarying locational preferences, and growth or decline of particular sectors strongly influence urban change. Disaggregate approach in the Arcadia model.

Trends towards ‘mega’ development challenging to modelMassive ‘lumpy’ urban development- creates new urban realm in previously unattractive locations. More difficult to model than incremental development, as creates new value rather than being market responsive.Also volume of new commercial construction has important sustainability impacts , given insufficient attention in UK policy.

Thank you for listening! Welcome questions and feedback.

[email protected]

Info on current projects:

Arcadia ProjectMike Batty, Camilo Vargas.

Working paper on employment model:http://www.bartlett.ucl.ac.uk/casa/publications/working-paper-177

Camilo will be presenting aspects of this model CASA Seminar 14/3/2012.

City Dash-Board: Real Time Urban Data WebsiteAndy Hudson-Smith, Ollie O’Brien

To be presented at the CASA event in April.

Blogs:

Urban Geographics:geographics.blogs.casa.ucl.ac.uk/

Simulacra:simulacra.blogs.casa.ucl.ac.uk/

mailto:[email protected]

http://www.bartlett.ucl.ac.uk/casa/publications/working-paper-177

http://www.bartlett.ucl.ac.uk/casa/publications/working-paper-177

http://geographics.blogs.casa.ucl.ac.uk/

http://simulacra.blogs.casa.ucl.ac.uk/

Greater London Business Centre Specialisation

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