The Changing Face of the City of London

Prepared by the City of London Corporation The Changing Face of the City of London Secondary research briefing paper This paper examines a range of sources that look at the City of London s economy, in terms of its economic and fiscal contribution to the UK, and its characteristics as a financial and business centre. The paper focuses in detail on three aspects of the Square Mile: employment, firms and industries, and property. The paper summarises the current position for the City, and projected changes. April 2015

The Changing Face of the Square Mile secondary research briefing paper is published by the City of London Corporation. This report is intended as a basis for discussion only. While every effort has been made to ensure the accuracy and completeness of the material in this report, the City of London Corporation, give no warranty in that regard and accept no liability for any loss or damage incurred through the use of, or reliance upon, this report or the information contained herein. April 2015 City of London Corporation PO Box 270 Guildhall London EC2P 2EJ http://www.cityoflondon.gov.uk/economicresearch 1

Summary... 3 1. Introduction... 5 1.1. Outline... 5 1.2. Scope... 5 1.3. Usage... 5 2. Employment in the Square Mile... 6 2.1. The City s employment... 6 2.2. The City s workforce... 6 2.3. The City s sectors... 8 2.4. The City s employment outlook... 8 2.5. City recruitment surveys... 9 3. Industries and firms in the Square Mile... 11 3.1. The City s enterprises... 11 3.2. Business sectors... 12 3.3. The City s business population... 12 3.4. High-growth SME firms... 13 3.5. The City s clusters... 14 4. Property, office space and infrastructure in the Square Mile... 16 4.1. The City s office stock... 16 4.2. Future City office floorspace... 17 4.3. Demand for City office space.... 18 4.4. City rents and vacancy rates... 18 4.5. Ownership of City office space... 19 2

Summary The City s GVA was 48.7 billion in 2013, representing 15.2% of Greater London s economic output, and 3.6% of the UK s. This is projected to rise to 67.5 billion by 2023. The financial services sector accounted for 31 billion or 64% of the City s GVA in 2013, and also plays a key role at the UK level, contributing 7.9% of GDP, and 65.6 billion or 11.5% of total UK tax receipts in 2013/14. The City generated an estimated 13.4 billion in tax revenues, equivalent to just over 10% of London s total tax take. London s tax contribution in 2013/14 is estimated at 127 billion, resulting in a net contribution of 34 billion to UK public finances. 392,400 people were employed in the City in 2013, representing 8.3% of Greater London s employment, and 1.4% of the UK s total employment. There were 15,105 enterprises located in the City of London in 2014; 205 were large enterprises (employing over 250 people). In 2012, 215 large enterprises accounted for 52% of employees (last available statistics), demonstrating the role of large businesses as significant employers in the City. Total office space in the City (EC1-4) is estimated at 69 million sq ft. Four main business clusters, defined as areas with above UK average concentration of firms and/or employment, exist within the City; financial services; insurance services; professional services; and technology, media and telecommunications (TMT). The financial services industry dominates the City of London s economy, accounting for 38% of all employment and 64% of economic output, comprising 2,430 (16%) firms, with 90 firms (4%) classified as large firms (>250 employees), and making up 48% of all space occupied by sq ft in 2013. However, over 2003 to 2012 the number of financial and insurance services firms and employment has decreased, while the professional services and TMT sectors are showing strong signs of growth in terms of employment, firm numbers and office space take-up, with TMT accounting for nearly a quarter (23%) of City take-up in 2013. Looking ahead, the City s output is projected to continue to grow at a rate of 3.4% per year to 2018. Over the next 2 years it is forecast that 15,000 new jobs will be created in the City, with professional services expected to account for more than half of the new jobs. The TMT sector is also forecast to enjoy continued expansion (an additional 5,000 jobs by 2023). 3

The City of London: The changing profile of the Square Mile The City of London provides great value to the UK economy 392,400 48.7bn people work in the City that s 1 in 100 people employed across the UK the City's total economic output that's nearly 760 generated for every single person in the UK that's 484 for every UK resident But most enterprises are micro or small businesses Number of enterprises % of total Although they make up just over 1% of the business population, large enterprises account for around 52% of City jobs. Large Medium Small Micro (250+ employees) (50-249 employees) (10-49 employees) (1-9 employees) and the profile of industries and employment by sector is evolving Number of enterprises Number of jobs Job growth per sector per sector 2009-2013 Professional, scientific & technical 6,335 42% 110,700 28% 25,000 (29%) Financial & insurance 2,430 16% 147,600 38% 10,900 (18%) Business administration & support services 1,495 10% 34,800 9% 8,900 (34%) Information & communication 1,170 8% 30,200 8% 8,900 (42%) Technology, media and telecommunications companies account for 23% of offce space take-up. 15,000 new jobs will be created in the City over the next two years. Professional services are expected to account for more than half of these. Sources: ONS, City Property Association, Oxford Economics, City of London Corporation

1. Introduction 1.1. Outline This paper brings together a range of sources that look at the City of London s economy, both in terms of its local economy, relationship with the wider London economy, and its economic and fiscal contribution to the UK as a leading financial and business centre. The paper focuses in detail on three aspects of the Square Mile: employment, firms and industries, and property. The paper summarises both the current position for the City, and, to the extent possible, the projected changes. Within this paper, the terms City of London and Square Mile are used interchangeably to refer to the local authority area of the City of London, consistent with the ONS definition. 1.2. Scope This paper provides data and statistics on the City of London s economy and employment, the firms and industries based in the City, and the property these businesses occupy. As the City is one of the world s leading financial and business centres, the paper also provides some key statistics on the wider financial and professional services industries across the UK, and their contribution to the UK economy. The paper draws on official sources of statistics from the Office for National Statistics, other local and central government data, externally commissioned projects for the City of London Corporation, City of London planning, reporting and monitoring information, and other external sources are drawn on and/or referenced (such as research reports from credible sources). The data contained in this paper seeks to be the most up-to-date available at the time of writing. It should be noted that with this range of sources, there are discrepancies in the figures recorded for some characteristics, for example the number of firms in the City and employment figures. Where these discrepancies exist, the different figures are reported but the headline figures use official ONS sources and it is recommended using these for public purposes, as these are regularly updated and comparable across different geographic areas. 1.3. Usage The intention is for this paper to pull together a range of data sources to act as a central resource of key information, which can be used as necessary. The intention is to keep the statistics up to date as new data emerges, although it should be noted that where these are derived from one-off reports this may not be possible. Likewise the facts and data from reports given here represent only a subset of the information contained within the reports. 5

2. Employment in the Square Mile 2.1. The City s employment Employment in the City of London totalled 392,400 in 2013. This is made up of 377,900 employees - 329,200 full-time workers and 48,700 part-time workers - with an additional 14,500 working owners, sole traders and proprietors. City employment is concentrated in financial and insurance services, with 147,600 people working in financial services 1, equal to 38% of total employment in 2013. The City has the highest level of financial services employment of any local authority in the UK, with the next highest being Tower Hamlets (72,400) and Westminster (41,400). Outside of London, Edinburgh had the highest level of financial services employment at 35,000 in 2013, followed by Birmingham (24,700), Manchester (23,100) Glasgow (21,600) and Leeds (20,900). Professional services 2, business services 3 and information and communication services 4 also account for a significant proportion of City employment: 110,700 people worked in professional, scientific and technical services, equal to 28% of total employment. Legal activities are the strongest sub-set of this sector, accounting for 41,600 or 38% of professional services employment in the City. 38,400 people worked in business services, equal to 10% of total employment. 30,200 people worked in information and communication services, equal to 8% of total employment. In 2012 5, over half of those in employment (209,000 or 52%) worked in the 215 large (over 250 employees) enterprises in the City, with 191,000 or 48% employed by SMEs, broken down as follows: o o o 89,900 (22%) based in medium-sized firms (50 to 249 employees). 70,400 (18%) in small firms (10 to 49 employees). 30,700 (8%) in micro firms (0 to 9 employees). Source: ONS Business Register and Employment Survey (2014). 2.2. The City s workforce The City s working population is highly educated, highly productive, and well-paid. Official estimates place the City s daytime working employee population in the range between 329,200 (BRES full-time employees, 2014) to 360,000 (Census workday population figure, 2011). 1 Within the employment section, financial and insurance services (Standard Industrial Classification 2007, section K) are considered together under financial services. 2 Professional, scientific and technical activities (SIC 2007, section M) covers activities that require a high degree of training and make specialised knowledge and skills available to users. 3 Unlike professional services, section N (Administrative and support service activities) covers activities that support general business operations and do not focus on the transfer of specialised knowledge. 4 The information and communications sector (SIC 2007 Section J) includes the technology, media and telecommunications sector (TMT), and the terms are used interchangeably throughout this report. 5 This data is from the 2013 BRES release, and has not been updated as part of the 2014 release. 6

The GLA (2013) estimated the City s total daytime population to be 598,000 6, comprised of: o 447,000 total workday population, including 378,000 employees and 64,000 self-employed people. o 136,000 day trip visitors and 15,000 staying visitors (7,000 from overseas, 8,000 domestic). The Census (2011) data provides an indication of the demographics of the City s workforce: o 61% (220,265) of the City s employees are male and 39% (139,810) are female. o 79% of the City s working population are white, followed by 13% Asian/Asian British, 3.9% mixed/multiple ethnic groups, 3% Black/African/Caribbean/Black British and 2% are from other ethnic groups. Looking at the age breakdown, the largest proportion, 35%, are aged 30 to 39, 26% are aged 20 to 29, 23% are 40 to 49, 11% are 50 to 59 and 3% are 60 to 65. 66% of the City s workforce hold a degree-level qualification or higher 7, compared to 39% across London and 27% at the England and Wales 8 level. In 2014, 69% of City workers were classed as managers, directors or senior officials; professionals; or from associate professional or technical occupations 9, compared to 58% across London and 44% looking at the UK as a whole (Annual Population Survey, 2015). Productivity per job 10 in the City is 112,000, compared with a London average of 60,245 and UK average of 42,011 (Oxford Economics, 2014). This is due to the concentration of highly productive activities, such as financial and professional services, in the City. Financial services and information and communications activities located in the City were the most productive sectors in 2013, with productivity at 186,000 per job, and 110,000 per job respectively. Median annual pay for full-time City workers was 54,591 in 2014 11, compared to a London median of 35,069, and UK median of 27,195. Mean pay is significantly higher; 82,559 at City of London level, 48,267 for London and 33,475 at the UK level. This is due to the non-symmetrical distribution of earnings data; extremely low or high values at either end of the earnings scale can skew the mean. Sources: ONS Annual Population Survey: Workplace Analysis (2015), ONS Census of Population: Workday Population (2011), ONS Annual Survey of Hours and Earnings (2014), 6 N.B these figures are based on a number of sources and are based on models rather than actual data. 7 As measured by Level 4 qualifications or above: Degree (for example BA, BSc), Higher Degree (for example MA, PhD, PGCE), NVQ Level 4-5, HNC, HND, RSA Higher Diploma, BTEC Higher level, Foundation degree (NI), Professional qualifications (for example teaching, nursing, accountancy). 8 Statistics on qualifications are from the 2011 Census data which covers England and Wales. 9 Based on the Standard Occupational Classification (SOC) 2010. 10 Productivity is measured by output (GVA) per job, in 2010 prices. Labour productivity measures the amount of real (inflation-adjusted) economic output that is produced by a unit of labour input (in this case per job) and is a key indicator of economic performance. High productivity indicates efficient, skilled labour. 11 The median is the value below which 50% of employees fall. It is preferred over the mean for earnings data as it is influenced less by extreme values and because of the skewed distribution of earnings data. 7

GLA daytime population by borough estimates (2012), and Oxford Economics Economic Outlook for Central London (2014). 2.3. The City s sectors The sectoral mix in the City is changing, with an increasing proportion of the workforce being employed in professional and business services. Following the financial crisis of 2008/09, where City employment dipped to 331,900 from 344,500, employment continued to rise across sectors to 400,000 in 2012, before dipping slightly to 392,400 in 2013. This represents growth of 18% over the period. Employment growth in the professional services and financial services sectors has been particularly strong, with increases of 25,000 and 10,900 jobs respectively, equivalent to 29% and 8% growth. Business services and information and communications employment also increased between 2009 to 2013, by 8,900 and 8,900 jobs respectively, equivalent to strong growth of 34% and 42%. The rise in employment in business and professional services, and information and communication services, points to a changing and increasingly diverse sectoral mix in the City, with these sectors accounting for an increasing share of total employment: o Business services total share of employment rose from 7.8% in 2009 (25,800) to 8.9% (34,800) in 2013. o Professional services share of employment increased from 25.8% (85,700) in 2009, to 28.2% (110,700) in 2013. o Information and communication services share of employment increased from 6.4% in 2009 (21,300) to 7.7% in 2013 (30,200). o Financial services share of total employment has declined slightly from 41.2% (136,700) in 2009, to 37.6% (147,600) in 2013, although employment in financial services continued to rise from 2009 to 2012, reaching 159,300 in 2012, but experienced a slight contraction of 11,700 jobs in 2013. Source: ONS Business Register and Employment Survey (2014). 2.4. The City s employment outlook In 2013 the latest official City job figures were 392,400; including the self-employed, Oxford Economics give this figure as 435,300. Including self-employment, City employment is projected to have reached 444,600 in 2014 and to reach 450,700 by 2015. 12 This will be driven by continued strong growth in professional services, which are expected to account for more than half of the new jobs, generating 8,400 additional jobs by 2014. Strong employment growth is forecast for the City over the years to 2023, averaging 1.5% over the period 2015 to 2018 (in line with expectations for Central London but higher than the UK average of 1% over the same period) and reaching 456,900 in 2016 and 485,400 by 2023. 12 Employment level projections given in this section differ slightly from the ONS BRES data, due to Oxford Economics projections including Workforce Jobs data, which captures all self-employed workers, and projects employment at 415,000 in 2012, and 435,300 in 2013. 8

GLA employment projections for the City of London are less optimistic, with employment of 418,000 projected in 2011, remaining stable at 418,000 to 2016 (albeit with a 10,000 decline in self-employment and 10,000 rise in employment), and increasing to 432,000 by 2021. Financial services employment in the City is forecast to remain relatively stable over the years, declining slightly from 167,200 to 166,600 in 2023, with particularly strong growth in professional services employment to 118,700 in 2013 to 148,600 by 2023. This is consistent with GLA employment projections for London, which show financial services employment across London declining slightly from 368,000 in 2012 to 362,000 by 2023, while professional services employment is forecast to rise from 685,000 in 2012 to 857,000 by 2023. By contrast, TheCityUK s London Employment Survey finds that financial services employment in London will grow faster than professional services from 2013 to 2014, with financial services increasing from 367,300 to 380,000 (3.5% growth), and professional services increasing from 321,500 to 327,500 (1.9% growth). Source: Oxford Economics Economic Outlook for Central London (2014), TheCityUK s London Employment Survey (2014), GLA Employment Projections by borough and industry (2013). 2.5. City recruitment surveys Recruitment surveys suggest a mixed picture in the short-term, but the consensus is financial services jobs opportunities are up on this time last year. Morgan McKinley recorded a 100% increase in professional opportunities, rising from 4,620 in December (a typically quiet month for recruitment) to 9,255 in January, and a 59% increase in professional job seekers from January to December. Year-on-year figures for January show an increase of 21% in professional jobs against 2014 and a 22% increase in those seeking new roles. Professional services roles, particularly accounting and management consultancy, helped numbers of City professionals beat all records. The Association of Professional Staffing Companies (ASPCo) reported a 29% increase in permanent vacancies in 2014, with the demand for IT professionals up 31%, and financial services professionals in second place. Morgan McKinley reported increased demand for IT professionals, on a contract and permanent basis. New IT implementations and organisational change have been the main drivers of recruitment. Demand for data-driven programme and project managers has increased significantly, particularly in financial services and consulting. IT security and compliance projects are also high in hiring priorities. Regulation is continuing prop up demand in the financial services sector, as critical middle and back-office/support roles return to the City. Risk and Compliance functions continue to be of critical importance to business planning, stoking demand in these areas. Robert Walters European Job Index finding the demand for accounting and finance professionals was strongest in London, with the number of jobs increased by 8% year-on-year, followed by the Midlands, where jobs increased by 7%. 9

Compliance and risk specialists continue to be in high demand the overall regulatory framework at the UK and EU level for financial services continues to strengthen. Astbury Marsden estimated 3,030 new jobs were created in the City in March, compared to 2,430 new roles created in March last year, an increase of 25%. The number of new jobs created in the City increased by 1% in March compared to February 2015. Investment banks are increasing their investment in technology staff, increasing their own technology headcount in addition to replacing staff that have moved over to the financial technology ( FinTech ) sector. Astbury Marsden found evidence of a concern among financial services firms that traditional financial services businesses could lose market share if they don t accelerate the pace of investment in IT which means more IT staff. Source: Morgan McKinley London Employment Monitor (March 2015), Robert Walters European Jobs Index (2014), Astbury Marsden City Jobs Review (March 2015). 10

3. Industries and firms in the Square Mile There are a variety of definitions used in measuring the number of businesses in the City. This paper uses the ONS definition of an enterprise used in its Inter Departmental Business Register (IDBR), and data is collected by sending questionnaires to reporting units 13 on enterprises and local units. An enterprise can be defined as the smallest combination of legal units (generally based on VAT and/or PAYE records) that is an organisational unit producing goods or services, which benefits from a certain degree of autonomy in decision-making, especially for the allocation of its current resources. An enterprise carries out one or more activities at one or more locations. An enterprise may be a sole legal unit. This is distinct from local units data recorded in the IDBR, which local unit is an individual site (for example a factory or shop) associated with an enterprise. It can also be referred to as a workplace. The IDBR data is supplemented with TBR s Trends Central Resource Database, which includes those reported on the IDBR and many sole traders and micro businesses, to give a fuller picture of City business activity. 3.1. The City s enterprises There were 15,105 enterprises located in the City of London in 2014. 14 The vast majority (98.6%) of City firms are SMEs (for information on high-growth SMEs, see High-growth SME firms): o 12,080 of these firms are micro sized enterprises, equivalent to 80% of the total business population, 2,240 are small enterprises, or 15% of the total business population, and 580 or 4% are medium-sized. In 2012, SMEs accounted for 48% of City employment. 15 205 enterprises are classed as large, equivalent to just 1% of the total business population. 85 of these firms employ 250 to 499 people, 65 firms employ 500 to 999 people and 55 firms have 1,000 or more employees. Despite accounting for a small proportion of the business population, large enterprises accounted for 52% of jobs in 2012. 16 Looking at business age in 2013 17, almost half of City firms (44% or 6,310) are 10 years or older. A significant proportion (30% or 4,235) of enterprises are 3 years old or younger. Source: ONS UK Business: Size, Activity and Location (2014), and ONS Business Register and Employment Survey (2013). 13 Reporting Units hold the mailing address to which the survey questionnaires are sent. The questionnaire can cover the enterprise as a whole, or parts of the enterprise identified by lists of local units. 14 Enterprise in this context refers to the ONS definition used in its UK Business: Size, Activity and Location dataset, in which an enterprise is the smallest combination of legal units (generally based on VAT and/or PAYE records) which has a certain degree of autonomy within an Enterprise Group. 15 This data was included in the ONS 2013 release of UK Business: Activity, Size and Location, and hasn t been updated for 2014. 16 (ibid). 17 (ibid). 11

3.2. Business sectors As with employment, the well-represented sectors are professional services, financial and insurance services, business services and information and communication. Over the period 2003 to 2012, firm migration has helped diversify the City s economy, with professional services and technology, media and telecommunications becoming increasingly important. Professional, scientific and technical services represent the largest industry group in the City, at 6,335 enterprises, equivalent to 42% of City firms. This is a much higher concentration than the UK as a whole, with professional services accounting for 17.5% of all registered businesses. Most of the City s professional services firms (88%) are micro sized enterprises, with 99% being SMEs, employing fewer than 250 people. Finance and insurance firms total 2,430 enterprises, equivalent to 16% of firms; 96% of these are SMEs. Although only 4% of financial and insurance firms are classed as large, they account for 74% of financial services employment, suggesting employment is concentrated in larger firms. Business administration and support services enterprises number 1,495, or 10% of firms. Information and communication services enterprises total 1,170, or 7% of City firms. Source: ONS UK Business: Activity, Size and Location (2014). 3.3. The City s business population Looking at the City s business population including sole traders and micro businesses 18, there are 17,750 businesses, contributing 4% or 39 billion of the UK s total economic output. The City accounts for just 4% of businesses in London, but almost 16% of its output. The City s business population is dynamic; since 2008, net firm migration has resulted in gains of over 200 firms, 13,500 jobs and over 3.5 billion in output. New business activity in the City peaked in 2005/06, with 1,600 new businesses starting each year. From 2008 to 2012, the number of new starts has remained relatively constant, at around 1,000 a year, contributing on average an additional 10,000 City employees a year. 27% of 2012 s business stock had been set up in the past four years, comparable to London s rate of 31%, and higher than the UK rate of 26%. From 2008 onwards, with the onset of financial crisis, business closures have risen to 1,000 to 2,000 a year, a closure rate of 44%, also similar to London s closure rate of 45%, and slightly higher than the UK s 39%. As business closures have exceeded start-ups, there has been a net loss of firms within the City, particularly in the financial services sector during the financial crisis, with 18,000 jobs being lost between 2007 to 2009 and 4 billion 18 The data here on firm numbers, output and employment is taken from TBR s Trends Central Resource database covering the period 2003 to 2012, and therefore might differ to official 2013/4 figures reported by the ONS. 12

in output. This is reflective of official figures (see Employment section for further information). Firm closures have resulted in a net loss of jobs and output of 22,000 and 1.93billion respectively, but gains from net firm migration have brought in 13,500 more jobs and 2.6billion in output. Taken together, these figures suggest firms migrating into the City tend to be highly productive and migration has very positive impacts for the City s economy. Most of the migrating firms come from Westminster, Camden, Islington and Tower Hamlets, with over 1,000 Westminster firms migrating to the City during 2003 to 2012 (including 282 in 2010-11 and 163 in 2011 12), and the majority of firms migrating out move to South East England (30%), Westminster (15-20%, equivalent to 169 firms in 2010-11 and 198 firms in 2011-12) or other nonneighbouring London boroughs (10 to 15%). The majority of businesses moving into the City tend to be larger than outward migrators (an average of 33 employees versus 24), and are more productive, generating 113k per employee compared to 67k per employee of outward migrators. Around 10-15% of all migrators are foreign-owned, with ultimate parents tending to be from Europe or North America. Firms from the real estate and administrative services; professional, scientific and technical services; financial services; and information and communication sectors are most likely to move to the City, reflecting its existing strengths. While financial services migration contributed 40,000 additional employees and 6.1 billion in output over 2003 to 2012, these businesses constituted a smaller proportion of incoming firms, suggesting the City is further diversifying into professional services and technology, media and communications (TMT). Source: City of London, The impact of firm migration on the City of London (2014). 3.4. High-growth SME firms High-growth SME Firms make up almost 10% of the SME business population in the City. Over 2008 to 2011, 9.78% of the City of London SME business population had experienced high growth; 1.66 times higher than growth for the UK (5.87%) over the same period. The top strong high growth sectors in the City were management consultancy (10.34% growth); financial services activities excluding insurance and pensions (10.68%); computing (18.58%); legal activities (14.13%) and employment activities (13.70%). Future growth predictions (for the period 2011 to 2014) indicated that high growth in the City SME business population would be more than twice that of the UK. Projections suggested that 14.40% of the City SME business population would comprise of high growth firms, compared to inner London (8.61% predicted) and the UK (6.32% predicted). Predictive analysis from 2011 to 2014 identified current high growth sectors as continuing to feature strongly in the future management consultancy (14.21%); financial services excluding insurance and pensions (21.35%); (computing (15.85%); legal activities (27.17%); employment activities (20.55%). Insurance, reinsurance and pension funding (20.8%); and activities auxiliary to 13

financial services and insurance activities (19.15%) were also projected to experience high growth in the City. This is supported by official statistics, which show the number of City SMEs engaged in these activities has grown over the 2011 to 2014 period, with particularly strong growth in increases of SME firms in computing (an increase of 35%) and employment activities (an increase of 19%), with the exception of insurance and financial services activities, declining by 31% 3% respectively. It is important to note that these sets of figures are not directly comparable as the official statistics register a change in the number of SMEs engaged in an activity over the period; therefore a decline in growth of insurance and management consultancy activities could indicate industry concentration as mergers or acquisitions may have taken place. Source: Experian, High Growth Mapping analysis for the City of London (2012), ONS UK Business: Activity, Size and Location (2014). 3.5. The City s clusters Over the past twenty years, four main clusters have developed within the City 19. Within these four main clusters, the business population has become increasingly diverse. The data here on firm numbers and employees is taken from TBR s Trends Central Resource database so will differ from ONS statistics. The Financial Services cluster: 2,230 firms, 87,000 employees producing 9.7 billion GVA output in 2012 (n.b. Financial Services and Insurance Services have been identified as distinct clusters whereas official sources group combine these sectors, hence firm and employment numbers reported here differ to official source data referenced elsewhere in this paper). Over 2003 to 2012 there s been a decrease in the number of FS firms and employment numbers but output has increased, suggesting stronger more productive businesses in this cluster in the City. Insurance Services: 1,200 firms, 50,500 employees producing 10.4 billion GVA output in 2012. Concentration is particularly strong in the east of the City, in Tower, Lime and Langbourn wards. Firm density has reduced slightly while employment density remained stable over 2003 to 2012. Professional Services: 3,780 firms, 79,800 employees producing 8.1 billion GVA output in 2012, prevalent in the west of the City. Over 2003 to 2012 there were increases in firms, employment and output, though these remain at lower levels than the Financial Services cluster overall. Technology, media and telecommunications: 1,300 firms, 25,550 employees producing 2.3 billion in GVA output in 2012. Over the period 2003 to 2012, TMT has experienced overall growth in firms, employment and output. 19 Note definitions applied in the cluster analysis are based on two measures. The first is location quotients, which provide a ratio measure of the concentration of a business industry within a certain geography compared to a larger geographic area. The second measure is Standard Industrial Classification (SIC) codes, which categorise businesses into sectors according to the nature of their economic activity. SIC codes have been grouped together as measures of overarching business activity (for example the professional services cluster consists of a number of SIC activities such as management consultancy, legal and accounting, and market research, among others). Hence there may be some discrepancies with the terms as used previously in this paper. For example financial services and insurance services are each treated as distinct clusters, whereas in ONS employment data financial and insurance services are grouped together as Section K. 14

Sources: City of London, The impact of firm migration on the City of London (2014). Detailed maps on SME clustering in the City of London in 2012 are also available. 15

4. Property, office space and infrastructure in the Square Mile 4.1. The City s office stock New buildings are getting larger, with rising proportion of Grade A stock. The amount of office space available in the City (EC1-4) is estimated at 6 million sq ft (2014). This is below the 10 year average level of 6.5 million sq ft. The total office stock within the EC1-4 area is 88 million sq ft, this compares to an estimated 69 million sq ft in the City itself 20. The trend is towards larger buildings, 79% of the space currently under construction in the City (EC1-4) is over 100,000 sq ft, equivalent to half of all schemes. However, smaller occupiers are still important in 2013 a greater number of large buildings than large occupiers were identified, indicating that around half of the buildings over 100,000 sq ft are split into smaller units of occupation. There is a trend towards tall building developments in the City, with 50 completed as at September 2014. There are ten tall buildings under construction of which three buildings are over 150m above ordnance datum (AOD) 21 in height. Four tall buildings (75m AOD and over) and 13 buildings 50m AOD have been permitted but construction has not commenced. Existing office supply comprises of 55% Grade A quality and 45% Grade B/C 22. The proportion and volume of the latter has fallen dramatically over the last 20 years. Office supply is fairly evenly split between the size bands, with around 40% in units greater than 50,000 sq ft and 5% in units of less than 6,001 sq ft. The most popular size band in 2013 in terms of take up was units of between 12,001 and 25,000 sq ft (20%). Over half of the City s office stock has been built or refurbished since 1997, and over three-quarters has been built or refurbished since the mid-1980s. The number of businesses in serviced premises has risen significantly over the past decade, helping provide for the needs of smaller occupiers. The number of businesses in serviced premises in the City and surrounding areas increased from 700 in 2003 to almost 2,400 firms in 2012 23. Sources: City of London, Taking Stock: The Relationship Between Businesses and Office Provision in the City, (2013); City Property Association, City Offices: Getting the Balance Right (2014), City of London, Tall Buildings and Planning pages, February 2015 (latest updates can be accessed here: http://www.cityoflondon.gov.uk/services/environmentand-planning/planning/development-and-population-information/tallbuildings/pages/default.aspx) ; The Impact of Firm Migration on the City of London, 2014 20 The EC1-4 figure includes all offices within these postcodes therefore using a slightly wider definition of the City of London office market. 21 The height above a vertical datum point used by the Ordnance Survey as a reference point for the level or altitude of any point (usually mean sea level). 22 Office grades can be defined as follows: Grade A prime new and refurbished, Grade B - good quality second-hand and Grade C poor quality second-hand. 23 This is based on a sample of serviced premises in the City and the adjacent wards of neighbouring boroughs provided by the Corporation of London to the authors of The Impact of Firm Migration on the City of London. 16

See also: The City of London Core Strategy Monitoring Paper: Offices, July 2013, City of London, Land Use pages: http://www.cityoflondon.gov.uk/services/environment-andplanning/planning/development-and-population-information/landuse/pages/default.aspx (for the latest reports focussing on the spatial distribution and quantification of the floorspace and number of units covering office stock, retail and open spaces). 4.2. Future City office floorspace The City continues to maintain a healthy pipeline of proposed floorspace through its permitted (not commenced) and under construction developments The City is on track to achieve its 2006 to 2016 target of 1.5 million sq m growth (approximately 16.1 million sq ft) of office stock floorspace. At the 31st March 2014 the Office Stock Estimate of B1 floorspace was estimated to be 8.6 million sq m. During the period 1st April 2014 to 30th September 2014 there was a net increase of 164,800 sq m. This results in an estimated office stock of 8.78 million sq m as at 30th September 2014. The survey period 2014/15 (period 1st April to 30th September) witnessed: o A large increase in the amount of new floorspace commenced from 4,600 sq m in the previous six months to 276,700 sq m. This figure is the highest level since March 2011/12. o A very high level of completed floorspace at 271,800 sq m comprising five redevelopment schemes and two refurbishments with extensions. Total B1 24 office pipeline declined marginally to 1.486 million sq m as at 30th September 2014 which is a decrease of 66,400 sq m since 31st March 2014. This comprises: o Under construction: Office floorspace under construction increased on a small scale by 5,000m2 from 855,200m2 as at 31st March 2014 to a total of 860,200m2 as at 30th September 2014. This total remains relatively high and is at its second highest level since 2008/09. o Permitted not commenced: Office floorspace permitted not commenced decreased from 697,200m2 as at 31st March 2014 to 625,800 sq m as at 30 th September 2014. Sources: City of London Corporation Annual Monitoring Review 2011; Department of the Built Environment, Development Info, November 2014 See also: Office info 2013 update: City of London Office Floorspace, July 2013. See also: City of London, Development pages: http://www.cityoflondon.gov.uk/services/environment-andplanning/planning/development-and-populationinformation/development/pages/default.aspx for the latest updates to - Development Info (key statistics for office, retail, residential and hotel schemes) which is issued six monthly (Apr-Sept and Oct-Mar) and Development Schedules (tables showing development sites and planning permissions) which is published twice yearly. 24 Floorspace classifications as set out in the Town and Country Planning (Use Classes) Order 1987, B1 refers to business office space. 17

4.3. Demand for City office space. Financial services remain key occupier and account for a significant proportion of office space demand, but take up by the TMT sector is increasing. Financial services make up 48% of all space occupied by sq ft, but the remainder is made up of 11 other sectors, most prominently professional services (19%), and insurance (14%). The financial services sector is dominant in occupation of large units, but is still a significant user of small space. The financial services sector occupies 66% of the units over 100,000 sq ft and 36% of the occupied units below 20,000 sq ft. The TMT sector has taken up a greater share of space since the recession, reaching a high of 1m sq ft in the City in 2013. In 2013 TMT companies accounted for nearly a quarter (23%) of City take-up, this is despite information and communication services accounting for just 6.3% of total employment in the City in 2012. During 2004-9 it provided between 7 to 9% of all take up. Agents have reported that in Q1 2014, Banking and Finance accounted for 38% of office take-up, compared to 25% in 2013. TMT accounted for 22% of all 2013 take-up, and Business Services accounted for 19% of take-up in Q1 2014, compared to 13% of all 2013 take-up. Insurance services take-up increased from 6% in Q4 2013 to 10% in Q1 2014. Sources: City of London, Taking Stock: The Relationship Between Businesses and Office Provision in the City, 2013; City Property Association, City Offices: Getting the Balance Right, 2014; City Property Advisory Team (CPAT) City Agents Office Commentary, Quarter 1 2014. 4.4. City rents and vacancy rates Prime City rents increased for the first time in three years, while vacancy rates fell during 2013. City rents 26 were 57.50-60.00 per sq ft for prime A grade offices at end 2013. In comparison, West End rents for different sub-markets were 60-80 per sq ft. Prime City headline rents increased for the first time in almost three years, supported by the recovery in take-up. Agents report prime rents in the City rose by 2.7% to Q1 2014, faster than the 1.3% during Q4 2013. Rental growth was strongest in the fringe areas, with Shoreditch, eastern fringes and London Bridge all seeing rental growth in excess of 5%. TMT occupiers are relatively rent-sensitive, paying rents typically less than 55 per sq ft, though exceptions exist. Agents reported City take up for Q1 2014 at between 1.00 and 1.78 million sq ft. According to JLL (1.20 million sq ft let in 62 transactions) take-up decreased 40% on the previous quarter, was 11% up on the same period last year and 13% below the ten-year quarterly average. Total City take-up for 2013 was recorded at 5.40 million sq ft, 32% above 2012 rates. Agents reported the total City vacancy rate at between 6.30% and 8.50% in Q1 2014, previously falling by 2% during the course of 2013. According to CBRE, the overall vacancy rate decreased from 9.40% to 8.10% in Q1. 26 This figure excludes the small floor plate tower buildings which often command premium prices. 18

Sources: City Property Association, City Offices: Getting the Balance Right, 2014; City Property Advisory Team (CPAT) City Agents Office Commentary, Quarter 1 2014 See also: City of London, City Agents Office Commentary: http://www.cityoflondon.gov.uk/business/commercial-property/city-property-advisoryteam/property-professionals/pages/the-city-property-market.aspx for the latest quarterly digest report tracking key aspects of the City office property market). 4.5. Ownership of City office space Continued growth in foreign ownership of office space in the City of London In 2011, foreign ownership accounted for a 52% share of the City s office space. In comparison, in 1980 less than 10% of the City s office stock was owned by overseas interests. Foreign ownership passed 25% in the mid-1990s and 40% in the mid-2000s. Between 2008-2011 UK buyers accounted for 43% of purchases by floorspace but only 34% by value. The average value of buildings acquired by foreign investors was 91m as against an average purchase price of 27m for UK buyers. In 2011, Germany was the largest overseas City office investor with a 16% share of the total stock, while Japanese holdings declined to 2% compared with a peak of around 11% in the early 1990s. The US presence (10%) increased and there was an expansion of Middle Eastern ownership, which accounted for a 6% share. There is a growing trend towards private individual ownership of City offices, accounting for 6% of total floorspace in 2011. Even this may be an underestimate, given the difficulty of tracing ownership through standard searches. Specialist real estate investors (45%) and financial firms (24%) have continued to increase their ownership of City floorspace, while traditional owners such as the public sector, charities and livery companies have declined. Direct institutional ownership has experienced a sharp decline from 29% to 17% during the period 2005 to 2011. This compares with 37% in 1995. Source: Development Securities Ltd, Who Owns the City?, 2011 See also: City of London Corporation Annual Monitoring Review 2011; Data on infrastructure forecasting for central London, including City-specific data on energy, electricity, gas etc. future use is available in Central London Forward s Infrastructure Study 2009; See also: City of London, Development pages: http://www.cityoflondon.gov.uk/services/environment-andplanning/planning/development-and-populationinformation/development/pages/default.aspx for the latest updates to - Development Info (key statistics for office, retail, residential and hotel schemes) which is issued six monthly (Apr- Sept and Oct-Mar). 19