UK Cities DNA | Discovering Dynamos
4 minutes to read
- Adopting a holistic approach to UK Cities DNA —one that marries the "big picture" macro-economic analysis with a deeper dive into local and sector-specific nuances - provides a number of telling insights.
- Uneven growth dynamics - the Information and Communications sector includes a mix of rapidly expanding sub-sectors and emergent fields, such as video distribution, artificial intelligence (AI), and computer game publishing, as well as more mature growth areas like IT consultancy services.
- One size doesn’t fit all - although the Information and Communications sub-sector predominantly comprises small enterprises, business sizes vary considerably across sub-sectors and fields.
- Growth beyond London and the big regional cities - using AI as an example, growth is not limited to London but varies across different regions. Furthermore, clustering extends beyond the largest cities.
Many of the UK’s most dynamic sectors, including tech and media, are emerging outside London, powered by regional academic and industrial strengths. To support their growth, these sectors need the right real estate, funding, skills, and infrastructure.
One challenge is that the UK’s Standard Industry Classification (SIC) codes, often used for economic analysis, don’t fully capture the fast-evolving dynamics of modern industries. This becomes evident when looking at the Information and Communications sector (TMT: tech, media, telecommunications), which spans 32 sub-sectors, from TV production to software development and AI. Growth within these sub-sectors varies significantly, and real estate needs differ too.
Artificial intelligence (AI) is a prime example of how some industries are misclassified in broad SIC codes. AI is often grouped under "business and domestic software development," obscuring its critical role in the UK’s tech landscape. This sector’s GVA is expected to grow by 111.2% over the next 25 years, with significant growth driven by AI, video distribution, and gaming. Video distribution, in particular, has surged, growing by 196% over the past five years, driven by streaming services and new content platforms. Similarly, the gaming industry has grown by 188%, proving resilient despite restructuring, with companies like Frontier in Cambridge and Cloud Imperium in Manchester emerging as leaders outside the capital.
One of the largest sub-sectors within Information and Communications is IT consultancy, which includes nearly 94,000 active companies employing over 346,000 people. The demand for IT services, fueled by AI and data needs, continues to drive growth in this area. However, the sector’s scale is driven by its maturity, with firms like Computacenter and Sage (based in Hatfield and Newcastle, respectively) standing out as key players. Operational scale varies widely across the sector. For instance, companies in software publishing average over 100 employees, while smaller sub-sectors like music publishing often consist of micro-businesses with just a few employees.
Emerging fields like Software-as-a-Service (SaaS), AI, and FinTech represent significant growth opportunities within the Information and Communications sector. These fields are typically composed of small companies requiring flexible, affordable spaces, often found in incubators or shared facilities. These companies, despite their small size, are critical to innovation ecosystems and provide a pipeline for future growth. They also attract larger firms looking to collaborate, creating a dynamic described as "elephants and fleas," where small innovators work alongside large corporations. However, these high-potential fields come with higher risks and failure rates, requiring adaptable real estate models that can accommodate both growth and setbacks.
Geographically, sector growth is not uniform. Clusters form around regions with access to specialized talent, academic institutions, and infrastructure. Cambridge, Manchester, and Edinburgh are at the forefront of AI growth, with over 50 high-growth AI companies each. These cities benefit from their academic ties; for instance, the University of Edinburgh is one of Europe’s largest AI research hubs, while Cambridge ranks highly for computer science globally. Beyond these established clusters, emerging hubs for high-growth AI companies include Bristol, Glasgow, Cardiff, Leeds, and Newcastle, among others. Each of these cities has developed its unique strengths, contributing to the broader UK tech landscape.
The UK’s AI sector, worth over £16.8 billion and projected to grow to £801.6 billion by 2035, is becoming a crucial driver of economic growth. Interestingly, while London is a key location for AI firms, 40% of the UK’s AI companies are based outside the capital, showcasing the spread of tech innovation across the nation. This geographical dispersion of high-growth companies highlights untapped opportunities for real estate investment beyond the major cities.
By integrating broad economic analysis with granular insights into sub-sectors and regional dynamics, it becomes clear that the UK’s economic growth is driven by a diverse set of industries, many of which are rooted in smaller, high-growth firms. For real estate markets, understanding these emerging fields and their unique requirements will be key to supporting and sustaining future growth. The ability to identify and nurture these clusters will provide opportunities to create business environments that foster innovation and scale. Success in these rapidly evolving industries depends on attention to detail, flexibility, and a forward-looking approach that aligns real estate strategies with the needs of modern, dynamic economies.