bco & burges salmon present: the future of corporate headquarters: is london's dominance...

Thursday 02 March 2017Burges Salmon, 6 New Street Square, London, EC4A 3BF

BCO RESEARCH LAUNCH - THE FUTURE OF CORPORATE

HEADQUARTERS: IS LONDON’S DOMINANCE WANING?

@BCO_UK@BurgesSalmon#FutureHQ

Kindly sponsored by

Elaine Rossall

Head of Central London ResearchCushman & Wakefield

BCO Research Launch: The Future of Corporate Headquarters: Is London’s Dominance Waning? 02 March 2017

The future of corporate headquartersIs London’s dominance waning?

March 2017

London Markets| Cushman & Wakefield

Introduction

4

• London is a leading global city • Increasingly seen as being in in a league of its own • Its dominance appears unrivalled • Number of challenges as well as opportunities.

• operating costs in the capital relative to other parts of the UK

• increasing population and employment growth

• infrastructure stretched to capacity

• impact of technology


Objectives

5

• Is there evidence of office stock increasingly concentrated in

London?

• How has London’s employment changed vs rest of the

country?

• Key challenges to London’s capacity

• Prospects for moving functions to regions

• What will the future of the HQ look like?


What defines a headquarters?Three main roles

6

Gen

eral

cor

pora

te m

anag

emen

t

Lega

l & c

ompa

ny s

ecre

tary

Trea

sury

Taxa

tion

Fina

ncia

l rep

ortin

g &

con

trol

Inte

rnal

aud

it

Pen

sion

s/pa

yrol

l/ben

efits

adm

inis

tratio

n

Hum

an re

sour

ces/

care

er d

evel

opm

ent

Trai

ning

& e

duca

tion

Gov

ernm

ent &

pub

lic re

latio

ns

Cor

pora

te p

lann

ing/

deve

lopm

ent

Info

rmat

ion

syst

ems/

tele

com

mun

icat

ions

Res

earc

h &

dev

elop

men

t

Mar

ketin

g/co

mm

erci

al s

ervi

ces

Pur

chas

ing/

inbo

und

logi

stic

s

Dis

tibut

ion/

outb

ound

logi

stic

s

Oth

er

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Domestic HQ MNCs

Governance Shared services Strategy setting


Where are headquarters located?Location important criterion

7

Modern communication and mobile technology- should be easier for companies to locate away from the big cities

But onlyLegal, regulatory and tax considerations influence migration

Has to be a tangible impact on the bottom line

Human capital is a key factor in causing inertia in relocating


London’s dominanceNumber of headquarters

8

312 global FTSE 500 companies headquarters in the UK

over half (162) located in London


Office stock distributionLargely stable

9

2000 20120%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

70 71

Rest of England & Wales Rest of Greater London Rest of Inner London Westminster City of London Tower Hamlets

70:30


Rate of renewalHigher rate of renewal in London v regional cities

10

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 20190

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

Total Regional Central London 10-year Regional average 10-year Central London average


Employment more concentrated

11

1986 1991 1996 2001 2006 2011 2016 2021 202610.00%

15.00%

20.00%

25.00%

30.00%

21.10%19.58%

17.58%

19.61%20.22%

22.53%23.30% 23.46% 23.60%

24.29%

21.77%

24.60%25.13%

24.63%

29.14%28.71% 28.68% 28.65%

17.61%

16.13% 16.28%

19.73%19.00%

19.41%

21.54%22.11% 22.33%

21.42%20.79% 21.00%

22.78%

21.37%

22.86%

24.16%24.58% 24.67%

Information & communication Financial & insurance activitiesProfessional, scientific & technical activities Total services


Prospects for the regionsPressures on the capital – positive momentum for the regions

12

We shouldn’t be saying “the north is a cheaper place to live”. We should be saying “the north is the best place in the country to build an outstanding technology career”


Potential for relocationProperty market influencers

13

New

cast

le

Car

diff

Leed

s

Bris

tol

Gla

sgow

Birm

ingh

am

Man

ches

ter

Edi

nbur

gh

Lond

on C

ity C

ore

Lond

on M

ayfa

ir &

St J

ames

's

0

20

40

60

80

100

120

140

22.0025.00 27.00 28.50 29.50

32.00 32.50 33.00

70.00

120.00

Prim

e re

nt p

er s

q ft

Bris

tol

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diff

New

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Man

ches

ter0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

1.04%

1.20%

1.37%1.41%

1.95%

2.07% 2.25%

2.60%

3.05%

Grade A supply Grade A vacancy rate

Sup

ply

mill

ion

sq ft

Gra

de A

vac

ancy

rate

Prime office rents Grade A supply


How are headquarters changing?Important features of a headquarters

14

High levels of natural light

Proximity to transport

Location and prominence

Entertainment/WOW space

Outdoor spaces

Connectivity between floors

High level of staff amentity

Efficient and flexible floorplates

Sense of place and strong ground floor amenity

Architechtural style- complements brand

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%


How will the future headquarters change?Anticipated changes

Increased focus on health and well being

More collaborative space

Adoption of activity based working

Fewer meeting rooms

Provision of onsite amenities

Café/social space

Increase in space that reflects brand

Flexible working hours

More open space

0% 10% 20% 30% 40% 50% 60% 70% 80%


Conclusions

• Is the office stock increasingly concentrated in London?

• No change to distribution around the UK

• Central London seen faster rate of redevelopment/refurbishment

• More Grade A stock

• How has London’s employment changed vs rest of the country?

• Increasingly concentrated in London

• Job creation in service sector• Benefited from growth of

technology sector

• What will the future of the HQ look like?

• Complements brand• More streamlined• New working practices• Central hub• Good design and architecture

• Prospects for the regions• Onshoring• Relocation of middle and back

office • Upskilling in roles• Public sector relocations• Devolution • Limited HQ relocations, if any

John Danes

Head of Continental European Property ResearchAberdeen Asset Management


For professional investors only – Not for use by retail investors or advisers

Is London’s dominance waning?

2 March 2017

John Danes, Head of Continental European Property ResearchAberdeen Asset Management

20

Office employment growth (% pa)

London office employment has grown faster than other regional markets

1996 - 2015

2006 - 2015

2011 - 2015

0.0 0.5 1.0 1.5 2.0 2.5 3.0

Edinburgh London: M25 West Glasgow Birmingham Manchester London: Central

Past performance is not a guide to the futureSource: Property Market Analysis, February 2017

21

Office employment

London’s office employment is getting larger relative to the regional cities

1995 1995 2005 2005 2015 20150

100

200

300

400

500

600

700

800London: Central Birmingham Edinburgh Glasgow Manchester

Past performance is not a guide to the futureSource: Property Market Analysis, February 2017

22

Projected population growth 2010 - 2030

Not just London – growth concentrated in largest cities across Europe

• London has grown by 1m residents 2001 - 2011, and projected to grow by another 1m by 2021.

• The population of Greater Stockholm increased by 25% from year 2000 (1.2m) to 2016 (1.5m).

• Berlin’s population increased by 10% from mid 2011 (3.35m) to mid 2016 (3.6m). This trend is accelerating.

Osl

o

Sto

ckho

lm

Cop

enha

gen

Lond

on

Hel

sink

i

Am

ster

dam

Mun

ich

Fran

kfur

t

Par

is

Eur

ope

Chi

na

Bra

zil

Mex

ico

Indi

a

-5%

0%

5%

10%

15%

20%

25%

30%

35%

32%

29%

22%

18%

15%

15%

14%

13%

13%

-1%

7%

14%

22%

22%

Population growth of Europe’s leading cities is forecast to match or exceed that of emerging markets

Source: United Nations 2014, World Urbanisation prospects, Aug 14. ‘How to Invest in Global Winning Cities’ Aberdeen Asset Management, Aug 14. Berlin Census, 2016

23

• Hubs for business/financial services/tech sectors – agglomeration economies

• Improving infrastructure aids their growth and accessibility: Jubilee Line extension, Overground, Crossrail, HS1, HS2

• Access to a large, highly educated labour pool, sucking in talent from elsewhere, ‘virtuous circle’

• 50% of graduate jobs are in London

• Excellent universities that attract the best domestic/international talent

• Very attractive to international migrants• Vibrant nature: attractive locations for young, highly skilled international workforce to live and work

• Youthful age structure causes high natural rate of population increase

Attraction of ‘winning’ cities such as London

24

Improving infrastructure drives further growth of office submarkets

NorthGreenwich

Canary Wharf

WestHam

CanningTown

Stratford

CanadaWaterBermondsey

LondonBridge

Southwark

Waterloo

GreenPark

Westminster

Stratford

Shard

The Globe Theatre

GLA Office

Tate Modern

Canary Wharf

More London

25

Tech companies increasingly concentrated in central London

Kings Cross, 7,000 jobs

Euston 1,500 jobs

Shoreditch/ Farringdon 5,000 jobs

Battersea, 3,000 jobs

Source: Aberdeen Asset Management, February 17

26

• Unaffordability of housing

• Rising congestion and commuting times

• Brexit – disproportionately affects London financial services

• Increasing restrictions on migration

• Government commitment to regenerating regions

Nationwide first time buyer gross house price to earnings ratio (%)

Threats to London: housing affordability exceptionally stretched

1986

Q4

1988

Q1

1989

Q2

1990

Q3

1991

Q4

1993

Q1

1994

Q2

1995

Q3

1996

Q4

1998

Q1

1999

Q2

2000

Q3

2001

Q4

2003

Q1

2004

Q2

2005

Q3

2006

Q4

2008

Q1

2009

Q2

2010

Q3

2011

Q4

2013

Q1

2014

Q2

2015

Q3

2016

Q4

0

2

4

6

8

10

12

UK London

Source: Nationwide, February 17

House prices speed up London exodusApart from twentysomethings, more people are leaving the capital than arriving

Source: Financial Times, November 2016

27

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