What are cities currently doing?

Many cities are taking active steps to improve their office stock

Where city centre space is in high demand, some cities are using planning to allocate office employment in city centres both to respond to demand for city centre locations and to support high street services. The MK Futures 2050 plan for Milton Keynes incorporates the specific recommendations of the CMK Alliance Plan 2026 for Milton Keynes’ centre including planning for 180,000 m2 gross floor area for offices and 5,000 new homes, partly to strengthen Milton Keynes’ retail offer.7

In cities with weaker city centres, the city has had to step in. The absence of private-sector led office development combined with the poor quality of existing office space in weak city centres is prompting cities to either directly deliver new office space or work together with local partners to do so.

Case study 1: Firms choosing to move back into Bradford city centre

Bradford is one example of where an intervention was needed to provide quality office space. But rather than the city council stepping in, it was Business & Enterprise Finance, a subsidiary of West & North Yorkshire Chamber of Commerce who did this. In 2013 they opened Bradford City Hub, a high-quality office set within a refurbished warehouse in Little Germany.

Their motivation came from the lack of high-quality offices in the city centre. Low office rents (£5-8 per square foot) prevented the private sector from delivering space directly. It was often more profitable to convert properties into residential buy-to-lets, and the use of Permitted Development Rights meant the council could not restrict these changes of use despite a stronger need for offices.

Despite the apparently weak market, the Chamber believed there was sufficient occupier demand to make a success of a speculative office development. A combination of European Regional Development Funds (ERDF), Bradford Council and equity funds made the scheme possible.

The success of the Hub suggests they were right. The 7,000 sq. ft. Grade A space contains 19 offices and 5 meeting rooms, and occupancy rates have been consistently high since opening. The high quality means they are able to collect higher rents (£16-17 per square foot). The original target occupiers were start-ups and young companies but a number of more established firms have now been attracted in, highlighting the wider appeal of city centre space.

Interestingly, several professional services firms have since moved from the city’s business park into the Hub, citing the city centre’s rail links, amenity offer and the Hub’s co-location opportunities as particular attractions. On the flip side, several firms have relocated from the Hub to the business park. These were less knowledge-based and so did not benefit from the spillovers on offer in the city centre.

The Chamber considers Bradford’s next challenge to be the lack of grow-on space for those who have expanded beyond the City Hub’s scale. Currently, firms are forced to migrate to business parks, but many would prefer larger, flexible city centre premises so they can continue to reap the benefits of a central location. As a result, Business & Enterprise Finance is now considering City Hub 2 to meet this demand.

Cities are keeping up with changing demand for office space

Qualitatively the preferences for city centre exporting space are also changing with the arrival and expansion of collaborative space such as with WeWork across London and Manchester. This kind of space is not just flexible but also aims to facilitate knowledge spillovers within office buildings. If high-skilled exporters increasingly want innovations in commercial space such as flexible offices like WeWork, then weaker city centres will struggle to attract the high value exporters that they need to increase productivity unless this space is available in their city centres.

For example, Bristol’s Engine Shed houses SMEs, start-ups and researchers within 30,000 square foot, including both co-working and more conventional office space. The project was a collaboration between Bristol City Council, the University of Bristol and the West of England Local Enterprise Partnership aimed at improving the city’s offering of quality, flexible business premises which enables partners to work together easily in a central location.

It is just one part of the Temple Quarter Enterprise Zone, a large mixed-use city centre development which will provide the city with several new commercial properties such as Grade A offices, a new university campus and studio space for creative firms.

Cities are using lots of small interventions to ensure there is a variety of city centre office space available

Many cities regard the lack of ‘grow-on’ space for expanding start-ups as a barrier for economic growth. For instance, Derby Council has heard from firms in the city’s strong suburbs such as in Pride Park that they would prefer city centre locations. In response, they have established seven office sites for start-ups in the city centre as part of the Connect Derby network, and are looking to add more, larger space.

A series of small interventions aim to reduce the risk of oversupplying offices relative to local demand and give cities the flexibility to alter their proposals as circumstances change.

Case study 2: Flexible occupier criteria key to office success in Huddersfield

The Media Centre in Huddersfield was set up 23 years ago to stimulate knowledge-intensive creative and digital industries in the city. The initial office building was fully occupied straight away, and this success led them to develop two more properties next door, part-funded by the ERDF. Combined, the Centre’s three offices provide 62,000 square foot of space.

While the first and second building found plenty of creative industry demand, it was more difficult to find tenants for the third. A decision was made to open the space to businesses in complementary and supportive sectors who also prized a city centre location. This both improved occupancy and benefited the creative and digital industries already present, as co-location across industries created knowledge spillover benefits.

The space is also used by start-ups who have out-grown Huddersfield University’s innovation centre. Three firms a year, on average, migrate into The Media Centre from the innovation centre.

Some cities have partnered with city institutions to deliver more high quality office space

Cities are increasingly working with institutions such as Chambers of Commerce and universities both to unlock sites for development and to understand what needs to change about the city’s commercial property offer.

Universities in particular are beginning to play a role in commercial property in city economies. Universities frequently own large estates in cities and improving city economies and amenities is an important part of attracting students to attend universities at the start of their adult life and of their careers. Increasing the returns on university assets and improving the appeal of city centres are motivating universities to work together with city councils in order to provide new city centre office space.

Case study 3: Using the University of Liverpool’s estate to deliver research space

The University of Liverpool owns 93 acres freehold, amounting to 130 buildings, in the centre of Liverpool. In addition, they own the veterinary school on the Wirral, botanical gardens and the university’s London campus.

They have used these assets to contribute to the city’s Knowledge Quarter development in Liverpool Paddington, where 30 acres will provide 1.8m square foot space for the University and science, technology, education and health sectors.

In conjunction with the Mayoral Devolution Fund, the University aims to spend £800 million over the next 15 years on its estate. The long-term goal of this direct involvement in city property development is to create a cluster of high knowledge businesses in Liverpool city centre, in order to attract both academics and students to work in the city and collaborate with the University.

The Royal College of Physicians has agreed to pre-let 70,000 square foot of the new development. Liverpool International College will use 35,000 square foot to accommodate 250 students and the Rutherford Cancer Centre North West will house a proton beam cancer treatment hospital on the site.

Less is being done by cities to reduce reliance on retail

In stronger city centres, demand is high enough to repurpose vacant retail units into new uses. While outside city centres, large housing schemes are being planned on former retail parks in Uxbridge and on Old Kent Road in London.

In contrast, there does not seem to be much evidence yet of cities intervening to reduce or repurpose retail in city centres in response to structural problems of oversupply. The choices for retail in weaker city centres are starker because there may not be the market interest in order to facilitate conversions, and instead retail will sit vacant in the absence of an intervention. Instead, retail’s problems are still often understood as arising from the quality of existing space, but even in strong city centres attempts to address these factors have not been as successful as hoped.

Case study 4: Retail scheme success difficult even in Oxford’s strong city economy

Oxford’s Westgate Centre opened 800,000 square foot of retail, food and drink space in 2017, having been in development since 2010. The city was identified as having a weak retail offer for a city of its economic standing, so the council was keen to pursue new development.

Oxford was unusual in having pent-up demand for high street services, but despite this, the effect of the new Centre on the city’s retail market has been mixed. Some new businesses have been attracted into Oxford due to the new Centre, such as John Lewis and Uniqlo and restaurants Shoryu and Breakfast Club, but most have relocated from elsewhere in the city. As a result, these other retail areas are considered to have declined in quality as Westgate has become more attractive.

Despite footfall exceeding expectations of 15 million a year, the scheme’s development yield has been disappointing. This highlights how sensitive the retail market is at present even for such a strong scheme. Westgate serves as a caution to cities which lack Oxford’s combination of a strong economy and weak existing retail offer, where it would be difficult for a scheme of the same scale to attract in new high street businesses.

Cities are supporting their high-skilled suburbs and strengthening their city centres

Where high knowledge firms currently exist in suburbs, cities are supporting their needs for suburban commercial space. But due to the distinct needs of suburban and city centre high-skilled firms, cities which have high-skilled suburban firms can strengthen the office market of their city centre without weakening their suburbs.

Case study 5: Warrington’s high-skilled suburban business park

Warrington is an example of a city whose economic strengths lie in its suburbs, which are home to many high-skilled firms.

The city was chosen by the government to house the civilian nuclear industry in the 1950s, and continuous experiments have been running in the suburban research park from then until the present day. Today the occupancy of the now-named Birchwood Park is more diverse, with nuclear accounting for a third of occupants along with the forensics, engineering and logistics industries. Over 6,000 people are employed on the site.

Currently, the Park’s 1 million square foot of commercial space (60 per cent of which is office, 40 per cent is industrial) is 98 per cent occupied and includes the highest grade offices in Warrington. In response to changes in occupier demand, the Park is including co-working elements in new developments. Warrington Council bought Birchwood Park in 2017 for £200 million to achieve a £10 million rent through the council’s development arm Warrington & Co.

To ensure the city centre’s property offering can complement that of the suburbs, the council is also involved in office development in more central areas. It has developed 50,000 square foot of incubator space, named The Base, which received £7 million from the council and £1.5 million from the ERDF and opened in 2016. Currently, it is 51 per cent occupied and on track to meet the target of 75 per cent by the end of next year. An additional 60,000 square foot of grow-on office space (made up of 11 to 12,000 square foot units) is soon to be developed. This will provide firms with a choice of location, with those favouring city centre amenities and spillovers able to access this while those who benefit most from larger suburban premises able to remain in the business park.

New office space in city centres allows firms currently in suburbs to relocate if they wish to. For example, in addition to the Bradford and Derby examples earlier, Microsoft Research moved away from the West Cambridge business park where they located in 1997 towards a much more central location in 2013 close to the train station. Likewise, the Francis Crick Institute – a large life sciences research centre – relocated from Mill Hill in suburban north London to Kings Cross in 2016.

Brownfield land is being remediated

Some cities are intervening to clean up brownfield land and make it suitable for private sector use. For instance, Newcastle City Council is partnering with Newcastle University in a 50-50 joint venture to develop 500,000 square foot of commercial space as a science centre on land it owns on the edge of the city centre that was previously a brewery and before that a colliery.8 These aim to reduce the risk for the private sector from taking on the unknown costs of remediation, which discourage investment even if there is demand in the private sector for property development.

Cities are allocating land in suburbs for logistics space

Demand for logistics land is strong, and land has been released on the outskirts of cities for big sheds recently including the Omega development in Warrington and Harworth Estates Logistics North in Bolton, Greater Manchester. Partly this is because the devolution and current structure of business rates incentivise cities to allocate commercial space to large floorplate activity like warehouses, factories, and retail parks over higher value but smaller uses such as offices.9

Urban logistics problems resulting from a shortage of land appear to be at their sharpest in London, where the total amount of industrial and logistics space has fallen by 16.5 per cent since 2001. The Draft London Plan has recently proposed protecting industrial space in Strategic Industrial Locations.

Some cities are directly intervening to provide industrial and logistics space. Measures such as Knowsley Borough Council’s £4 million subsidy of speculative warehouse space or Middlesbrough Borough Council’s £12.5 million grant to provide speculative industrial space aim to remediate brownfield land and provide new employment and growth.10 While intervening to remediate brownfield land addresses a market failure, new suburban speculative logistics and industrial land does not possess the same public good elements. Even if successful, there are two major differences from intervening in city centre offices. Logistics and manufacturing activity experiences weaker agglomeration economies as it experiences fewer knowledge spillovers. Furthermore, new jobs created by this public investment risk replicating low-skilled patterns of work which left cities vulnerable to economic change and automation in the past.

Logistics and industrial land is being used in innovative ways

Cities with stronger economies and competition for space between logistics and other uses are seeing more creative uses of land. For instance, Gazeley in Silvertown in London has proposed the UK’s first three-storey warehouse – not mezzanine flooring, but three storeys of warehouse space that lorries and vans can drive up to access. This is a solution to restricted land supply issues common in East Asia where Gazeley’s owners GLP operate. Another example is the Port of Salford which is the first tri-modal inland port in the UK allowing freight transfers between road, rail, and sea.

A combination of a scarcity of employment land and changing consumer preferences also appears to be encouraging specialisation of industrial space. For example, Costa Coffee opened the biggest coffee roasting plant in Europe for £38 million in Basildon last year, and in 2015 Premier Foods opened Europe’s largest cake factory in Barnsley.1112 More complex and specialised outfits are, in part, a way to achieve more efficient uses of increasingly expensive land.

Former retail parks have been identified as a promising source of land to accommodate the growth in demand for logistics.13 Combining these through mixed-use residential and light logistics ‘beds and sheds’ is still largely unknown in the UK, but alongside a prominent example of student accommodation block atop a Travis Perkins distribution centre at Kings Cross, others include a BDM Kesslers warehouse adjacent to apartments in the Royal Albert Basin, and a council depot below housing in Kensington and Chelsea.14

Minimising the congestion caused by logistics’ growth

Managing the congestion caused by increases in logistics transport is also a growing concern in many cities. Congestion is a brake on economic activity, and white van traffic, as the fastest growing segment of transport, has increased by 71 per cent since 1996.15 In response, the Greater London Authority (GLA)has proposed a ban on deliveries to offices, and is attempting to consolidate deliveries into fewer journeys. Working with warehouses and recipients to reduce deliveries to a smaller number of journeys to retailers has been achieved on Regents’ Street by the Crown Estate in conjunction with Clipper Logistics.

Footnotes

  • 7 Milton Keynes Futures 2050 Commission (2016) Making a Great City Greater
  • 8 Jeffrey, S (2017) Delivering Change: How City Partnerships Make the Most of Public Assets London: Centre for Cities
  • 9 Louise McGough and Hugo Bessis, “Beyond Business Rates: Incentivising Cities to Grow,” 2015, https://www.centreforcities.org/wp-content/uploads/2015/12/15-12-14-Beyond-Business-Rates.pdf.
  • 10 Speculative Knowsley scheme secures £9.4m funding: Manchester, Place North West https://www.placenorthwest.co.uk/news/speculative-knowsley-scheme-secures-9-4m-funding Accessed 14/06/2018; White S, Gilmore S, Wright I, (2017) Tees Advanced Manufacturing Park – Delivery and Investment Enablement Executive Report Middlesbrough: Middlesbrough Borough Council
  • 11 Hough, K (2017) Inside Costa Coffee’s £38m roastery plant which finally fires up today: Basildon: Essex Echo Accessed 14/06/2018
  • 12 Fritz, V (2015) Europe’s longest cake production line in action London: BBC Accessed 14/06/2018
  • 13 Naumann, M (2017) European Urban Logistics: When, Where and How Cologne: Deutsche Bank
  • 14 Norman, P (2017) The Savills/CoStar logistics debate – Beds and Sheds and the need for Industrial led mixed use: London: CoStar; Muir F, Kerimol L (2017) Industrial Intensification Primer London: Greater London Authority
  • 15 Linton C,Fuller R, Bray J (2018) White Van Cities – Questions, Challenges, and Options on the Growth of Urban Van Traffic London: Urban Transport Group