Greater London Business Centre Specialisation


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Greater London Business Centre Specialisation

  1. 1. Agglomeration and urban development:the evolving business geography of Greater LondonDuncan Alexander SmithCASA Seminar- 23/2/12
  2. 2. Overview Can 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-Estate Property tax data for analysis. Diversity and increasing polarisation in London’s urban structure evident, cannot be explained with aggregate employment models. Agglomeration and Sub-Markets Sectors 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 London Planning policy intends to shift the focus eastwards to locations such as Stratford for greater equality in job opportunities, but how realistic is this?
  3. 3. Why does business geography matter? Improve Urban Modelling Business location driver of property markets, urban development. Aspects of complex systems- positive feedback, tipping points. New dynamics in urban structure evolving. Policy Relevance- Economic Competitiveness Ability 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 Employment Commercial 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.
  4. 4. Theoretical Models of Urban Land Use Neo-Classical Monocentric Approaches Static 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 Modelling Dynamic 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 Diversity Models 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.
  5. 5. 1. Empirical Analysis of London Office Real-Estate Measuring Office Floorspace and Rents in LondonGreater London Office Scope 800Data currently for GLA only. Linked processesoccurring across South East (see Hall & Pain, St Jamess 700 MayfairReades, Smith). Limiting study to office activities. Mean Rateable Value per unit Floorspace (£/m2)Data Source- Business Rates Tax 600 KnightsbridgeUse business rates data from VOA. Includesfloorspace and ‘Rateable Value’- predicted annual 500 Victoriarental cost of premises. Soho North Oxford StreetMean RV/m2 provides location rent proxy, closely Covent Garden Strandmatches ‘headline rents’. Discrepancy due to 400‘rent free periods’- City currently offering 2-3 Holborntimes rent free periods of West End (LOPR, 2009). 300 City Southwark Wimbledon Canary WharfValuation Office Data 200 Isle of Dogs Chiswick+ Comprehensive (all commercial property), Ealing Stratfordfloorspace & rateable value, fine scale. Kingston Stockley Park Uxbridge Romford Croydon Enfield Wembley- Lacks detailed function (only office, retail, 100industrial), 5 year updates so no detaileddynamics. 0 0 200 400 600 800 1000 1200Analysis of floorspace change achieved here using Headline Rent (£/m2)London Development Database 2000-2010.
  6. 6. Office Density 2000 and Rent 2003
  7. 7. Office Density 2010 and Rent 2008
  8. 8. 1. Empirical Analysis of London Office Real-EstateExplaining Geography of London Office Market GLA 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
  9. 9. 1. Empirical Analysis of London Office Real-EstateRegression Model of Office Rents Hedonic Model Revealed 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. PT Accessibility to Employment Independent Variables- Attractiveness of Office Locations Accessibility & Connectivity Access 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 Realm Heritage area based on listed buildings proportion. Mixed-use areas with retail Travel time to Heathrow and restaurant activity proportion. Office Specification Age, design. Data limited, use premises size, larger higher spec. Listed Buildings Proportion
  10. 10. 1. Empirical Analysis of London Office Real-Estate Bivariate Pearson Correlations Density Accessibility Urban Realm Spec. P P R L P T T a H i M G r O O P i A e s e r e f f A A T l i a t a e T m N f f c c r t e n e h i e i i c c S T p h d n a s w c c e e t e o r H s m e e e s s a r r o B o p e s O s s t m t w u u a s f F F i i i s c S f S S t t o n P P l e e P i i o o n u T T d r z c 2 2 W s T i P P o e e 0 0 E P T n r r x 0 1 m o a W i i g i o . A % 0 0 p p l a m m s c x v l u k l e e e . e o l k % . yOffice Rent Proxy 2003 .38 .36 .51 .44 -.31 -.4 -.02 -.41 .19 .34 0.3 .18 .12 .19Office Rent Proxy 2008 .4 .4 .59 .53 -.31 -.46 -.02 -.38 .23 .42 0.6 .17 .1 .19
  11. 11. 1. Empirical Analysis of London Office Real-EstateStepwise Multivariate Regression Goodness Standardised Coefficients Dependent Variable Significance of Fit R2 Variable Name Beta PT Access to Employment .561 .000 Heathrow PT Time -.226 .000 Office Rent Proxy 2003 .67 Listed Buildings Proportion .205 .000 Office New-build Proportion .141 .000 Listed Buildings Proportion .344 .000 Rail Terminus Time -.242 .000 Office Rent Proxy 2008 .52 Heathrow PT Time -.213 .000 PT Access to Employment .196 .000
  12. 12. 1. Empirical Analysis of London Office Real-EstateOffice 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...
  13. 13. 1. Empirical Analysis of London Office Real-Estate Urban Development 2000 - 2010 400Massive IntensificationNew FS 2000-10 – 8 million m2 St James 350 MayfairLost FS 2000-10 – 4.3 million m2 Change in Rental Value 2003-2008 (VOA 2005, 2010) KnightsbridgeOffice FS 2010 – 26.4 million m2 300Restricted development in West End 250for policy & heritage reasons. North Oxford Street Victoria 200Expansion Curtails Rent Rises Covent Garden SohoMain expansion City of London, and 150Canary Wharf. Expansion curtails Holbornprices locally. 100 SouthwarkQuestion is why are Western End 50 City Wimbledonbusinesses refusing to move to take Romford Isle of Dogs Canary Wharfadvantage of lower prices in City, CW? Enfield Stratford Chiswick 0 Ealing -100000 Kingston Stockley Park 0 100000 200000 300000 400000 500000 600000 700000 -50 Office Development 2000 - 2010 (LDD)
  14. 14. 2. Agglomeration and SubmarketsAgglomeration and Specialisation Growth of Knowledge Economy Industries Linkages amongst Urban advantages for sectors generating, transmitting firms in City and consuming information (Hall, 1999)- of London i. Finance and business services Source: Cook et al. 2007. ii. ‘Command and control’- HQs of TNCs, int. & nat. government iii. Creative and cultural industries, related tourism growth iv. 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. Linkages amongst firms in Soho Can use business survey data (ABI 2008-2010) to profile media cluster business centre specialisation... Source: Nachum 2003.
  15. 15. 2. Agglomeration and Submarkets West End 185,000 Radio broadcasting 7.1 City of London 328,000 Motion Picture product. 4.7 Holding company activ. 8.0 Fund management act. 3.7 Reinsurance 7.4 Real-estate development 3.6 Insurance 7.1 Sound recording 3.3 Fund management act. 5.6 Advertising 3.1 Trust funds 5.3 Real-estate activities 3.1 Finance auxiliary 5.1 Hotels 2.9 Banking 4.7 Prof. Membership organ. 2.6 Legal 4.7 Media reproduction 2.6 Security systems 4.5 Head Offices 2.3 Accounting 3.3 Management consult. 2.1 Technical testing 3.2 Financial serv. Other 2.9 Financial and Business Serv: Financial Services Business Services Information Technology Creative & Tourism: Creative Industries Tourism & Heritage Command & Control: Business management Central GovernmentImagery © Bing Maps.
  16. 16. 2. Agglomeration and Submarkets Sector RentBusiness Sub-Markets Higher Rent a663_Fundmanagementactivities 393 a941_Activitiesofprofessionalmembership 374 a551_Hotelsandsimilaraccommodat 350 Very High Degree of Local Specialisation a731_Advertising 342 a643_Trustsfundsandsimilarfinan 336 Much higher diversity in the West, balances a701_Activitiesofheadoffices 324 out demand fluctuations in particular a411_Developmentofbuildingproje 313 a900_Creativeartsandentertainme 307 sectors. City financial and business services a661_Activitiesauxiliarytofinan 306 only, current oversupply. a591_Motionpicturevideoandtelev 306 a642_Activitiesofholdingcompani 303 a702_Managementconsultancyactiv 298 Clearly different sectors have varying a581_Publishingofbooksperiodica 294 a692_Accountingbookkeepingandau 293 locational priorities. Will affect probability of a942_Activitiesoftradeunions 290 particular sectors relocating to new centres. a683_Realestateactivitiesonafee 287 a649_Otherfinancialserviceactiv 286 a749_Otherprofessionalscientifi 284 Ranking Sectors by Rent a691_Legalactivities 283 a910_Librariesarchivesmuseumsan 280 Lower sectors more price sensitive and more a641_Monetaryintermediation 274 likely to be relocating to emerging centres a721_Researchandexperimentaldev 273 a561_Restaurantsandmobilefoodse 272 (except government). a711_Architecturalandengineerin 271 Most likely sectors are IT industries and a651_Insurance 269 a639_Otherinformationserviceact 263 some creative industries- photographic, a949_Activitiesofothermembershi 260 architectural. a662_Activitiesauxiliarytoinsur 258 a732_Marketresearchandpublicopi 255 Extreme West End prices likely to push a741_Specialiseddesignactivitie 255 creative industries to relocate... a620_Computerprogrammingconsult 253 a631_Dataprocessinghostingandre 251 a619_Othertelecommunicationsact 239 a841_AdministrationoftheStatean 237 Lower Rent a842_Provisionofservicestotheco 237 a742_Photographicactivities 233 a602_Televisionprogrammingandbr 221 a712_Technicaltestingandanalysi 215 a181_Printingandserviceactiviti 170
  17. 17. 2. Agglomeration and Submarkets City Fringe North 160,000 Telecomm. Serv. 9.7 Other information serv. 7.3 Business Location Dynamics 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 City Fringe South 120,000 Market research 11.5 Accounting 5.2 Data processing 5.1 Canary Wharf 106,000 Publishing 4.3 Financial serv. Other 11.8 Insurance 3.0 Trust funds 10.5 Sound recording 2.8 Information serv. Other 10.1 Architecture & engineer. 2.7 Banking 8.2 Prof. Membership organ. 2.7 Finance auxiliary 7.6 Photographic 2.2 Wireless telecomm. 6.1Imagery © Bing Maps. Libraries & Museums 2.2 Office admin. Activities 2.0
  18. 18. 3. New Centres and Future ScenariosProspects for New Office Centres New Clusters Emerging, Despite Persistence of Agglomerations Emerging 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 Initiated Development 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.
  19. 19. 3. New Centres and Future Scenarios New Inner-London Business Centre Developments Stratford Kings Cross Completed 15,000m2, considering 85,000m2. 320,000m2 planned, also residential and Massive brownfield regeneration scheme in retail. Pushed back by recession, now first deprived area. Good transport connections stages under construction. already in place. Huge shopping centre & Best London/UK/European rail accessibility in residential completed, Olympic park. No the UK, massive site. Poor image legacy established business cluster, central changing. government push towards IT, part of ‘tech city’. Paddington 33,000 Head Offices 8.4 Hotels 7.5 Natural sciences R&D 6.0 Financial serv. Other 4.8 Civil Engineering 3.9 Paddington Started 1998. Completed 160,000m2, Advertising 3.9 further100,000m2+ planned. Large Greenwich Reach Data processing 3.3 150,000m2 planned, 30,000m2 completed. residential and hotel role also. Highly accessible; best connectivity to Telecomm. Activities 2.1 More isolated location but attractive Heathrow in Central London; near waterside setting close to Canary Wharf. established business markets.Imagery © Bing Maps.
  20. 20. 3. New Centres and Future ScenariosEast-West Division and Major Infrastructure Developments Advantages to Centres with Established Markets Rapid 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? Crossrail Greatly 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 out Will 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.
  21. 21. Conclusions New Opportunities for Urban modelling with Business and Property Data Detailed 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 Division Locational 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 Cycle Oversupply 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 submarkets Varying 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 model Massive ‘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.
  22. 22. Thank you for listening! Welcome questions and feedback. Info on current projects:Arcadia Project City Dash-Board: Real Time Urban Blogs:Mike Batty, Camilo Vargas. Data Website Andy Hudson-Smith, Ollie O’Brien Urban Geographics:Working paper on employment model: To be presented at the CASA eventcations/working-paper-177 Simulacra: in April. will be presenting aspects of thismodel CASA Seminar 14/3/2012.
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