Rising number of businesses returning to the city of London – The London Economic

Rising number of businesses returning to the city of London

By Ahmed Al-Ansari, property consultant at Morgan Pryce, London commercial property experts

As rents have soared on the wings of rising demand and been boosted by the lack of supply, many businesses have, over the last few years, taken certain strategic decisions when it came to their headquarters.

So what makes businesses want to move? It can be combined factors including staffing issues, older buildings not necessarily designed for today’s workplace methods or layout, offices being turned into profitable residential apartments, IT requirements, and cost. It all leads to a trend for businesses to move away from expensive central London offices.

The lure of new, purpose-built buildings together with attractive rental packages, and improving transport links proved good business sense – not least from a financial point of view – for many central London-based businesses. In addition, the ‘ripple effect’ seen in the capital over the years, driven often by the technology, media and telecoms sector (TMT), means that areas that would never have been considered as a business base are now sought-after sites. With an influx of new business to these areas comes higher rents, more investment, and an ability to accommodate an increasing variety of business sectors, including financial services, insurance and accountants firms, such as Ernst & Young who relocated from the City to Canary Wharf last year.

Some large businesses once based in London are setting up in different counties: Deutsche Bank has set up an office in Birmingham, where it is having no trouble filling roles, while it is reported that the law firm Freshfields is considering a Manchester base.

Some sectors have even gone as far as to leave the UK altogether. Manufacturing saw an increase in ‘offshoring’, drawn by lower wages in the Far East, while many publishers saw the opportunity to base operations abroad. Informa, the publishing giant, moved its base to Switzerland in 2009, attracted by lower taxes. Other companies that moved away post-2008 include WPP, Regus, Henderson, Charter, Beazley, Brit Insurance and UBM.

And yet, despite recent discussions about HSBC’s potential move away from the UK as a result of regulations and uncertainty as to Europe, there is a trend picking up in the opposite direction; some of these businesses that emigrated are returning. London’s strong current global economic position being one of the factors taken into consideration. The pool of talent in the capital is widely acknowledged, while the corporate tax regime is more favourable than in some other countries, with both Germany and France tax rates, at 29% and 33% respectively, being significantly higher than the UK rate, which the Conservative government is determined to keep low and competitive.

In 2014 the UK economy grew by 2.8%, faster than any other major developed country and twice that of the average EU rate of 1.4%. And while the economy is a complicated network of good-news and bad-news stories, rising employment and GDP are proving a draw for some of the companies who have relocated abroad.

One feted example of a company returning to the fold is the vacuum cleaner manufacturer Dyson, which first moved operations to Malaysia in 2002, following by a base in Malta in 2009, and then back to the UK in 2013. Dyson’s move – or moves – was not a one-off. In fact, the moving of manufacturing abroad, and then back again coined a new phrase, ‘reshoring’. Over 2013 one in six manufacturers brought production back from overseas to the UK, citing offshore costs (for example escalating shipping costs and increasing wages), unreliable quality and longer lead times as factors in the decision to move back.

Last year’s biggest arrival was Amazon, which took the decision to lease 96,000 square feet of short-term space at Leadenhall until its Principal Place offices were ready to open. In 2013 the provider of deep-water oil drilling rigs, Noble Corp., moved its headquarters from Baar in Switzerland to London, citing a talented workforce and easy connections from Heathrow Airport as some of its influences. The arrival of other companies around the same time included General Electric Co.’s oil and gas unit, which moved from Florence, Italy, and the Chinese developer ABP (China) Holdings Group Ltd. Even further back, in 2012, 45 companies moved their headquarters to London.

Now, London is acknowledged as the internet base of Europe, with the big online players investing in headquarters in the city, and tech start-ups at an all-time high, meaning for companies with tech requirements – and which company has none? – a London base provides such resources on-tap.

However, a base in London can have its complications. Some business groups have been critical of immigration rules that make it difficult to recruit even highly skilled workers, both initially and long term, from countries outside the EU. The high expenses of having a London base are a significant disadvantage, particularly as these are unlikely to reduce in the coming years. It is highly possible that companies considering a move back to the UK may branch out to the regional cities; in 2014 the south east boasted 43% of the fastest-growing businesses, but this year, it seems the figure is nearer 25%. The attitude of a company’s ‘home’ government may also have an impact on relocations to London. The USA for, example, put in place regulations to restrict companies moving ownership elsewhere overseas in an attempt to avoid paying US taxes – an issue that is inescapable in the current global network of business.

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