New buildings frequently capture the imagination of those tasked with economic development across the country. This is understandable – unlike upskilling a workforce, a new building has a visible and immediate impact. But despite this property focus, not enough is known about the supply of commercial space within and across UK cities and what this means for policy.
Property is an important factor in attracting and retaining high performing businesses, alongside other considerations such as skills, transport connections, and a network of similar firms. Any strategy designed to improve the economic performance of a city should consider the supply and quality of commercial space available in their area, what type it is and in which parts of the city this property is located.
In successful city centres, offices make up almost two-thirds of the commercial space and the average quality of this office space is better than in other cities. For example, in Bristol and Manchester, retail makes up about 18 per cent of overall commercial space, and performs well because the large numbers of office jobs provide footfall for retailers to sell to.
In poorly performing city centres offices account for less than a quarter of commercial space and the quality of this space lags behind that of more successful economies. In Blackpool and Newport, over 40 per cent of all commercial space is in retail, much of which is struggling. Their lack of office jobs limits footfall, leading to average vacancy rates of 16 per cent in weaker city centres, compared to 9 per cent in stronger city centres. Crucially, this means that these weaker centres will be hit harder by the continued shift to online shopping.
In suburbs industrial land is dominant. Over half of suburban commercial floor space is industrial, compared with only 11 per cent in city centres. There is a major challenge in suburbs for policy makers related to the declining demand for space from manufacturing, which leaves large, vacant sites in need of expensive mediation. On the other hand, ongoing changes in consumption are likely to increase demand for logistics space and sufficient supply will be required, especially on the outskirts of key logistics cities such as Northampton, but also within cities themselves to get deliveries from the depot to the final door.
The quality of office space is often higher in the suburbs than in city centres. Until recently, more attention has been given to improving the supply of office space in suburbs than city centres through policies such as enterprise zones and the subsidisation of business parks, but the challenge for some cities with regards to office space lies within their city centres instead.
As local areas pull together their Local Industrial Strategies, the barriers preventing businesses from locating in city centres need attention. When property is one of the problems facing a city, this will require improving the quality of city centre office space. This may mean reducing the overall supply of commercial space, especially retail and poor quality office space, within their city centres.
New buildings alone cannot change the economic performance of an area, particularly in areas where a lack of skills is the main barrier to business. The aim of this report is to better inform the decisions about property that local and national bodies take as part of wider economic growth strategies.
To ensure commercial property contributes to raising productivity levels, cities and government should implement the following policy recommendations:
- In cities where the private sector is not leading on office development, cities should consider intervening to supply small amounts of new office space to meet demand from productivity-driving firms.
- Cities with relatively high numbers of shops in their city centres should convert some of these into residential and office uses. In cities with very low demand for commercial and residential property, some demolition may be necessary to enable the land to be used to improve the public realm.
- Cities must release sufficient land for logistics so that supply meets demand.
- Government should reform business rates to conduct more frequent revaluations and allow for pooling across city regions, and use the Shared Prosperity Fund to finance interventions into commercial space at the city centre level for weaker economies.