BUILDING LONDON, BUILDING BRITAIN THE ECONOMIC IMPACT OF CENTRAL LONDON OFFICE CONSTRUCTION

Transcription

1 BUILDING LONDON, BUILDING BRITAIN THE ECONOMIC IMPACT OF CENTRAL LONDON OFFICE CONSTRUCTION

2 Contents 1 FOREWORD 3 2 EXECUTIVE SUMMARY 5 KEY FINDINGS 5 3 INTRODUCTION AIMS AND OBJECTIVES OF THE REPORT SCOPE OF ANALYSIS APPROACH 12 4 THE CONTRIBUTION OF CENTRAL LONDON OFFICE DEVELOPMENT TO THE UK ECONOMY BACKGROUND TO THE LONDON ECONOMY AND CONSTRUCTION SECTOR 15 THE ROLE OF CONSTRUCTION IN THE UK ECONOMY 15 THE ROLE OF CONSTRUCTION IN THE LONDON ECONOMY CONSTRUCTION INVESTMENT AS A DRIVER OF UK ECONOMIC GROWTH 17 5 THE CONTRIBUTION OF CENTRAL LONDON OFFICE DEVELOPMENT TO THE LONDON ECONOMY IMPACTS ON THE LONDON ECONOMY INFRASTRUCTURE INVESTMENT AS A CATALYST TO LONDON DEVELOPMENT 26 6 THE WIDER BENEFITS AND OPPORTUNITIES OF LONDON DEVELOPMENTS THE ECONOMIC IMPACT OF CENTRAL LONDON OFFICE DEVELOPMENT ON THE REGIONAL ECONOMIES OPPORTUNITIES AND CHALLENGES IN THE UK SUPPLY CHAIN THE CONTRIBUTION OF DEVELOPMENT TO ENVIRONMENTAL SUSTAINABILITY 42 ANNEX 1 ADDITIONAL RESULTS 49 UK RESULTS 49 LONDON RESULTS 50 REGIONAL RESULTS 51 ANNEX 2 METHODOLOGY 52 ECONOMIC IMPACT ANALYSIS 52 SAMPLE COVERAGE 53 ANNEX 3 GLOSSARY 55 ANNEX 4 LIST OF INTERVIEWEES 56 ANNEX 5 REFERENCES 57 1 FOREWORD Look from the window of any tall building in Central London, in any direction, and the forest of cranes adorning the skyline stand as testament to London s constant desire to rebuild itself. London is a magnet for investment and talent from around the globe, competing with international hubs such as New York, Hong Kong and Dubai, and where it succeeds it brings wealth to the whole of Britain. So, we should take pride in the sight of all of those cranes. The development that they represent is a signal of continuing global confidence in London and its future growth. The inherent value of such development to the city itself bringing work to professional services firms, on-site construction jobs and, of course, new offices is generally well-accepted. However, we were interested in understanding what value it might add more widely across Britain. It is sometimes overlooked, for instance, that more than 60 per cent of Transport for London s capital investment budget is spent in other parts of the country there are no train carriage manufacturers in Westminster, for example. Given that there are, equally, no steelworks in the Square Mile, should we not expect to see the economic (and other) benefits of development activity in London being felt in other parts of the country? To find out, we asked PwC to analyse the direct and indirect impact of a sample of developments in Central London that have been completed since 2008 or are expected to be completed by Nine of the city s leading developers agreed to fund this work and, importantly, allow PwC access to their confidential proprietary data so that a full understanding of their construction expenditure, supply chain impacts and even employee spending could be developed. I would like to thank each of those firms for their support and co-operation. 3

3 The picture that emerges is striking. While it should be no surprise that London itself benefits from office development in the centre to the tune of around half a billion pounds annually the further contribution to regional economies is almost double that, at over 1bn a year. Similarly, the 12,000 jobs supported in London are dwarfed by over 22,000 supported outside the city. And more than 80% of direct expenditure remains in the UK; overseas purchases tend to be limited to specialist equipment that is not currently made in Britain. It is important to note that this research represents just a fraction of London s overall construction activity. It looks at office development in Central London, and takes the sample from the nine developers and extrapolates it to Central London office development as a whole. But it does not look to office development outside this central zone - the West End, City of London and Docklands nor does it include other types of development, such as housing or infrastructure. Total construction activity in London generates much larger economic benefits than those considered in this study. Further research could shed light on the economic contribution of other development in London, particularly in the residential sector. But what is clear from this report is that, as with so many aspects of investment in the capital, building London brings benefits for many other parts of Britain. Jo Valentine Chief Executive, London First June EXECUTIVE SUMMARY PwC was commissioned to undertake this study by London First and nine of the principal developers in London - British Land, Cadogan Estates, Canary Wharf Group, The Crown Estate, Derwent London, Great Portland Estates, Grosvenor, King s Cross Central Limited Partnership and Land Securities. The objective of the study is to assess the gross contribution of a small, but easily identifiable, part of London s construction activity to the UK economy, by quantifying the economic output and generated across the country. The study measured the national and regional output and generated by Central London office developments through construction expenditure, supply chain impacts and employee spending. The study also examined the extent to which development expenditure is lost from the UK, and explored the wider qualitative impacts of London developments on the local community, the construction sector s supply chain, and as a catalyst to economic regeneration. KEY FINDINGS Central London office developments generate significant economic benefits to the UK, contributing an average of 1.7bn of and 34,600 jobs per year. Around 84% of direct expenditure on Central London office development remains in the UK. More than half of this UK expenditure ( 0.9bn per year) is distributed to the regions of the UK, generating 1.1bn of and 22,400 jobs per year. Central London office development generates almost twice as much and 80% more jobs outside London as it does within the capital. There is the potential for developments to generate further economic benefits for the UK, by increasing domestic expenditure on goods and services where the UK currently lacks capability, such as cladding, lifts and machinery. A sample of residential developments found that Central London house building has similar multiplier impacts on the economy. There are wider benefits of London development to local communities, suppliers and the environment, which are additional and complementary to their economic impacts. Figure 1: The annual economic contribution of Central London office development. 1 Central London office development per annum Jobs per annum UK economy 1.7bn 34,600 London economy 0.6bn 12,200 Regional economies 1.1bn 22,400 1 measures the contribution of an organisation or activity to GDP and jobs refer to person years of one job is equivalent to one person employed for a full year. Results are presented in 2013 prices throughout unless stated otherwise. 4 Source: Development expenditure and PwC analysis. 5

4 THE CONTRIBUTION OF CENTRAL LONDON OFFICE DEVELOPMENT TO THE NATIONAL, LONDON AND OTHER REGIONAL ECONOMIES A typical Central London office development of approximately 122,000 square foot - equivalent to two full-size football pitches - contributes 47m of and 940 jobs to the UK economy. This includes the direct impact of expenditure on suppliers, the indirect impact of increased expenditure in their supply chains, and the induced impact of increased expenditure of employees in those businesses. The construction of all Central London office developments completed between 2008 and 2016 is estimated to generate a total of 15.5bn of and 311,400 jobs. Of this, approximately 9.7bn of and 201,700 jobs can be attributed to the UK regions outside of London while 5.8bn of and 109,700 jobs were, or will be, retained in the London economy. THE ECONOMIC IMPACTS OF CENTRAL LONDON OFFICE CONSTRUCTION ARE DISTRIBUTED ACROSS THE REGIONS OF THE UK As would be expected, the regions which benefit most strongly from Central London office development are those closest to London the South East and East of England receive 280m and 127m of per year respectively. However, there are regions further afield which also benefit significantly 57m of and 1,450 jobs are supported each year in Yorkshire and Humberside and 44m of and 1,160 jobs are supported each year in the West Midlands. There are additional benefits to the regions outside London of 467m of and 7,360 jobs a year, which result from knock-on spending between the regions (for example, a supplier in the North West sourcing materials from the North East) and cannot be attributed to a specific region. Central London office development directly supports employee wages through supplier expenditure 22m of wages are directly supported in Yorkshire and Humberside each year, while 15m and 12m of wages are supported each year in the West Midlands and the North West respectively. A typical Central London office development 350 Direct UK jobs 17m Direct UK Source: Development expenditure and PwC analysis. 360 Indirect UK jobs 18m Indirect UK Figure 2: The total economic contribution of Central London office developments completed between 2008 and Gr oss Value Added ( bn) bn 9.7bn 15.5 bn Employment 350, , , , , ,000 50, Induced UK jobs 12m Induced UK 109, , Total UK jobs 47m Total UK 311,400 Figure 3: Annual and supported by Central London office development in the regions of the UK outside of London. 9m 230 9mjobs 230 jobs 9m 210 9mjobs 210 jobs 12m m jobs 280 jobs 32m m jobs 790 jobs 57m 1,450 57mjobs 1,450 jobs 32m 44m 850 jobs 32m 1,160 jobs 44m 850 jobs 127m 1,160 jobs 3m 3,050 jobs 127m 90 jobs 3m 3,050 jobs 90 jobs 10m 280 jobs 10m 280 jobs 280m 6,660 jobs 280m 6,660 jobs Region Annual Annual jobs East of England 127 m 3,050 East Midlands 32 m 850 North East 12 m 280 North West 32 m 790 Northern Ireland 9 m 230 Scotland 9 m 210 South East 280 m 6,660 South West 10 m 280 Wales 3 m 90 West Midlands 44 m 1,160 Yorkshire & Humberside 57 m 1,450 Regional spillovers 467 m 7,360 All regional impacts outside London Central London office Central development London office development 1,082 m 22,410 0 London Regions Total UK 0 London Regions Total UK Source: Development expenditure and PwC analysis. Note: Regional spillovers refer to economic impacts that result from knock-on spending which leaks outside of the region - the specific region of the UK cannot be identified for these impacts. 6 7

5 THERE IS POTENTIAL FOR CENTRAL LONDON OFFICE DEVELOPMENT TO GENERATE FURTHER ECONOMIC BENEFITS The economic benefits of Central London office development result from 84% of expenditure remaining in the UK this compares favourably to the average for other industries such as oil and gas extraction (81%), telecommunications (69%) and vehicle manufacturing (51%). 2 2 ONS Input-Output Tables. THERE ARE WIDER BENEFITS OF LONDON DEVELOPMENTS The variety of wider benefits of developments investigated in this study is listed below. These benefits are additional to the economic impacts of developments and are investigated through the use of a number of case studies throughout this report. However, if this proportion increased to 100% there could be an additional 3.1bn of hypothetical generated in the UK. Figure 4: The current and potential of Central London office developments, bn 3.1bn Source: Development expenditure and PwC analysis. Local regeneration - Creating public space - Mutual benefits of infrastructure - Heritage restoration - Local apprenticeships Supplier relationships - Hyper-local supply chains - Utilising regional suppliers - Supply chain collaboration Environmental sustainability -A flexible approach to sustainability - Developing sustainability expertise - Constructive conservation Current Potential Many of these wider benefits are aptly illustrated by the case studies included in the report. THE RESULTS IN THIS STUDY REPRESENT ONLY A SMALL PROPORTION OF TOTAL LONDON CONSTRUCTION Central London offices represent only a small proportion of all London development activity: The construction expenditure analysed in this study is equivalent to less than 10% of total construction output in London (as measured by new work orders). 3 The remaining 90% of construction output includes sectors such as housing, retail and infrastructure, as well as office development outside the central zones of the West End, City of London and Docklands. Total construction activity in London generates much larger economic benefits than those considered in this study. Figure 5: The annual value of London construction output and Central London office construction output, Annual value of output (bn) bn Value of all London construction output 1.5 bn Value of Central London office construction output 3 The 1.5bn of construction expenditure in Figure 5 excludes all pre-construction costs such as design and planning. The 15.7bn of London construction output is the value of new work (excluding repair and maintenance) across Greater London. Source: Output in the Construction Industry, ONS and PwC analysis. The study of Canary Wharf Group s partnership with local councils and business groups shows how major developments can foster hyper-local supply chains. Cadogan Estates redevelopment of Duke of York Square has similarly benefited local businesses and provided a new public space for the community, while Great Portland Estates ambitious Master Plan for Hanover Square not only creates a new square for public use but also further enhances the new Crossrail station and the benefits that will bring to the area. The supply chain impact of Central London development is illustrated in several case studies. British Land s Leadenhall Building has preserved steelworking jobs in Bolton and used materials from other locations, including South Wales and Humberside. The skills that enabled the King s Cross Central Limited Partnership to restore the iconic gas holders behind the station were found not in London, but in Yorkshire. And Grosvenor s Core Product Team shows how a collaborative approach to procurement can work for both developers and their contractors and suppliers. As in any sector, development activity can also help to foster skills among the next generation, as the success of the Construction Skills Centre at King s Cross shows. Looking further forward, the contribution of development to environmental sustainability is often overlooked, but is well illustrated by Land Securities use of ground source energy at One New Change, Derwent London s chameleon-like White Collar Building, at the Old Street Roundabout and The Crown Estate s innovative energy strategy for the Quadrant 3 phase of its Regent Street regeneration programme. 8 9

6 3 INTRODUCTION 3.1 AIMS AND OBJECTIVES OF THE REPORT There have been a number of studies which have examined London s economic contribution to the UK and its regions, including those by the GLA 4, the City of London 5 and London First. 6 There has also been significant analysis of the role of construction activity in generating economic growth, such as the publications by the UK Contractors Group 7 and British Land. 8 However, there is a gap in research into the economic impact of aggregate construction activity in London on the wider UK economy and the regions. This study reduces this gap by quantifying the gross contribution of commercial development in Central London to the UK economy. This study was undertaken by PwC, and commissioned by London First and nine of the principal developers in London, and it involved the collation and analysis of construction expenditure at a number of office based developments in Central London across the nine developers. 4 GLA, Growing Together London and the UK Economy, City of London Corporation, London s Place in the UK economy, London First, Keeping the UK Competitive, UK Contractors Group, Making the Economic Case for Construction, 2011, and Construction in the UK Economy, SCOPE OF ANALYSIS This study seeks to estimate the aggregate economic impact of one sub-sector of development in London the Central London office market. This is achieved by collecting the supply chain expenditure data related to a sample of key development schemes. The scope of the analysis, in terms of geography, time and other factors, is illustrated in Figure 6 and is explained in more detail below. Central London The analysis includes all relevant developments located within the boundaries of Central London which are illustrated in Figure 7 below. This geography is based on the general definition of Central London provided in property reviews of London offices, which categorises the area into the sub-markets of The West End, Paddington, Midtown, King s Cross, The City, Southbank and Docklands. It covers the main areas of office development activity in London and loosely overlaps with the GLA s definition of the Central Activities Zone, the area with the highest concentration of important business activities. Figure 6: The scope of analysis in this study. The results for Central London offices have been scaled up for the entire population of developments using statistical analysis, as a large and representative data sample - representing 17% (by floor space) of all Central London office developments - was collected. This has produced the main results of the study, which are estimates of the total economic output and supported by construction expenditure across all Central London office developments. In addition, a number of case studies have been undertaken in order to identify any wider social, economic or environmental benefits. 8 British Land, Our Economic Contribution, 2011 and Building Business, Creating Growth, In scope Out of scope Central London London development North London South London The main objectives of this study are as follows: To quantify the gross economic contribution of Central London office development on the UK economy through expenditure on construction, supply chain effects and employee spending. To analyse the extent to which these economic impacts are distributed across the different regions of the UK. To study the capability of the domestic supply chain in providing construction materials and services, and hence quantifying the cost of expenditure leaking from the UK. To explore any wider qualitative benefits of London s developments on communities, suppliers and the environment. New Office Residential Retail Refurb Completed between 2008 & 2016 Figure 7: The boundaries of Central London in this study. Other (incl. infrastructure) NW1 EC1 W2 W1 WC1 W2 EC2 EC4 EC3 E1 E16 W11 W8 SE1 W14 SW7 SW1 E14 SW

7 Office developments The developments included in the analysis either have at least 10,000 square foot of office floor space, or are predominantly used for office purposes if smaller than 10,000 square foot. Completed between 2008 and 2016 The analysis includes all developments which completed or are expected to be completed between the years 2008 and 2016 inclusive. The developments included in the analysis may therefore be either recently completed, currently onsite or recently committed/proposed. New development and refurbishments The analysis includes both new developments and refurbishments. 3.3 APPROACH The approach to estimating the main results consisted of three main stages, as outlined in Figure 8. Each of the three stages is described in turn below. GROSS VALUE ADDED () Gross value added is the recommended measure (ONS, Measuring the Economic Impact of an Intervention or Investment, 2010) of the contribution of an organisation or activity to GDP. EMPLOYMENT The number of jobs supported by construction expenditure is measured in person years, which assumes that each job is the equivalent of employing one person for one full year. Economic impacts are categorised as direct, indirect and induced impacts, with indirect and induced impacts collectively known as multiplier impacts. They are defined in the box below and illustrated in more detail in Figure 9. The three impacts can be summed together to calculate the total economic impact. It should be noted, however, that the economic impacts estimated throughout this study relate to gross rather than net impacts. This means that this study does not estimate what would have happened to the economy if there was no Central London office development. A more detailed description of the economic analysis is provided in Annex 2. Figure 8: The high-level approach to the estimation of results. 1) Defining the sample of Central London office developments 2) Economic analysis of supply chain expenditure 3) Extrapolation of results for all Central London office developments 1 Defining the sample The sample of developments was defined using the criteria identified in Chapter 3.2 Scope of analysis. In total, 38 office developments in Central London were included in the sample, belonging to nine different developers. This sample contained a total office floor space of 6.7 million square foot, with development sizes ranging from less than 5,000 square foot to over 500,000 square foot. The developments in the sample were located across the breadth of Central London, in The City, The West End, Docklands and King s Cross. DIRECT IMPACTS The and supported by the first round of development expenditure. INDIRECT IMPACTS The and supported by increased supply chain spending in the first round of suppliers. INDUCED IMPACTS The and supported by the spending of employees in the first round of development expenditure (including on site workers) as well as the rest of the supply chain. Figure 9: Illustration of the direct, indirect and induced impacts of the first round of development expenditure. 2 Economic analysis The first stage of the economic analysis involved collecting data on supply chain expenditure for each of the 38 developments. This dataset includes expenditure on suppliers providing construction materials such as cladding, the fees of contractors (both the main contractor and package contractor) and expenditure on professional services such as architects and consultants, including those incurred in the preconstruction phase. This expenditure is collectively referred to as the first round of development expenditure, with the suppliers receiving this expenditure referred to as the first round of suppliers. Direct impacts xm Main contractor xm Package contractors xm First round of development expenditure xm Construction suppliers xm Architects & consultants The economic impact of the first round of development expenditure was calculated by applying economic indicators to the expenditure data. These indicators were applied at both the national and regional levels, to estimate impacts on the regional economies as well as the UK economy. The two main metrics used to measure economic impact were gross value added and, which are defined as follows: Indirect impacts Induced impacts xm Supply chain spending xm Employee spending 12 13

8 3 Extrapolation of results To extrapolate the results for the 38 developments in the sample for the population of all Central London office developments, the sample was categorised into clusters of developments. These categories were chosen after a detailed analysis of the characteristics which affect the pattern and size of economic impact resulting from developments. The main characteristics affecting economic impact were found to be the size and location of developments, so the sample was split into the five categories below based on those characteristics. Table 1: The categorisation of Central London office developments by location and size. 9 Category Number of developments Office floor space (m sq ft) 1 West End area, <150,000 sq ft West End area, > 150,000 sq ft City area, <150,000 sq ft City area, > 150,000 sq ft Docklands All The economic impact results calculated in stage 2 were aggregated for each category and divided by the total amount of office floor space for that category. This produced estimates of the direct, indirect and induced and (for the UK and each of the regions) per square foot of office floor space, for each category of development. For example, for Docklands developments: Direct UK of Docklands developments in sample x m Direct UK of Docklands developments in sample x m Floor space of Docklands developments in sample x million sq ft Floor space of Docklands developments in sample x million sq ft Direct UK per square foot of Docklands developments x per sq ft Then, Direct data UK was collected per on the total office Floor floor space space of of developments Direct with UK a of all square foot of Docklands developments Docklands developments completion Docklands development date between 2008 and 2016, in population for each of the five categories. in population This was obtained x per using sq market ft reports on Central xx million London sq office ft development activity, xx mwhich provided individual data on developments previously completed, under construction, committed or proposed. The total amount of floor space within each category was then used as the basis of extrapolation, by multiplying the economic impacts per square foot of development by the total amount of office floor space, for each category. The floor space used at all stages of the analysis is the net internal area, and the floor space that is used for office purposes only. 9 The West End area refers to the West End and Paddington, while the City area refers to The City, Southbank, Midtown and King s Cross. All Docklands developments in both the sample and the overall population were over 150,000 square foot of office space, so they were not categorised by size. Direct UK per square foot of Docklands developments x per sq ft 4 THE CONTRIBUTION OF CENTRAL LONDON OFFICE DEVELOPMENT TO THE UK ECONOMY 4.1 BACKGROUND TO THE LONDON ECONOMY AND CONSTRUCTION SECTOR THE ROLE OF CONSTRUCTION IN THE UK ECONOMY The output of the construction industry has been a key determinant of the UK s economic growth in recent years, and has mirrored the changes in output experienced by the overall economy. In the 16 quarters to the end of 2012, the construction sector accounted for 31% of the fluctuations in economic output, measured by gross value added, while only accounting for 7% of total output in the economy. Figure 10: The contribution of the construction sector to UK output growth, Change in output 1.5% 0.5% -0.5% -1.5% -2.5% Source: UK Economic Accounts, ONS. Change in output excluding construction Change in output due to construction Figure 11: The construction sector s share of UK output and UK output fluctuations, % 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Direct UK per square foot of Docklands development x per sq ft Floor space of Docklands developments in population xx million sq ft Direct UK of all Docklands developments in population xx m Share of output, Share of output fluctuations, Source: UK Economic Accounts, ONS. 7% 31% Construction sector Non-construction sectors 14 15

9 Figure 12 below presents the change in the number of workforce jobs since the start of 2007, for the construction sector and the whole economy. The economy has recovered from the decline in between 2009 and 2011, with total workforce jobs in December 2012 exceeding that of January 2007 by 280,000. Meanwhile, the construction sector has lost 305,000 workforce jobs over the same period, as a result of a steady decline in from 2009 onwards. 4.2 CONSTRUCTION INVESTMENT AS A DRIVER OF UK ECONOMIC GROWTH Figure 12: Change in workforce jobs for the construction sector and the whole economy, Change in workforce jobs ('000s) Source: Labour Market Statistics, ONS. Construction All sectors Dec 2012 = 280,000 Dec 2012 = -305,000 Figure 14: The economic contribution to the UK of Central London office developments, by and, 2008 and Gr oss Value Added ( bn) bn Direct 6.0 bn Indirect 3.8 bn 15.5 bn Induced Total Employment ( jobs) 350, , , , , ,000 50, , ,900 76, ,400 Direct Indirect Induced Total THE ROLE OF CONSTRUCTION IN THE LONDON ECONOMY The construction sector in London tends to move in the same direction as the London economy as a whole, but is generally exposed to much wider fluctuations in output. As illustrated in Figure 13, the output of the London construction sector experienced much larger increases in output than the wider London economy during the pre-recession years, notably in 2006 when nominal output growth in construction was three times greater than that across all sectors. Similarly when London experienced a slight drop in nominal output of 0.1% in 2009, the corresponding fall in nominal output for the construction sector was 14%. However, the share of the London construction sector in the wider London economy has been relatively constant over this period, remaining between 4.5% and 5.5% of total output between 2000 and Central London office development between 2008 and 2016 contributed an estimated 15.5bn of and 311,400 jobs. 10 This equates to an annual average of 1.7bn of and 34,600 jobs. Approximately 5.7bn of and 115,300 jobs of the total economic contribution are the direct impacts of the development expenditure on the economy. The remaining 9.8bn of and 196,100 jobs are supported through indirect and induced impacts, which are a result of increased supply chain and employee spending. The developments included in the extrapolated results are equivalent to 40.5 million square foot of office space and are distributed across the West End, City and Docklands and their immediate surrounding areas. The total floor space used to estimate these results is presented in Figure 15 by completion date. The economic impact per million square foot of floor space differs significantly based on the location and size of the development, so separate extrapolations were undertaken for each type of development based on these characteristics. 10 measures the contribution of an organisation or activity to GDP, and jobs refer to person years of one job is equivalent to one person employed for a full year. Results are presented in 2013 prices throughout. Figure 13: Change in output of the London economy and the London construction sector, % 15% Figure 15: Floor space of all Central London office developments by completion date, Change in nominal output 10% 5% 0% -5% -10% -15% Growth in London construction output Growth in London output Construction as a % of London output Office floor space ( m sq ft) Docklands area West End area City area Average Source: Regional Accounts, ONS. Sources: London Offices Crane Survey, Deloitte Real Estate and Central London Property Market Review, CBRE

10 The floor space in Figure 15 is presented by year of completion, which does not give a precise indication of when the economic impacts occur. This is because the development of large offices often takes a number of years and economic impacts will occur throughout the development lifecycle. Figure 16 presents the estimated time profile of economic impacts for all Central London office developments with a completion date between 2008 and This is calculated using information on the timescale of office development and the assumption that economic impacts are distributed equally across this development lifecycle. As illustrated in Figure 16, this means that economic impacts tend to be smoothed over time, with the effect of the completed floor space slump in 2011 spread out over 2009 and It should be noted that Figure 16 only includes developments with a completion date between 2008 and 2016, and that developments with a completion date outside of these years are likely to bring additional economic impacts in the years shown. For example, developments that completed in 2007 are likely to have had a impact in 2007 and the preceding years. Hence, to obtain estimates of the annual impact of Central London office developments, the total and should be divided by the range of years in which they are due to complete, rather than the time profile of impacts. This gives an annual average of 1.7bn of and 34,600 jobs supported by Central London office developments, after including multiplier impacts. BOX 1: THE ECONOMIC IMPACT ON THE UK OF A TYPICAL CENTRAL LONDON OFFICE DEVELOPMENT A typical Central London office development 350 Direct UK jobs 17m Direct UK This is based on the average and jobs per square foot of office space across the five categories of development, combined with the average floor space of Central London offices of 122,000 square foot. The results take into account the direct impact on the first tier of 360 Indirect UK jobs 18m Indirect UK 230 Induced UK jobs 12m Induced UK 940 Total UK jobs 47m Total UK suppliers receiving the expenditure (including the impact of onsite workers), the indirect impact on the supply chain beneath those suppliers, and the induced impact resulting from employees on site and along the supply chain spending their money in the economy. Figure 16: The time profile of economic impacts from Central London office developments in scope, Gross value added ( bn) 2.5 Direct Indirect Induced The Central London office developments considered in the above analysis represent only a small proportion of the total construction activity in London. The construction expenditure analysed within this study is equivalent to less than 10% of the total value of construction in London, as measured by new work orders. 11 The remaining 90% of construction output consists of sectors such as housing, retail and infrastructure, in addition to office development outside of the central area of London defined for the purposes of this study. Figure 17: London construction work orders by location & development type, The 1.5bn of construction expenditure in Figure 5 excludes all pre-construction costs such as design and planning. The 15.7bn of London construction output is the value of new work (excluding repair and maintenance) across Greater London. The economic analysis of supply chain spending at a representative sample of Central London office developments has estimated that the development of a typical Central London office supports 47m of Gross Value Added () and 940 jobs in the UK economy. This is illustrated in Box 1 opposite. Annual value of output (bn) bn Value of all London construction output 1.5 bn Value of Central London office construction output Source: New Orders in the Construction Industry, ONS. 18 The values in Figure 17 illustrate that the results presented in this chapter reflect only a proportion of total London construction. The economic impacts of these other construction types (such as residential developments) are likely to be significant given the comparatively strong knock-on effects of the construction sector, which is explained in more detail in Annex 1. However, the exact scale and structure of economic impacts resulting from the construction of other development types are likely to vary depending on their sector and location. Box 2 presents an analysis of the economic impact of a sample of residential developments in Central London. 19

11 BOX 2: THE ECONOMIC IMPACT OF EACH 100 UNITS OF CENTRAL LONDON RESIDENTIAL DEVELOPMENT The construction of residential developments in Central London generates significant multiplier effects in the economy, in a similar manner as the construction of office buildings. A large proportion of expenditure at residential developments remains in the UK (93%), which increases its potential to generate significant economic impacts. the supply chains of those businesses. In addition, 9m of and 230 jobs are supported by the increased consumer spending of employees on site and in the supply chain. The residential developments analysed in this sample consist of a mix of refurbishments and new builds, as well as a combination of market and affordable housing. 5 THE CONTRIBUTION OF CENTRAL LONDON OFFICE DEVELOPMENT TO THE LONDON ECONOMY 5.1 IMPACTS ON THE LONDON ECONOMY For each 100 units of Central London residential development in the sample analysed, approximately 51m of and 1,090 jobs are supported in the UK economy. This includes 28m of and 550 jobs at the suppliers directly involved in construction and 14m of and 310 jobs supported in A unit of residential development is defined as an individual dwelling such as a flat or house, regardless of size. Between 2008 and 2012, the average number of dwellings completed in London was approximately 19,000 per year (DCLG, Housebuilding Statistics). A significant proportion of expenditure on Central London office developments remains within London, as would be expected, and generates a stream of economic benefits within the capital. Approximately 46% of UK expenditure is disbursed to London-based suppliers, totalling 6.7bn for developments between 2008 and This supports approximately 5.8bn of and 109,700 jobs in London, which is equivalent to approximately 0.6bn of and 12,200 jobs per year. 100 units of Central London residential development 550 Direct UK jobs 310 Indirect UK jobs 230 Induced UK jobs 1,090 Total UK jobs While 2.7bn of and 48,100 jobs are generated directly, there is also an indirect impact of 1.8bn of and 32,800 jobs through further supply chain spending within London. In addition, there is an induced impact of 1.3bn of and 28,800 jobs from employees spending their wages in London, as a result of the initial expenditure. 28m Direct UK 14m Indirect UK 10m Induced UK 52m Total UK Figure 18: The economic contribution to London of Central London office developments, by and, 2008 and Gr oss Value Added ( bn) bn 1.8 bn 1.3 bn 5.8 bn Employment 120, ,000 80,000 60,000 40,000 20,000 48,100 32,800 28, ,700 0 Direct Indirect Induced Total 0 Direct Indirect Induced Total The percentage of development expenditure that remains in London tends to vary significantly across the packages that are procured for Central London office construction. Two packages which tend to be highly concentrated in the London area are architects and consultants, and groundwork and demolition services. The impact on the London economy resulting from expenditure on these packages, for all Central London office developments to complete between 2008 and 2016, is presented below. 20 Approximately 91% of total expenditure on architects and consultants remains within London, reflecting the competitive advantage of London in business services. This package includes a range of professional services required for large office developments such as architects, surveyors, cost consultants and environmental consultants, and it includes expenditure both during construction and before construction during feasibility stages. Total expenditure on London-based suppliers of these services is approximately 1.2bn. 21

12 Expenditure on architects and consultants in London directly supports 631m of and 12,750 jobs, with 399m distributed to employees in wages. The indirect and induced impacts of this expenditure support a further 492m of and 11,890 jobs for other businesses in London, while the spillover of knock-on expenditure into other regions supports a further 415m of and 2,600 jobs for businesses outside London. CASE STUDY 1 HYPER-LOCAL SUPPLY CHAINS EAST LONDON BUSINESS PLACE Figure 19: The total economic contribution of Central London office expenditure on London-based architects & consultants, bn of expenditure The achievements of the ELBP (and previously the LBLO). Aim To maximise local business opportunities in East London by matching local suppliers to the purchasing needs of buyers and providing business support services Direct impact on suppliers Multiplier impacts in London Multiplier impacts on the rest of the UK 631m of 12,750 jobs & 399m of wages 492m of 11,890 jobs 415m of 2,600 jobs 1997 The Local Business Liaison Office (LBLO) established LBLO helped local companies to secure over 615m of contracts 2008 LBLO expanded across East London, forming the East London Business Place (ELBP) 2013 The ELBP to date has helped local companies to secure a further 117m of business Suppliers of groundwork and demolition services in London receive 515m of expenditure as a result of Central London office developments. This supports approximately 181m of and 3,260 jobs for suppliers of those services, with 93m distributed to their employees in wages. This creates a further 179m of and 3,820 jobs for other businesses in London, with an additional multiplier impact of 173m of and 3,780 jobs for businesses in the rest of the UK. Figure 20: The total economic contribution of Central London office expenditure on London-based groundwork & demolition suppliers, Direct impact on suppliers Multiplier impacts in London Multiplier impacts on the rest of the UK 515m of expenditure 181m of 3,260 jobs & 93m of wages 179m of 3,820 jobs 173m of 3,780 jobs The expenditure on London-based suppliers in the construction phase of development is only one aspect of how developers can contribute to the prosperity of London, however. The case studies below highlight some examples of how developers have engaged with local communities in London, to ensure that the benefits of development are shared with those living nearby. The East London Business Place The East London Business Place is a public-private partnership which Canary Wharf Group leads, working alongside the East London Business Alliance (ELBA) and East London borough councils. The objective of the East London Business Place (ELBP) is to maximise business opportunities between local companies by providing local and Waltham regional Redbridge supply chain Havering support Forest services within each of the boroughs. How the ELBP supports East London businesses The ELBP actively works to match specific local suppliers to local buyers, tracking and giving access to contracts around the 10 boroughs of East London. In addition, the ELBP provides a number of procurement and business development services to buyers and suppliers in East London, including: m face-to-face business of and business Hackney Barking and procurement 3,108 advice. secured Dagenham Newham Tower Gay Harrington, Director of the ELBP, says businesses locally Hamlets group and supported one-to-one 4,187 support to that they achieve this by working with micro 3,502 improve competitiveness contracts and fitness Greenwich and small to medium sized enterprises and businesses 84% of to supply. Bexley buyers across all industry sectors to source registered contracts worth 10k Lewisham and match local suppliers to their purchasing free events such as workshops, less needs. The ELBP operates within 10 seminars, procurement clinics and boroughs around the Thames Gateway, networking events. offering buyers and suppliers free one-to-one advice. To support buyers, the ELBP offers a face-to-face, flexible approach to meeting The ELBP grew out of the success of Canary the needs of individual businesses. Services Wharf Group s Local Business Liaison Office include access to a database of more than (LBLO) model, which was implemented in 3,500 local suppliers from a range of trades The LBLO worked with local companies and disciplines, which reduces the time to help them secure contracts, which totalled needed for sourcing and contracting. 615m of business for local suppliers by In addition the ELBP allows buyers to Approximately 84% of these contracts and confidentially track and measure their purchase orders were for less than 10,000, local procurement metrics, to meet their and could therefore be delivered by SMEs. compliance obligations and corporate Since 2008, ELBP has helped East London social responsibility agenda. businesses to secure a further 117m of contracts

13 Business Place (ELBP) 117m of business CASE STUDY 1 HYPER-LOCAL SUPPLY CHAINS EAST LONDON BUSINESS PLACE CASE STUDY 2 CREATING PUBLIC SPACE FOR THE COMMUNITY THE DUKE OF YORK SQUARE Hackney Tower Hamlets Waltham Forest Lewisham Newham Redbridge Greenwich Barking and Dagenham The ELBP in action: Kilnbridge Construction Services Limited To demonstrate their commitment to hyper local procurement and supporting East London suppliers, Canary Wharf Group have procured local construction contractor, Kilnbridge, since Kilnbridge delivers integrated construction services across sectors such as infrastructure, rail, and commercial. They have provided a number of services for Canary Wharf Group across their portfolio of developments, including: Sub and superstructure frame construction. Structural alterations existing structures. Concrete cutting. Bexley Havering Passive fire protection. Waste management services. 3,502 businesses registered 3,108 businesses supported Geographies covered by the ELBP. Achievements of the ELBP since m of business secured locally 4,187 contracts 84% of contracts worth 10k or less In addition to providing sizeable construction contracts, working with Canary Wharf and the ELBP has enabled Kilnbridge to open its networks across East London to gain further benefits from local procurement: Kilnbridge is passionate about supporting local regeneration and the services offered by ELBP have been invaluable in promoting the benefits of utilising a diverse local SME supplier-base. Networking events held by ELBP have given us opportunities to market our company to other contractors on the Canary Wharf Estate and East London generally. Training provided by ELBP has assisted us in the continuous education of our workforce. Dermot McDermott, Managing Director of Kilnbridge Construction Services Limited. Aim The Duke of York Square The site of today s Duke of York Square shopping centre in Chelsea served as the Head Quarters of the Greater London Territorial Auxiliary 2003 and : Redeveloped Volunteer Reserve and finished London for almost public a century areas. Phase 1 before the site was sold to Cadogan in Between 2003 and 2008 the site underwent a transformation, with Cadogan taking a space that had 2006: Completion of the garages and previously been inaccessible to the public Queripel House. and Phase converting 2 it into a modern, mixed use and public realm space. The Duke of York Square is the largest new public space created in London in the last 20 years. 2008: Completion of the Saatchi Gallery. How Phase Cadogan 3 developed the Square Throughout the planning process Cadogan adopted an inclusive approach, consulting with the community as well as local organisations such as the Chelsea Society, for their input on design and implementation. A decade after its opening, the presence of amenities such as the Saatchi Gallery, a mix of high end and high street retailers and a Saturday market have made the square a highly attractive location for leisure and shopping. Phases of regeneration at the Duke of York Square. PHASE : Redeveloped and finished public areas. PHASE : Completion of the garages and Queripel House. PHASE : Completion of the Saatchi Gallery. To create new public space and amenities for the benefit of the local economy and residents Cadogan are huge stakeholders in the area, so they work hard to engage with the local community to enhance the value of the development of the Duke of York Square for everyone. Damian Greenish, Chairman of the Chelsea Society. The ongoing benefits of the Square Cadogan have actively managed the site, funding and hosting community events and engaging with local interest groups. Community events include Santa s Grotto and public screenings of major London events, such as the Olympic Ceremonies, the Royal Wedding, and Wimbledon tennis finals. They also host events to sponsor and raise awareness for charities, such as their Help for Heroes race for recovery. Mr Greenish added that, Cadogan have a genuine commitment to maintaining the character of the buildings and to ensuring the architecture is in keeping with the character of Chelsea. It doesn t happen often that London sees the creation of such a large new public space, and Cadogan had the unique opportunity to take the long term view. Cadogan have brought the Duke of York Square to life; it would be hard to imagine any other developer being able to attain the same result that Cadogan have. Summary of the actions and benefits relating to the ELBP. Summary of the actions and benefits relating to the ELBP. Local economy & community Local Buyers Local Suppliers Strengthened local economy Improved job opportunities for local residents Increased access to local suppliers Greater ability to track local procurement performance Increased revenue from accessing local buyers Access to business development resources Local businesses Local community Visitors to events and amenities at the square attract customer footfall to the area, stimulating business The community benefits from a new public space with a range of amenities The community benefits from the provision of events and activities in the square Canary Wharf Group Canary Wharf Group leads the ELBP by connecting the local supply chain and developing businesses in East London Cadogan Cadogan regenerated the Duke of York Square into a public space through consultation with the local community and actively managing the public space 24 25

14 5.2 INFRASTRUCTURE INVESTMENT AS A CATALYST TO LONDON DEVELOPMENT Infrastructure is the basis upon which the built environment rests, both physically and economically. Studies of infrastructure investment in over 100 countries over the period from 1960 to 2000 found that not only is growth positively impacted by infrastructure assets, but income disparity decreases as infrastructure increases and improves in quality. 12 Investment and improvement in infrastructure can have a major impact on development by making opportunities viable for developers and maintaining the capability of a skilled construction workforce. Investment in London s infrastructure is being driven by the twin pressures of an expanding population and the need to modernise legacy networks that often date back to the Victorian era. London s population grew by 12% between 2001 and 2011, and is forecast to increase further over the next 20 years, from 8.2 million to 9.7 million Serven, L. and Calderon C., The Effects of Infrastructure Development on Growth and Income Distribution Dataset, ONS, Subnational Population Projections, The building of new stations and increased rail capacity: This enables greater and faster access to various areas in and beyond London. London employers are able to draw from a larger labour market pool, and hence job opportunities are extended to those previously too far removed from the city. 2. Improving stations and public and urban realm around the stations: As above, improved stations improves access to London, by reducing congestion for passengers. Improvements in the public realm make London a more attractive and enjoyable place in which to live and work. 3. Opportunities for over station development and encourage investment along the route: Improved infrastructure encourages increased investment. Investment is not only made by established developers or public or private actors, but also attracts new investment from abroad. 4. Employment of skilled workforce in the UK: See below Skilled workforce for more details Significant infrastructure projects are either planned or underway, including the rail and tube networks, power distribution, and water and sewerage. Although infrastructure improvements are vital to keeping London operational, they also offer significant opportunities for redevelopment and regeneration, spurring wider economic benefits. Crossrail offers a good illustration of this catalytic effect since it not only involves the building of several new stations and rail tracks, but will also entail the redevelopment of a number of existing London Underground stations. Crossrail Crossrail involves the construction of 21km of twin bore tunnels in addition to the building of eight new stations, covering a total of 118km of track. Due to open to the public in 2018, the London economy has already begun to feel the impacts with investment opportunities being generated by what is one of the most significant infrastructure projects ever to be undertaken in the UK. Crossrail will provide vital new capacity to enable London s congested transport network to cope with projected increases in demand, as well as significantly cut journey times across the capital. It also has the potential to act as a catalyst for regeneration in the areas surrounding the stations. There are four broad benefits from Crossrail: 1 The building of new stations and increased rail capacity to keep pace with growing demand 3 Opportunities for over station development and encourage investment along the route Benefits of Crossrail 2 Improving stations and public and urban realm around the stations 4 Employment of skilled workforce in the UK Impact on property Crossrail is already impacting the way in which property investment decisions are being made. Over the period of , Crossrail is helping to create additional value of up to 5.5 billion for residential and commercial developments along the route. Commercial office spaces could see their value increase as much as 10%, where 3.35 million square metres of developable office space has been identified within 1 kilometre of stations. 14 Skilled workforce Another important impact of large infrastructure projects such as Crossrail is that on and skills development in the UK. The significant opportunities and the furthering of skills in a growing workforce have important benefits for the wider London and UK economy. Crossrail has helped to maintain a base load of workers capable of supporting the construction industry, creating a larger pool of skilled workers for developers to draw on in future developments. Approximately 30,000 jobs in Central London are expected to be supported over the course of the Crossrail project, with up to 14,000 people being employed at the peak of construction ( ), and overall the equivalent of 55,000 full time jobs will be created throughout the project, and its supply chain. 15 In terms of skills development, Crossrail has been collaborating with National Apprenticeship Service so that a minimum of 400 apprenticeships will be generated over the project s lifetime. Research suggests that apprenticeships generate value by delivering significant improvements to innovation, productivity, and retention rates. 16 Impact on supply chains As with Central London office development, investment in London infrastructure creates demand and jobs across the country. The total value of work directly awarded to businesses by Crossrail is estimated at 5.5bn to date, generating 75,000 business opportunities. Analysis of Crossrail s supply chain reveals that 43% of businesses that have won work with Crossrail are based outside London and the South East. In addition, 58% of all businesses in Crossrail s supply chain are small and medium enterprises (SMEs) , Crossrail Property Impact Study, Crossrail, 5.5bn of Crossrail Contracts Creating Jobs and Business Opportunities Around the UK, Crossrail, Crossrail Creating Lasting Legacy of Local Jobs for Londoners, Crossrail, 5.5bn of Crossrail Contracts Creating Jobs and Business Opportunities Around the UK,

15 CASE STUDY 3 THE MUTUAL BENEFITS OF INFRASTRUCTURE AND DEVELOPMENT CROSSRAIL BOND STREET STATION Aim Crossrail Bond Street Station Great Portland Estates development at Hanover Square will form part of the new Crossrail Bond Street Station and was subject to a compulsory purchase order in As part of a more holistic approach for the area around the station Great Portland Estates (GPE) formulated a Master Plan for their involvement around Bond Street Station. They proposed a revision of their existing collaboration agreement with Crossrail in order to co-develop a larger station in a more comprehensive manner. As a result of the Master Plan, GPE have been working with Crossrail towards a broad scheme over and around the station, which consists of increased public access to the station, the creation of new public realm and the redevelopment of mixed use properties. Master Plan development acquisitions. 1 Original asset 64 New Bond Street 14/18 Brook Street To collaborate with infrastructure development in order to produce mutually beneficial outcomes The objective is not only to benefit the two parties involved, but also commuters and the local community. The Master Plan GPE have been working closely together with Crossrail from the design stages, and thereby totally integrated the design of the station with the over-station developments. Colin Smith, Head of Over-site Development at Crossrail. As part of the Master Plan, GPE acquired six separate properties along Hanover Square and New Bond Street, totalling up to 200,000 sq ft of developable space. Prime West End Site Assembled Through Six Acquisitions 2 Acquired August /19 Hanover Square 3 Acquired September Hanover Square 4 Acquired October /71 New Bond Street 5/6/7 Acquired 2007/ Tenterden Street, 72 New Bond Street 18 Dering Street In addition to these acquisitions, GPE s Master Plan involves: (1) creating a new public square, (2) developing mixed use properties above and around the station, including best in class office developments and retail units above the station, (3) building public access walkways to allow commuter access to the station from New Bond Street. Mr Smith added: In addition, Crossrail have, in full consultation with Westminster City Council and GPE, redesigned the whole of Hanover Square for it to properly relate to the new station and development, but also to make the Square more pedestrian-friendly. Hanover Square illustrates how the desire of both Crossrail and the developer to leave a lasting legacy of good urban design will result in the enhancement of public spaces and amenities. By bringing into play a much wider area of urban realm around the station, we will ensure the whole integrated Master Plan development will have a major and positive impact on the area. 1 Original asset 2 Acquired August The 64 New current Bond Street and future /18 Brook Street 18/19 Hanover Square benefits of the Master Plan Hanover Square has become a more amenable location for the local community and office workers. Development activity has secured modernised spaces for commercial and retail use while ensuring that the buildings are in keeping with the square s architecture. 3 Acquired September Hanover Square In conclusion, Mr Smith said that: At the New Bond Street Station we have been able to achieve a triple win: Not only will this work leave a lasting legacy for good urban design, but it will also result in a better station, and overall better revenue for the parties involved. Collaborating with Crossrail has allowed GPE to provide them with a wider space within which to work, which has facilitated the development of a larger station with more direct access to the platform than was originally possible. Public walkways will allow commuters easier access to the station, while greater public access to New Bond Street will support retail activity in the area. Prime West End Site Assembled Through Six Acquisitions Working with Crossrail is part of the long term strategy of developing assets within close proximity of the emerging stations, namely the development at Hanover Square but also Rathbone Place and Oxford St adjacent to the Tottenham Court Road station. Currently 81% of our West End portfolio by value is within 800m of a Crossrail station. James Pellatt, Head of Projects at Great Portland Estates. 4 Acquired October /71 New Bond Street 5/6/7 Acquired 2007/ Tenterden Street, 72 New Bond Street 18 Dering Street Summary of the actions and benefits relating to the Master Plan. Local residents, commuters and businesses Crossrail Great Portland Estates Gain a new square for public use Greater access to the station and nearby amenities Increased access of customers to local businesses Able to work with a much larger space in the station Able to build a larger, better station with more direct access to the platform and better amenities GPE developed and improved Crossrail Bond Street Station and its surrounding area by working closely and collaborating with Crossrail

16 6 THE WIDER BENEFITS AND OPPORTUNITIES OF LONDON DEVELOPMENTS 6.1. THE ECONOMIC IMPACT OF CENTRAL LONDON OFFICE DEVELOPMENT ON THE REGIONAL ECONOMIES Figure 21: The economic contribution to the UK regions (outside London) of Central London office developments, by and, 2008 and Gr oss Value Added ( bn) bn Direct 4.6 bn Indirect 2.1 bn Induced 9.7 bn Total Employment 250, , , ,000 50, ,200 Direct 84,100 Indirect 50,400 Induced 201,700 Total The construction of Central London offices generates expenditure across the country, with the majority of UK packages (54%) procured from suppliers outside of London. This is estimated to have generated 7.7bn of expenditure for UK suppliers outside of London, as a result of all Central London office developments with a completion date between 2008 and This supports approximately 9.7bn of and 201,700 jobs in these regions, equivalent to 1.1bn of and 22,400 jobs per year. Approximately 3.0bn of and 67,200 jobs are a result of direct impacts on regional suppliers, while further supply chain expenditure generated indirect impacts of 4.6bn of and 84,100 jobs outside of London. Finally, there is an additional economic benefit to the regions of approximately 2.1bn of and 50,400 jobs through local employee spending of wages. The annual and in the regions supported by Central London office development is presented against a map of the UK in Figure 22. The two regions which benefit the most from Central London office development expenditure are those that are closest to London, the South East and the East of England. Respectively, their economies receive 280m and 127m of annually. However, there are regions further afield which also benefit significantly such as Yorkshire & Humberside and the West Midlands, which benefit respectively from 57m and 44m of annually. The total impact within each region of the UK depends not only on the amount of development expenditure within the region, but also the industries in which it is spent and the respective multiplier effects within each region. There are additional and impacts on the regional economies, referred to as regional spillovers, which cannot be attributed to a specific region. They are caused by knock-on expenditure between regions, such as businesses in the North West sourcing their raw materials from the North East or employees from the South East spending their wages in London. The regional spillovers into London have been estimated using data on the trade flows between London and the rest of the UK. 18 These impacts are included in the and results for London, and are therefore excluded from the regional spillover impacts presented below. Figure 22: Annual and supported by Central London office development in the regions of the UK outside of London. 9m 230 jobs 9m 230 jobs 9m 9m 210 jobs 210 jobs Region Annual 12m Wales 90 3 m 280 jobs West Midlands 1, m 12m 32m 280 jobs Yorkshire & Humberside 1, m Regional spillovers 7, m 790 jobs 32m 57m All regional impacts 22,410 1,082m 790 jobs 1,450 outside London jobs 57m 32m 1,450 jobs 44m 850 jobs Central 1,160 jobs London office 32m 127m development 3m 44m 850 3,050 jobs jobs Central 90 jobs 1,160 jobs London office 127m development 3m 3,050 jobs 10m 280m 90 jobs 280 jobs 6,660 jobs 10m 280 jobs 280m 6,660 jobs Source: Development expenditure, PwC analysis & Regional Accounts, ONS. There are a number of packages which have a higher tendency to be procured from the regions rather than within London, and expenditure on these packages make a significant contribution to those regional economies. In particular, there is a strong supply of mechanical and electrical engineering in the West Midlands, and of structural steel in the North West and Yorkshire and Humberside regions. The total economic impact of these specific packages in the regions is presented below, for all Central London office developments to complete between 2008 and As presented in Figure 23, suppliers of mechanical and electrical engineering in the West Midlands receive 255m of orders from office developments in Central London. This spending directly supports 96m of and 2,490 jobs for the suppliers, with 54m distributed to employees in the form of wages. Through indirect and induced impacts, a further 102m of and 2,950 jobs were supported in other West Midlands businesses. The spillover of indirect and induced impacts outside of the West Midlands generated a further 86m of and 2,850 jobs in the other regions of the UK. jobs Annual East of England 3, m East Midlands m North East m North West m Northern Ireland m Scotland m South East 6, m South West m 18 City of London Corporation, London s Linkages with the Rest of the UK,

17 Figure 23: The total economic contribution of Central London office expenditure on West Midlands-based mechanical & electrical engineering suppliers, Direct impact on suppliers Multiplier impacts in the West Midlands 255m of expenditure 96m of 2,490 jobs & 54m of wages 102m of 2,950 jobs CASE STUDY 4 HOW STEEL IN LONDON SUPPORTS JOBS IN BOLTON WATSON STEEL STRUCTURES AND THE LEADENHALL BUILDING Aim To utilise the North West's capability in structural steel fabrication during the construction of The Leadenhall Building The North West and Yorkshire and Humberside regions are major suppliers of structural steel, providing approximately 55% (by expenditure) of the structural steel for Central London office developments. This equates to a total spend of 826m across the two regions. This expenditure supports a combined direct impact of 334m of and 8,100 jobs for suppliers in those locations, with 231m distributed to their employees in the form of wages. The multiplier impacts of structural steel expenditure in Yorkshire and Humberside and the North West support a further 273m of and 7,670 jobs within those regions. In addition, there is a spillover of impacts outside of these two regions which are equivalent to 276m of and 2,740 jobs for other regions of the UK. The case study below identifies a specific supplier of structural steel in the North West, and explores how supplying Central London office developments impacted their business and the local economy. Figure 24: The total economic contribution of Central London office expenditure on Yorkshire & Humberside-based structural steel suppliers, Direct impact on suppliers Multiplier impacts in Yorkshire & Humberside 490m of expenditure 195m of 4,880 jobs & 141m of wages 171m of 4,780 jobs Watson Steel Structures and The Leadenhall Building The construction of The Leadenhall Building required approximately 18,500 tonnes of steel, and much of this steelwork is on display due to its unique design, which consists of external megaframes of inclined columns. British Land used Watson Steel Structures to deliver this demanding steelwork package, who are based in the historic steel town of Bolton. The benefits of The Leadenhall Building contract for Watson Steel Structures The work for The Leadenhall Building came at an important time for Watson Steel, as the UK fabricated steel market had recently slumped from 1.2 million to 0.9 million tonnes per annum and Watson Steel s largest project, supplying steel for the Olympic stadium, was coming to an end. Undertaking the Leadenhall contract provided an amount of work equivalent to 200 full-time jobs for a year for Watson Steel, and a further 100 for the other businesses in the Severfield-Rowen Group. It provided 80% of their turnover in In the absence of The Leadenhall Building project we would have had to downsize, with redundancies sadly being unavoidable. Peter Miller, Director of Watson Steel Structures. As a result of winning the contract, Watson Steel has been able to upskill and expand its workforce, as well as invest in equipment which allows them to produce higher value work. They have also been able to safeguard their apprenticeship programme, which takes around three apprentices a year. The complexity of The Leadenhall Building has been the catalyst for us to convert the last of our low value bays into a high-value bay, producing higher-value fabricated steel elements. As a result of this, we have recruited a further 20 skilled workers. Figure 25: The total economic contribution of Central London office expenditure on North West-based structural steel suppliers, m of expenditure Direct impact on suppliers Multiplier impacts in the North West 139m of 3,220 jobs & 90m of wages 102m of 2,890 jobs 32 33

18 CASE STUDY 4 HOW STEEL IN LONDON SUPPORTS JOBS IN BOLTON WATSON STEEL STRUCTURES AND THE LEADENHALL BUILDING The benefits for the local economy and supply chain Watson Steel is surrounded by a local supply chain of small businesses in Bolton, which indirectly rely on the knock-on work provided by large projects such as The Leadenhall Building. The existence of Watson Steel over a long period of time means there is almost a nursery of entrepreneurial firms related to the steel industry. Some of the small firms providing Watson Steel with specialist services, such as painting and blasting, would probably disappear if there were large reductions to Watson Steel s business. Les Harvey, Bolton President of the Greater Manchester Chamber of Commerce. Summary of the actions and benefits relating to Leadenhall steel. Local supply chain Watson Steel Structures British Land The raw steel required for The Leadenhall Building is also sourced from the UK, provided by Tata Chorus mills located in areas such as South Wales and Scunthorpe. Also, from the quantitative analysis it was estimated that for each square foot of Central London office development, more than 8 of steel is purchased from the North West. Provided with important revenue as a result of knock-on work from the Leadenhall contract Gained a significant amount of work at an important time for the business Able to expand and upskill their workforce Able to invest in new capital equipment Procured Watson Steel Structures to provide 18,500 tonnes of structural steel for The Leadenhall Building CASE STUDY 5 PRESERVING HERITAGE AND MAINTAINING SKILLS GASHOLDER RESTORATION Aim The gasholder restoration The four gasholders at King s Cross are an icon of local heritage, originally built to store gas which was manufactured onsite from coal in the 19th century. The so called Siamese Triplet of Gasholders No. 10, 11 and 12 and Gasholder No. 8 (which is Grade II listed) were originally constructed in the 1850s and 60s, with the ornamental frames of the gasholders made from three tiers of hollow cylindrical cast iron columns. King s Cross Central Limited Partnership (KCCLP) hired Shepley Engineers Limited (SEL) for 1.2 million over two years to restore the gasholders, which involved meticulously dismantling the frames and transporting them to Yorkshire. Actions and benefits Over the two year restoration period, Shepley Engineers have not only hired an additional four employees and three apprentices, but they have also safeguarded the of the current workforce, which consists of up to 20 skilled operatives as well as supporting a local supply chain in the South Yorkshire and Lancashire area. To preserve the local heritage of King's Cross through the use of restoration specialists in Yorkshire There have been palpable benefits from working with KCCLP for SEL s restoration division. Due to the size and construction of the gas holders, existing skills usually employed in the refurbishment of historic structures had to be developed further, to enable the works to be completed. These new skills can only add value to what we can offer future clients and in particular KCCLP. Everything we ve done for KCCLP has added value for our team. Trevor Marrs, Senior Engineer at SEL. These benefits are in addition to the broader economic impacts on Yorkshire and Humberside of development expenditure at Central London office developments, with every square foot of development supporting an estimated 19 of expenditure in the region. Summary of the actions and benefits relating to gasholder restoration. Local community Shepley Engineers Limited King s Cross Central Limited Partnership Benefitted from the restoration of the four gasholders, a symbol of local cultural heritage Restoration work safeguarded their skilled workforce and allowed them to hire new employees and apprentices Preserved the local heritage of the King's Cross area and supported a specialist workforce in Yorkshire through the restoration of gasholders

19 6.2 OPPORTUNITIES AND CHALLENGES IN THE UK SUPPLY CHAIN The quantitative results presented so far illustrate that significant economic benefits accrue to the UK as a result of Central London office development. Chapter 5.1 identified that 84% of total development expenditure remains in the UK, while Chapters 6.1 and 7.1 highlight specific packages where expenditure is highly concentrated on suppliers in London and the regions, such as architects and consultants and structural steel respectively. It is likely that they attract a greater amount of work because there are a greater number of suppliers with the expertise and capability to compete for these packages. Similarly, there is likely to be a lack of capability in the UK supply chain for packages which tend to be procured from outside of the country. Figure 26 identifies the proportion of expenditure at Central London office developments which leaks out of the UK for a selection of key packages. It is clear that the tendency to procure from outside of the country varies significantly across different packages, with UK-based suppliers providing nearly 100% of professional services such as architects and consultants, but less than 25% for packages such as lifts and cladding. For these packages, it is likely that UK suppliers primarily provide installation services rather than fabrication, perhaps due to a lack of domestic manufacturing capability. The countries outside of the UK which attract the greatest proportion of expenditure are Germany and China, as indicated by Figure 27, although the remaining expenditure is spread across a large number of countries. The potential benefit to the UK economy from maximising the proportion of UK expenditure across all packages is illustrated in Figure 28. Although attaining 100% UK expenditure for all packages is unlikely to be feasible, the chart demonstrates the areas in which there is greatest potential for Central London office developments to generate further economic benefits. If the UK content of all packages procured at Central London office developments increased to 100%, then there could be an additional economic benefit to the UK of 3.1bn of and 62,000 jobs after including direct, indirect and induced impacts. The packages where the greatest gain in economic impact could be obtained are in cladding and lifts & machinery, respectively constituting 48% and 17% of potentially additional. For the remaining packages, there is a comparatively small amount of potential economic benefit from increasing UK content to 100%. This includes other packages, which consist of several packages where there is only a small potential gain in, including external works, structural elements and architects and consultants. Figure 28: Additional from increasing the proportion of UK expenditure to 100% at all Central London office developments, Current 15.5bn 48% Cladding Lifts & machinery Figure 26: Breakdown of the location of Central London office expenditure for selected packages. Proportion of UK expenditure 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Architects & consultants 0% Additional 3.1bn 17% 7% 5% 4% 19% Windows & doors Mechanical & electrical engineering Fittings & furnishings Other packages Structural steel 3% Fittings & furnishings All packages 16% 9% Cladding 76% Proportion of non-uk expenditure Lifts & machinery 40% 35% 30% 25% 20% 15% 10% 5% 0% 38% 14% 9% UK expenditure 7% 5% 78% Non-UK expenditure Figure 27: The destination of non-uk expenditure of Central London office developments. 3% 3% 3% 1% 1% 1% 1% 15% It should be noted however, that the UK has already captured the large majority of potential economic benefits from expenditure at Central London offices, gaining 15.5bn of out of a potential 18.6bn. This is due to the procurement of UK suppliers in the majority of packages, whether they are London-based architects or structural steel fabricators in Yorkshire and Humberside. The case studies below provide greater detail on how developers work with local employees and supply chain companies to ensure that the UK s ability to deliver construction goods and services is maintained

20 CASE STUDY 6 SUPPLY CHAIN COLLABORATION CORE PRODUCT TEAM Aim The Core Product Team The Core Product Team (CPT) is a procurement initiative, through which Grosvenor have taken a portfolio approach to working with contractors and suppliers for Grosvenor s major London Estate developments. This portfolio approach to procurement encourages improvements in efficiency during the development process, with the overarching aim of a 10% reduction in time and cost relative to the market baseline for each project. Grosvenor underwent a competitive and rigorous selection process to establish their Core Product Team, who are bound by a framework agreement over five years. 1 Open Books To drive efficiency and innovation in the supply chain through a collaborative approach to procurement Core Product Team 2 Benefits Tracking The CPT members are: EC Harris Cost Consultant. Ramboll Multidisciplinary Engineer. Sir Robert McAlpine Principal Contractor. Chorus Principal Contractor. The key elements of the Core Product Team The formal arrangements not only benefit Grosvenor in streamlining their procurement process, but also help contractors and suppliers more effectively forecast and manage both their workload and the commitment of their resources. This aligns with Grosvenor s aim to build long term, straight forward relationships and to deliver a positive impact on the communities they serve. 1. Open books Members of the CPT make their financial details accessible to Grosvenor, who in turn share their development pipeline with the members. This allows the team to work together to understand the true build costs and where savings and value for money options can be made in projects. Also, it allows Grosvenor to understand any financial risks and to work together with the CPT to manage those risks. 2. Benefits Tracking Grosvenor work in conjunction with both contractors and suppliers in the CPT to share mutually beneficial savings in cost and time. Team members produce a long list of ideas on strategy as well as delivery, which can be implemented across the portfolio of projects. These benefits are tracked so that the endeavours of the CPT can be measured. The tracker allows the CPT to measure their collective performance and to drive continuous improvement across the portfolio, with a focus on ensuring value for money. Grosvenor is setting a new standard in the industry by innovating the way in which developers and suppliers work together. Vince Corrigan, Main Board Director & Regional Manager for London and South East at Sir Robert McAlpine Ltd. Summary of the actions and benefits relating to the Core Product Team. 3. Pipeline certainty As part of their commitment to the CPT, Grosvenor share their long term pipeline forecast with team members. This allows the team to allocate their resources to Grosvenor projects going forward, and the greater certainty of work allows team members to incorporate Grosvenor business into their forward-looking strategies. Contractors and suppliers can be involved in the planning of a development from the very early stages, maximising their scope to improve the cost and time efficiency of a project from the beginning. This isn t about squeezing margins: we want companies A-teams on our projects helping us to deliver for our customers by keeping costs down and saving time, and in turn generating value for themselves. Charles Horne, Technical Director, Grosvenor Britain & Ireland. 4. Joint procurement initiatives There are a number of opportunities for CPT members to work together to achieve greater efficiencies. One example of this is a joint procurement initiative (JPI) set up between Sir Robert McAlpine and Chorus, who collaborate on the procurement of contractors across the portfolio. The JPI involved having a single format and approach for contracting suppliers. Through the JPI the contractors were able to go to market together with their projects. This has resulted in much greater economies of scale, whereby suppliers can bring larger volumes into play. 3 Pipeline certainty 4 Joint initiatives The Core Product Team Are able to plan their pipelines, and allocate resources effectively Have security of income and certainty of work Are able to achieve efficiencies through (1) savings in tendering process (2) innovative collaboration (3) joint initiatives Grosvenor Grosvenor have established a core team of contractors and suppliers to work with. It is based on a culture of sharing information and ideas in order to drive innovation and efficiency gains through the supply chain