Back to the city8th December 2016

Planning policy in recent years has encouraged businesses to look for alternatives to city centre sites as part of a strategy to reduce urban congestion and to re-distribute economic activity more evenly across rural and suburban communities.

As a result, there has been a significant rise in the number of out of town business parks and innovation centres across a range of environments from rural to places close to arterial transport routes.

However, cities have retained their influence as economic centres offering some benefits that the countryside and suburbia can’t match. It seems that, as the economic make-up of the UK changes in a post Brexit world, companies are finding compelling reasons for relocating and/or setting up in cities.

A platform for growth

Creating economic growth will always be a key priority for any government – although how they go about it may differ. Chancellor Philip Hammond recently announced that the government would be taking a more interventionist approach to the economy, combined with increased spending on infrastructure.

Certainly, one of the most effective ways to encourage businesses to set up in a specific region is to ensure that the infrastructure is well developed – and this is where most cities have an advantage over less populated environments. Of course, the downside is that more people equals more pressure placed on that infrastructure.

What are businesses looking for?

So what factors influence a company’s decision to locate in a specific type of place and/or a particular location? The think tank organisation Centre for Cities recently published their report Trading places: Why firms locate where they do, which  considers this very question.

The report found that city centre organisations currently account for around 59% of jobs and tends to attract certain types of businesses. For example, service exporters, particularly those requiring higher skill levels, tend to locate in cities, while goods exporters, lower-skilled businesses and more traditional manufacturers often choose suburban regions with cheaper premises and operating costs in preference to a wider pool of skilled workers. This is particularly significant as the goods-exporting sector is generally declining whilst the service-exporting sector is expanding. As a result, we are likely to see an increasing concentration of economic activity in cities.

It’s important for an area to have a balance of service and goods businesses, but as a rule, exporters tend to bring more prosperity into the local area than business to consumer B2C companies such as hairdressers or cafés. These are more likely to service the local population rather than generate income by selling products and services to other places. This means that the most successful local economies need to look at ways of growing their export base if they are to thrive and grow

City life – the pros and cons

Cities offer the benefits of agglomeration, as companies locate near each other, offering potential for economies of scale and a comprehensive economic network. Urban environments also offer access to a greater pool of workers with more developed and diverse skills. They may also offer a better infrastructure and have a more extensive public transport system.

However, cities always have higher costs (on average three and a half times more expensive than rural areas) as premises are more expensive to rent or buy. Urban areas have more congestion, while facilities such as parking may be scarce and more expensive. Housing can also be more costly in cities (although not always), meaning that workers may need to commute.

The story of Leicester

One city that has made the headlines in the past two years for quite diverse reasons is Leicester. Once a city of some importance in the textile industry, the city’s economic clout now appears to be on the rise again after a period of some decline. Events such as Leicester City FC’s surprise 2016 Premier League win and the discovery and burial of Richard III have helped to raise the city’s profile, as well as boosting tourism and the local economy.

Leicester also benefits from a central location at the heart of the Midlands, making it easily accessible to and from most places in the UK. With a train link of around one hour to London and proximity to the M1 and other major roadways, the city’s geographical position is an attractive one.

So, it’s not surprising that several large companies have announced that they will be setting up operations in the city in the coming months. Wealth management company Mattioli Woods is moving from the outskirts of Leicester into the city centre, investing around £14m in the move. The licensing organisation Phonographic Performance Limited (PPL) and PRS for Music recently announced that they will be setting up their national headquarters in Leicester, following the example of companies such as IBM who are setting up a Client Innovation Centre and insurance company Hastings Direct who have recently set up a call centre with plans for further expansion in the pipeline. These are all companies with no specific tie to the area which have deliberately chosen to set up in the city centre – for some of the reasons already mentioned.

It’s important to recognise the advantages that a specific type of environment offers – and then match that to the right kind of business. So, while it’s important to ensure that the rural and suburban economies continue to attract businesses, stimulating growth in the cities needs to be a key part of any industrial strategy –and ultimately, Britain’s economy.

About the author
Kevin Skipworth is Head of Commercial Property at Andrew Granger & Co, one of the largest independent estate agents and chartered surveyors in the East Midlands.
Andrew Granger & Co have offices in Leicester city centre, Loughborough and Market Harborough.