City of London Economic Research

Keeping SMEs at the heart of the City

Tehreem Yusuf

With our strong interest in competitiveness we were pleased to note that London once again tops the Global Financial Centres Index (GFCI) in 2016. The GFCI published by the Z/Yen Group examines the major financial centres globally in terms of competitiveness. However with New York only eight points behind (on a scale of 1000) the two cities remain competitive.

London will need to work to retain this status over the next year, not least due to the upcoming EU referendum. This, in conjunction with challenges such as housing shortages, transport and energy inefficiencies as well as issues surrounding public security mean that London and London’s new Mayor, perhaps now more than ever, need to plan for the future.

One way to remain an attractive place for businesses, workers, residents and visitors would be to consider a range of outcomes underpinned by ‘smart’ solutions that can enhance the city’s reputation as a global leader. These could take the form of smart buildings and infrastructure, community services and e-governance and green technologies which improve air quality, energy efficiency and promote healthy lifestyles. This is a key priority for the Greater London Authority who has set up the Smart London Board. As detailed in their recent publication ‘Smart City, Opportunities for London’, London provides a fertile environment for smart city businesses to set up, grow and flourish. 

In the GFCI report, London just managed to retain its edge over New York, in part, due to its booming financial technology sector. For London this, and the expansion of small and medium sized businesses (SMEs), will inevitably be a growth areas for the future.

Our latest report ‘Clusters and Connectivity: The City as a place for SMEs’ analyses the opportunities that a location in the City offers and the challenges emerging from increasing pressure on SME workspace. The City is a thriving place for 16,000 firms with fewer than 250 employees. These businesses make up 98.6% of all businesses located in the Square Mile and employ around half the workforce.

Yet this growth has not come without challenges. Vacancy rates in the City are at, 3.9%, their lowest level since 2001, illustrating the pressures on space. This pressure is particularly marked for floorspace of 300-1000 sq m, often regarded as move-on space for growing firms.

The City therefore needs to look at measures that can safeguard the provision of attractive and cost-effective space for the varied and dynamic community of SMEs. This includes the potential use of protected heritage buildings for small office space, and working with developers to promote the inclusion of affordable space for start-ups in future large developments. The recommendations in this report will help to ensure that the vast array of businesses that make up such an important part of the economy in the City can continue to thrive and ultimately contribute to London’s status as a leading global financial centre.

Towards New Ways of Working in the City

By Maxine Carr, Economic research officer at the City of London Corporation

‘Future Proofing the Square Mile’ conference
The research team was recently invited to attend ‘City of London: future proofing the Square Mile’, hosted by New London Architecture, sponsored by Berwin Leighton Paisner and in association with the City of London Corporation and the City Property Association.

The conference brought approximately 150 delegates from various organisations to the Guildhall to attend several presentations all looking at how the City can retain its competitiveness in the short and long term future.

The presentations were broad-ranging and featured ‘how will tall buildings meet future occupier needs?’, ‘future proofing the Square Mile’, and ‘what is in store for Aldgate?’ - all crucial topics of consideration for ensuring sustainable growth for the City. However, what stood out to me was the session on ‘new ways of working’ which looked specifically of the future of the City office.

The rise of co-working
It is increasingly recognised that office environments have a direct impact on the quality of work produced, not the mention the wellbeing of staff. Firms such as Google, Dropbox and Airbnb are famous for their well-designed offices that promote collaboration, creativity and innovation, and indeed act as a tool to attract new talent in their own right. New types of co-working offices – where multiple and different types of companies rent office space, often on rolling contracts – are springing up in all major cities worldwide, at an estimated rate of 4.5 new spaces per day.

Co-working spaces are often seen as the solution for freelancers and small start-ups who are looking for desks at an affordable rate and want to benefit from the networking that occurs when several organisations share one office space.

In one sense, the City of London has its roots in co-working and innovative working practices. As Jack Pringle (Managing Director of Pringle, Brandon Perkins + Will) explained, London’s coffee houses that allowed for networking and creative processes are building blocks of the London we know today. For example, in 1688, Edward Lloyd’s coffee house on Tower Street became the hot-spot for marine insurance, and it developed into today’s international insurance market: Lloyds of London.

Yet, over time, there has been a shift away from this fluid conception of an office space. Today, most modern offices are more likely to comply to a more uniform design, mainly communal workspaces divided into personal cubicles.

New ways of working in the City
But now, a new direction is taking hold. As Mr Pringle commented, “the tin ceiling is so last century!” as he discussed the constant need for the City to adapt its supply of office spaces to the meet the demand of changing work styles (for example, more mobile working) and changing occupiers. Demand is shifting because there are now more freelancers and SMEs in the City than ever before, explained Rohan Silver, Co-founder of co-working space, Second Home. Furthermore, despite the City very much remaining a financial services hub, its proximity to Tech City is leading to an increase in the Media, IT and Communications sector within the Square Mile.

Despina Katsikakis from Transforming Workplace noted that organisational structures are being eroded and are becoming less stiff and more flexible, with a new focus on sharing knowledge. Certification systems such as BREEAM and LEED are now commonly used to demonstrate the sustainability of buildings – yet these are limited to the buildings themselves rather than the people that use them. Therefore, the shift towards improving the design of offices is about promoting wellbeing for staff as it is about providing spaces for making more innovative, and therefore productive, workers.

Here in the Research team at the City of London Corporation, we actively take an interest in these issues and have recently worked with consultants Ramidus and the City Property Association to produce two reports: Future Workstyles and Future Workplaces in the City of London and Serviced Offices and Agile Occupiers in the City of London.

WeWork’s Co-Working Spaces in the City
Even though the concept of co-working has been around for some time, the City is only just beginning to establish itself as a provider of co-working spaces. During the afternoon, the conference took to the outdoors where delegates were divided up into five groups for a walking tour of different themes. I chose the WeWork tour of two of their co-working offices, located in Moorgate and Spitalfields.

WeWork explained that their spaces have been specially designed to promote creativity, with a variety of different types of spaces on offer to suit the needs of the different types of people who work there- including freelancers, SMEs and even teams from larger organisations such as KPMG. Lily Choi gave a presentation on the company and informed the group that a massive 60% of WeWork’s member businesses have done transactions with one another, providing evidence for the claim that the space they provide is successful at fostering collaboration between its members.

Co-working is indeed a trend that the City cannot ignore. Adapting to the ever-changing demands of workers and businesses alike is crucial for the City to remain a competitive location for business.

Key facts about the City 2014

As this infographic shows, the City is a world leading financial centre - synonymous with vibrant financial markets and major financial and professional services institutions. But it is also diverse - with a wide range of industry sectors represented among the cluster of businesses in the Square Mile, and a home to many thousands of small and medium sized enterprises.

For more key facts about the City visit the City of London's research webpages.

Helping to build the social investment market, one research piece at a time: launch of new research body

A new research body to support the growing social investment sector has been launched today: the Social Investment Research Council will provide practical recommendations and data to support the burgeoning social investment market. The Council is a joint venture between Big Lottery Fund, Big Society Capital, the Cabinet Office, Citi, and the City of London Corporation.

Reasons for optimism

The UK is on its way to establishing itself as a global leader for social investment, successfully hosting the first G8 Social Impact Investment Forum earlier this year. The UK social investment market grew by almost a quarter last year exceeding the £200 million mark in value for the first time according to our research Growing the Social Investment Market

At ground level there is also reason to be optimistic, with UK social enterprises performing favourably when compared to their SME counterparts, including higher proportions of social enterprises experiencing growth in the last year, and a start-up rate three times greater than SMEs. (See Social Enterprise UK's report, The People's Business here)

Information gap hindering growth

However there remain a number of key challenges for this nascent market. The lack of appropriate data represents one of the largest barriers to its growth, with unanswered questions around investment products (risks and returns, security and liquidity); identifying and meeting market needs, and the needs of key players; unlocking the right type of capital; mechanisms to invest; understanding and assessing social impact - the list continues.

The aim of the Social Investment Research Council is to consolidate research efforts to generate practical insights, for the benefit of social sector organisations and investors. By coordinating efforts, the Council aims to address important issues that are currently less researched, and subsequently help to accelerate market development.

Practical recommendations

We will therefore focus on projects which consider practical ways to impact the development of the market, with a potential transformative impact. Specifically, the inaugural 2013-2014 research programme will focus on improving the understanding of social investment products, and the investors needed to finance them.

Today the Council is launching its initial two projects. The first of these aims to develop a better understanding of the key characteristics and performance of social investment products (including loans and other investments) over time, looking at historical transactions in the social investment market. The second project focuses on identifying potential institutional sources of social investment capital in the UK –housing associations, pension funds and corporate foundations among others – and investigating the key motivations and barriers to investing they face, to help inform what needs to be done to help unlock this potential capital.

We look forward to partnering with those in the social investment market, to enable us to understand the market’s real information needs and ensure that those needs can be met.

More information about the Council and the two initial projects (n.b. tender closes midday on Thursday 14th November) is available at: www.bigsocietycapital.com/ResearchCouncil

For more on the City of London's Social Enterprise Research programme please visit us the City of London's economic research webpages.

Is the “feel-good factor” returning to the City?

By Stephen Gifford, Director of Economics, CBI

The Financial Times recently reported that sales of luxury cars were booming, IPOs were returning, M&A activity was picking up and interest in more complex financing engineering was growing. The latest CBI/PwC financial services survey for the third quarter certainly suggests that UK financial services companies are feeling upbeat about their business situation. Asked whether they were feeling more or less optimistic than three months earlier, 59% of respondents said they were more hopeful, with only 6% feeling downbeat. A positive balance of +53% was the strongest since the mid-1990s and comes on top of a sustained recovery in confidence since December 2012, shared across all major sub-sectors of the industry.

The survey results were not uniformly positive, however. Aggregate volumes of business fell, dragged down by a poor performance in banking (which has a high weight in the survey). Banks’ weaker than expected industrial and commercial business was particularly disappointing, and underlines the fragility of the economic recovery. However, several other sub-sectors saw business volumes pick-up, such as building societies and insurance firms. There is also a widespread expectation that volumes will expand further over the coming quarter, including in banking. These forecasts no doubt reflect the broader improvement in the UK’s economic prospects, signs of more stable conditions in the euro zone and the hope that financial market conditions in general will improve.

Another factor underpinning rising optimism was a fairly broad-based increase in profitability over the summer months, on the back of which firms are looking to boost employment and step up investment, particularly in IT. The latest ONS data show that employment in financial & insurance activities fell by 15k in Q2 2013, to 1.13 million. Our survey suggests that financial services firms have since begun hiring again, with particularly strong increases among life insurers, who saw sharp declines earlier this year, and among building societies. And during Q4 2013, employment is expected to expand at its fastest rate since September 2007. The results point to an increase in employment of the order of 10k, to be followed by an expansion of headcount of around 2k in Q4.

Firms are also investing for growth and IT investment seems to be a key driver (see chart). This was particularly apparent among the banks, who cited the need to improve efficiency as the most important reason for investment. Although banks are looking to boost market shares, they continue to look inwards to deliver improvements to their core systems. For several sectors, the development of new products and services has also gained importance as a driver of investment and growth.

 

Finally, the overall improvement in the outlook for the financial services sector is reflected in a shift in the factors that firms expect to act as a brake on business expansion over the next year. For example, the proportion of firms citing uncertainty over the level of demand fell back to the lowest level since 2008. Some sectors pointed to the threat of stronger competition as demand recovers, notably building societies, who are probably wary of more aggressive moves by banks into the mortgage market. For the industry as a whole, regulation was cited as the leading potential barrier to growth and that the new “twin peaks” regulatory architecture is pushing up compliance costs – with this view being almost universally held among building societies and insurance firms.

Overall, it seems for the first time in a long time, pipelines are building, with preparations for IPOs being dusted down and plans for corporate transactions being developed, partly as private equity firms seek to exit from investments made during the crisis. There is a belief that the time is ripe to move and that fortune will favour the brave. 

More information on the survey is available from www.pwc.co.uk/cbisurvey  

For more about the City of London's economic research programme, please visit the City of London website.

Small and medium enterprises in and around the City of London

 

The City, the Square Mile at the heart of London’s business and finance sector, is often thought of as the home of huge multinationals and big banks. But the figures show that the reality is very different. In fact, as the infographic below shows, over 98% of companies based in the City are small or medium enterprises (SMEs), employing fewer than 250 people, and great majority of those have fewer than twenty employees. Like many thriving and diverse urban environments the City and its neighbouring areas are home to a wide variety of businesses - in terms of the profile of their owners, their employees, their industry sector or specialism and their size.

The picture is very similar in the City's neighbouring boroughs as well. The interactive infographic below shows you the breakdown of businesses by number of employees in the City and its neighbouring boroughs.

Click on each borough for a full breakdown and hover over the chart for actual figures.

It is not just the size of businesses that vary, the City of London's report Mapping SMEs  in the City also shows that within the Square Mile there exist clusters of SMEs in a number of key sectors, including legal, technical and general business support, hospitality, catering, retail, technology, communications, media, real estate, construction and recruitment.

So although big businesses,and financial and professional services are a significant contributor to the economy with financial services contributing around 10% to GVA, and a similar proportion to UK tax revenue, and although these types of business do form an important part of the City's economy and character, it is critical that businesses of all sizes and from many sectors thrive. For businesses starting up, moving or growing in and around the City, the opportunity to be a part of a diverse business eco system, in close proximity to a major business hub offering a pool of clients and suppliers, formal and informal networking opportunities, infrastructure and expertise can be a huge advantage. 

More statistics, research and analysis of London's SMEs and the UK economy, available for free download at www.cityoflondon.gov.uk/economicresearch

 

Supply chains among small and medium enterprises in the City

Based on the recent report City SME Supply Chains commissioned by the City of London, Abdul Rahim of Bone Wells Urbecon writes about small and medium enterprise (SME) supply chains.

By Abdul Rahim, Director, Bone Wells Urbecon Limited

For some SMEs, the perception is that selling to large corporations and institutions is the Holy Grail, especially those based within the City of London. But 98.5% of businesses in the City are small or medium sized enterprises, and they clearly offer a huge potential market for SMEs based in the City and the City Fringes to tap into.  Selling to other SMEs should be easier than trying to navigate across the procurement procedures of large corporations.

We recently conducted research that focuses particularly on SMEs, and looks at supply chains and buying and selling trends between smaller firms within the City and also with other firms in the City fringes.  

We found that 63% of firms in the Square Mile buy from other firms within the City. Whilst a similar proportion (68%) sold to other firms in the City, highlighting the importance of those local trade relationships. Some of the key reasons given for purchasing within the City included the proximity of businesses, speed of delivery and the expertise and reputation of the firms found in the concentrated industry clusters around the business district.

The effect of sales to other City firms by SMEs surveyed is dramatic, with more than one third of SME respondents’ sales to City firms accounting for more than half of their annual trading income.

But the majority (70%) of those firms who purchase within the City spend only a small amount of their total purchasing budget in the City (1-25%), so could more be done to encourage more buying and selling, supporting businesses in the local ecosystem? 

Percentage of total buying (by £ value) from firms in the City

It is striking that the businesses that are most successful in selling to their neighbours make sales largely through personal contact in one way or another – ranging from word of mouth recommendations, to focusing direct marketing efforts on potential and established customers in the area.

This  highlights the intrinsic value that formal and informal networks have to that sizeable segment of City and City fringe based businesses hoping to sell more to their neighbours; so finding ways to facilitate this networking is something that we believe the businesses themselves and business support agencies could usefully focus further efforts on.

In addition, many support programmes for businesses exist and range from helping businesses find access to finance through to research and innovation funding. Free guidance and information is available online and useful sites include:

Gov.UK, the central government portal where information for starting and running a business is collated www.gov.uk/browse/business

For fast growing companies www.growthaccelerator.com

The British Library Business and IP centre www.bl.uk/bipc/index.html

 About Abdul Rahim

Abdul Rahim is a director of Bone Wells Urbecon Limited and one of the authors of City SME Supply Chains.

The report City SME Supply Chains can be downloaded from the City of London's website. 

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