Four industry sectors driving demand for office space in UK cities
Demand for office space in UK cities continues to surprise on the upside. While fluctuating business sentiment amid political uncertainty remains, wider pressures to transform together with the growing appeal of labour markets in major UK cities have buoyed deal volumes and active requirements.
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This dynamic will remain, with activity emerging from a widening spectrum of industry sectors. The following four, however, will be demand catalysts:
Life Sciences: An injection of growth
The UK life sciences sector reached record turnover of over £70 billion in 2017. We expect this growth to continue, fuelled by a powerful combination of an ageing population, more complex healthcare needs and a healthcare system with an urgent need to improve patient outcomes and increase efficiency.
The sector will also be revolutionised by the application of technology – and the flourishing of the emergent MedTech sector – which will produce new partnerships, business models and entrants into the sector. The UK Government’s drive to position the UK as a world leader in the sector will also be influential in identifying and exploiting inward investment and growth opportunities.
For example, announced investments following the Government’s recent UK Life Sciences Sector Deal include QIAGEN who are working with Health Innovation Manchester to develop a world-leading genomics campus in the heart of Manchester’s health innovation district. The investment will create 250 new jobs while supporting more than 1,000 jobs indirectly in the Manchester Science Corridor.
Tech’s next wave brings new demand
According to the Tech Nation Report 2018, the turnover of digital technology companies grew almost three times faster than the wider UK economy between 2016 and 2017. It is therefore no surprise that we expect the technology sector to continue to dominate the demand profiles of UK cities.
In particular, watch out for accelerated demand coming from those developing next wave technologies such as AI, automation, cyber security tools and robotics.
Growth will be further boosted by the UK government’s £1bn funding package, which will see £300mn of government funding made available for AI research, with the hope of creating 1,000 specialist PhDs and training 8,000 computer science teachers by 2025 as well as the roll-out of 5G.
Creative sectors: Game on
The UK already has a strong reputation for film and TV production, with successful UK exports including the Game of Thrones. Digital distribution channels are multiplying and viewing preferences are creating an insatiable appetite for content. As a result global media companies are playing a volume game with content as consumers move towards on-demand streaming services.
For example, Apple is expected to invest at least $1 billion in content, while Netflix has 221 projects slated for Europe this year. Against this backdrop, there will be increased investment in UK production and an associated uptick in demand for studio space.
Additionally regional clusters are being created drawing in industry players and building on established expertise. These include Channel 4’s new regional base in Leeds, Creative Media Labs in Yorkshire and the Bristol and Bath Cluster (B+B)XR+D.
The gaming industry is another creative area set to create opportunity. The UK’s gaming industry will foster more start-ups, expansion and innovation over the next three years.
A recent survey from TIGA, the network for game developers and digital publishers showed that 77% of gaming companies surveyed plan to grow their organisation’s workforce over the course of 2019, up from 68% last year. One exciting area to watch is E-sports, a form of competition using video games, which is growing rapidly and is forecast to have 400 million people watching it over the next 12 months.
Traditional sectors disrupted
A fresh wave of occupational demand will come from traditional sectors where incumbents are transforming for the digital age and new entrants are gaining scale. The legal and retail banking sectors are prime examples of this.
In the legal sector we will see more law firms advancing their technology strategies. This will result in occupiers seeking flexible spaces to accelerate tech innovation and the evolution of the traditional back office into centres of excellence for technology, process automation and artificial intelligence.
It will also see the launch of new LegalTech start-ups who are not spatially fixed to London. Further, Alternative Legal Service Providers will no longer be so alternative as they gain market share and attract investment from increasingly interested private equity firms.
Traditional law firms will respond by launching their own alternative business models and invest in project management and operations teams in order to deliver legal services in new ways that meet with customer needs and expectations. Such functions may be best placed in existing regional locations which house processing functions.
In retail banking many banks are resetting their business strategies in order to accelerate growth. Digital transformation is often at the heart of their response.
Accordingly, banks are reviewing their current real estate portfolios, potentially separating out technology functions into new locations. For example, last year Barclays announced plans to create a new hub in Glasgow that will consolidate its tech teams into a single building.
Retail banks will also seek growth from taking an active wealth management position following a period of retrenchment post GFC, Lloyds Bank, for example, made expanding its wealth management business a core part of its new three year plan.
While London and the South East is the primary location for UK-based millionaires, the North East is expected to see the highest percentage growth in millionaires out 2020, followed by Scotland and the North West. Banks will want to locate near to customers.
Transformation in the retail banking sector is not limited to the traditional players. A number of UK Challenger Banks are now in expansion mode leading to occupational requirements. Monzo, for example, is planning to create over 300 jobs over the next four years in Cardiff as it nearshores its customer service operations.
Similarly, FinTech continues to thrive. Despite uncertainties caused by Brexit, record levels of investment have poured into the FinTech sector and we believe this will continue as Open Banking comes into its own and a new breed of customer demands seamless digital delivery, excellence in customer service and greater personalisation.
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