Office market developers and investors tend to focus on the UK’s largest cities as their key markets and often miss the opportunities that other smaller, dynamic cities offer.
Globalisation has meant that, as the UK has moved from a principally manufacturing based economy to a services based one, the country’s comparative advantage now lies within the office and knowledge based sectors. This makes the provision of office space extremely important for city growth.
As shown in our latest report, Making the Grade, however, the problem is that despite strong demand, some of our most economically successful cities are not seeing large increases in floorspace growth. Conversely, cities with weaker office markets, such as Bolton and Blackburn, have seen large increases in floorspace.
Average rateable value of office space in 2000 with annual average growth in office floorspace between 2000 and 2008
- Land supply and planning restrictions - which can restrict development and push up prices, meaning it is potentially too expensive for some productive firms to locate there;
- Public sector driven investment and relocation – where the public sector has built office space and is either subsidising its use or is no longer using it, leading to an increase in supply and pushing down prices. This can have a negative effect on the built environment and could deter business;
- Employee density - some cities have seen an increase to employee density because more flexible office arrangements and modern office space has been designed so there may not be an increase in floorspace and;
- Domestic business relocation - a firm upgrading and/or consolidating many offices in to one means office floorspace hasn’t necessarily increased and/or can lead to an increasing amount of obsolete space.
But more significant to determining development is the size of the city. Larger cities have high aggregate demand and a higher occupancy churn and are therefore less risky for an investor – hardly surprising then that they choose to develop here – whilst smaller cities often have very specific demand for office space and can suffer from infrastructure issues.
Development models for small and large cities
In order to maximise choice for developers and investors and benefit from economies of scale, smaller cities should work closely with their neighbouring authorities on issues such as infrastructure, housing and planning.
Cities also need to understand the demand from their existing business base, as well as what they could need in the future, and tie this with a good knowledge of their current office provision. This should be communicated to agents in order to boost the city’s national profile.
Supporting some of the strongest performing cities by ensuring office space responds to high levels of demand will have substantial benefits both for these cities and the UK economy in our quest to move out of recession.
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