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.
100 200 300 400 500 600 700 800 900 1000 1100
0
100
200
300
400
500
600
700
800
St James'sMayfair
Knightsbridge
VictoriaSoho North Oxford Street
Covent GardenStrand
Holborn
City
SouthwarkCanary WharfWimbledon
Isle of Dogs ChiswickEalingStockley ParkStratford
UxbridgeCroydonRomford KingstonWembleyEnfield
Headline Rent (£/m2)
Mean R
ate
able
Valu
e p
er
unit
Flo
ors
pace (
£/m
2)
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
1. Empirical Analysis of London Office Real-Estate
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.
1. Empirical Analysis of London Office Real-Estate
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
1. Empirical Analysis of London Office Real-Estate
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
1. Empirical Analysis of London Office Real-Estate
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...
1. Empirical Analysis of London Office Real-Estate
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?
-100000 0 100000 200000 300000 400000 500000 600000 700000
-50
0
50
100
150
200
250
300
350
400
Canary Wharf
Chiswick
City
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
n R
enta
l V
alu
e 2
003-2
008 (
VO
A 2
005,
2010)
1. Empirical Analysis of London Office Real-Estate
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
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...
2. Agglomeration and Submarkets
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
2. Agglomeration and Submarkets
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
Financial serv. Other 11.8
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
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
Financial serv. Other 4.8
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.
3. New Centres and Future Scenarios
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.
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/
Top Related