London’s Not Calling: High House Prices May Drive Firms Out of the Capital
When the chief executives of BT and Rolls-Royce announce they are moving their headquarters from their prestigious central London locations, are they saying something the rest of us have missed?
Like the canary in the coalmine or the 1920s American stockbroker who sold out before the Wall Street crash after getting share tips from his shoe shine, the CEOs of these blue chips may be saying something small companies have known for some time —that having an address in London is just not worth the candle.
Rolls-Royce is moving out of an address that is the err... Rolls-Royce of business locations — 62 Buckingham Gate: near the Palace and a stone’s throw from Parliament and Whitehall. BT is vacating the building near St Paul’s that was the site of England’s first post office and is a short stroll from the City of London.
Both buildings may come on the market at the same time and could prove a test of the resilience of the capital’s property market after Brexit. They won’t be alone: Royal Bank of Scotland is vacating its HQ on five floors of 280 Bishopsgate covering almost 250,000 sq. ft of floor space in the Square Mile.
Of course, they could be just cutting costs and that doubtless is part of the story. BT is liberating 13,000 people from employment while Rolls has yet to reveal the likely cuts. Neither company has said much specific although BT did say that it was “reducing the inefficiencies that exist by being housed in numerous sites across the UK”.
The idea that all graduate jobs are in London is increasingly a myth
In the absence of any hard facts for the moment, it seems fair to toss around a few ideas about what could be going on. Firstly, the idea that companies need a giant megalithic headquarters is losing credibility. Modern technology means that whole swaths of people can work remotely or from home. Even middle managers and PR people can do their fairly pointless jobs from any location.
Secondly, property in central London is massively expensive and is a deadweight cost to the company, locking up millions of pounds that could be used elsewhere. And since the purpose of a building is to house people together it does not need to be in SW1 or EC1. Here’s looking at you, EN6 and CR0.
Finally, increasingly unaffordable house prices in London are forcing more and more people to live further and further from central London. As a result, they are having to get up at ridiculously early hours and get home at equally anti-social times with large chunks of their day spent either on south-east England’s terrible train services or congested roads.
A CBIsurvey in April showed that two thirds (66%) of London businesses believed that the capital London’s insanely expensive housing market was having a negative impact on their ability to recruit entry-level staff. Hardly a shock when the average first-time buyer now needsa salary of £100,000 to buy a two- or three-bedroom home, against £32,000 in Newcastle or £28,000 in Liverpool.
The idea that all graduate jobs are in London is increasingly a myth. According to Graduate Prospects, in 2016 a university-leaver was more likely to start their career in Birmingham or Manchester than in the City of London for the first time since data were collected. Leeds and Glasgow are catching up rapidly.
Just over 4,000 graduates went to Birmingham for their first job followed by 3,790 to Manchester. The City of London was third 3,545 with Leeds (3,445) and Glasgow (3,400) close on their heels. Sure, more than a fifth of grads go to London thanks to the weight of employers in Westminster, Camden, Tower Hamlets, Southwark and Islington but maybe that faint sound is of another canary in the coalmine.
If there is a genuine structural shift underway, it is in where businesses are setting up and where jobs are being created then. It cannot come a moment too soon. The many autopsies of the Brexit vote have highlighted stark regional inequalities, with large tracts of our united nation bereft of jobs, income and hope.
What is needed are incentives to encourage business to move or start up out of London
A report by the Social Mobility Commission found that over the last two decades, the geographical divide had widened with regional differences in the labour market greater today than 20 years ago.
Like many bodies before it, it recommended encouraging and incentivising public sector bodies and private companies to base themselves in those areas in order to increase the number of high-skilled jobs in the regions and particularly in what it calls social mobility cold spots.
The government has been doing its bit for some time, which is why your driving licence is processed in Swansea, your economic data are produced in Newport, and your county court case handled from Northampton. But that just shifts public sector jobs around the country without necessarily creating new businesses.
What is needed are incentives to encourage business to move or start up out of London. Previous attempts such as Regional Development Agencies and Local Enterprises seem to have made little difference.
Ironically, it is the consistent bipartisan failure by government to tackle the housing crisis that may achieve what its many announcement could not — encourage businesses to move out of the capital and into the regions. It is hardly a coherent economic policy, but it might achieve the goal of kickstarting the regional economies.
But if anyone is worried about maintaining jobs in London, then it is time to tackle the shortage of affordable homes for young workers. But then, that canary has been tweeting for some time.
About the author
Phil has run Clarity Economics, a London-based consultancy, since 2007 and, before that, was Economics Correspondent at The Independent.
Phil won feature writer of the year Work Foundation Work World media awards in 2009, and was commended by the Royal Statistical Society in 2007.
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