by Maxine Kennedy
Research Officer at the City of London
Last week (10 August 2016) , the City of London's Research team published a set of maps showing firm movements in and out of the City between 2012 and 2014.
Commissioned by the City of London Corporation and undertaken by Trends Business Research using their own unique database, the maps show patterns of firm activity for five sectors: insurance; professional services; finance; technology, media & telecommunications (TMT), and administration & support services.
Certain spatial patterns are immediately obvious: The City's insurance firms are tightly clustered in the east – a pattern that dates back hundreds of years. The City's professional services firms are more dispersed, but with a notable cluster in the west. The City's finance firms are clustered in the centre-east. The City’s administration and support service firms have no obvious cluster- which is not surprising, as these firms tend to locate near to their client base rather than near each other. The City’s TMT firms have no obvious cluster, but this could be because the sector is still developing. However there is some evidence of clustering in the west and centre-east of the City.
Clustering continues to be a marked phenomenon despite modern technology reducing some of the traditional needs for firms to be physically close to one another. Evidence shows that businesses continue to find benefits from, for example, a shared pool of skilled staff and suppliers. In 2013, just over 60% of City firms bought from others based in the City, and almost 70% made sales to other City firms. Research produced by the City of London earlier this year noted that the prestige of already existing firms was a key draw for firms move to the City. Others have found that productivity increases in business clusters. Whilst there is a lot of evidence about how firms cluster on a city scale - for instance, California’s Silicon Valley, the tech clusters around Cambridge University and New York’s financial hub - comparatively less is known about how firms cluster within cities. These maps help to shed light on these patterns.
The rise of the TMT sector
TMT is a relatively new sector in the City, and has a comparatively higher churn rate (i.e. more firms starting and closing). Thus the map for this sector shows a lot of activity with some clustering in the west and central-east areas of the City boundary.
Although the City remains predominately a financial and professional services hub (financial services alone accounted 39% of City employment in 2014), the growth of the TMT sector is undeniable. Its workforce has grown 44% since 2010, and the latest figures show that 34,500 people, or 8% of the City’s workforce, is in TMT.
Recent data from JLL states that at 31%, it was the TMT sector that presented the most active demand for City offices in Q2 of this year (2016). Between 2001 and 2010, financial services firms accounted for 29% of office take-up; TMT firms at 10%. However, by the next decade, TMT firms had taken over: 21% of take-up was in the TMT sector and 19% was in the finance sector. This echoes a larger trend in Central London, where the TMT sector has been the biggest take up of office space over the past five years.
The future of the TMT cluster
With the TMT sector growing rapidly in the City - and in London more widely - how might this play out spatially? Taking into account the benefits of clustering , and the already established tech hub around Old Street on the northern border of the City, will we see this developing sector begin to form a tight cluster within the City boundaries, as the long-established City sectors have? This is something myself and colleagues in the Research team will be keeping a close eye on.
We’ll be updating the maps with the latest data available towards the end of the year, so please check this page, or sign up to our mailing list here to see how these trends evolve.