Increased business concentration to bolster major cities outside London in support of the Government’s Levelling Up agenda
Increased business concentration to bolster major cities outside London
Covid-19 has triggered a shift in the way people work, interact, and shop. As businesses in some sectors prepare for employees to spend two to three days a week working from home on a permanent basis, existing office space capacity could potentially increase by as much as 40 percent, according to a new KPMG report, New working patterns and the transformation of UK business landscape*.
The increased availability of office space in major business hubs is expected to attract businesses from smaller areas to fill up the vacant space, with cities like Manchester, Bristol, Glasgow, Leeds and Birmingham set to see employment rise by 5-10 percent as a result.
Areas in central London are also expected to benefit, as well as smaller towns and cities with a large proportion of the workforce working partially from home. Meanwhile, less dense business areas could see a decline in employment and may need to be transformed into more residential, leisure, retail and other uses.
As the business landscape consolidates, KPMG analysis also found the change could boost overall UK labour productivity by 0.5 percent, thanks to businesses being able to tap into a larger pool of workers, suppliers, and clients.
Yael Selfin, Chief Economist at KPMG UK, commented on the report: “As we emerge from the pandemic, businesses need to adapt to the new environment they will be facing. Some may choose to relocate to larger business hubs to boost profitability, while others in less central areas could see their local customer base profile change.
“While the overall impact on the UK economy is expected to be positive, the changes ahead could prove challenging for those businesses already saddled by the pandemic.”
The report examines how local high streets in residential towns and neighbourhoods are expected to reap the benefits of greater homeworking through increased demand by residents during the week. But the impact on high streets across the UK is unlikely to be uniform. Some places may be hit relatively hard by the loss of office workers due to their proximity to a larger business hub, which may be compounded by the loss of commuter footfall among remaining employees due to the prevalence of working from home.
Yael Selfin added: “As people spend more time working from home and less time in the office, we could see a revival of the local high street.
“They will need to transform into places of purpose to meet demand for community-based services, hospitality, culture, as well as retail. High street offering in smaller towns and cities may need to become more focused on residents’ needs and less focused on businesses and commuters.
“This transformation will require local government, residents and businesses to work together to map their future shape and make concrete plans to support and enable the necessary changes to make the most of the new post-Covid business reality.”
Chris Hearld, Head of Regions at KPMG UK, commented: “Over time, a shift in business location could support the rise of several major business hubs across the UK. An increase in the concentration of businesses and workers has the potential to make those businesses located there more productive and enable these areas to serve as the engines of economic growth.
“This should also support the Government’s Levelling Up agenda. Cities like Manchester, Leeds, Birmingham, and Newcastle stand to benefit from such a consolidation of business locations. For this to happen they will need government to work closely with local leaders to ensure the transition is smooth and any barriers to growth are quickly ironed out.”
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Notes to Editors
* The report looks at 360 local authorities across the UK and examines the impact a move by local firms to more central business areas in their proximity could have on local productivity, demand and employment.
-The report used a series of models to estimate the impact a permanent shift to partially working from home will have on the UK economy. It is based on existing capacity in each business hub and current place of residence of workers.
About the research
The impact of increased home working on the demand for services in local high streets is estimated using data on earnings and the numbers of employees living and working in different areas of the UK from the Annual Survey of Hours and Earnings (ASHE). It assumes that workers who can, will be working from home for an average of two days per week. This represents the additional time that these workers devote to consuming services (such as retail, hospitality, and personal services) in their local area rather than near their office.
In order to estimate the potential shift of businesses to larger business hubs, an algorithm is used that re-allocates workers between different employment zones based on the relative difference in their economic mass, so that workers move to the areas with a higher concentration of business activity. The analysis focusses on office-based jobs in the financial, professional and business services sectors. It limits any shifts to be within a 60-minute drive-time of businesses’ original location to mitigate the risk of creating a pattern of employment that is inconsistent with the current pattern of residence.
The impact of changes in working habits on productivity is estimated by calculating the change in business density in each area. An economic mass index is first constructed, which consists of the employment level in each area as well as the relative contribution of employment in nearby areas. The impact on productivity is then calculated by applying an elasticity coefficient from existing research, which suggests that a 10% increase in economic mass leads to a 0.83% increase in productivity.
KPMG LLP, a UK limited liability partnership, operates from 21 offices across the UK with approximately 16,000 partners and staff. The UK firm recorded revenue of £2.3 billion in the year ended 30 September 2020. KPMG is a global organisation of independent professional services firms providing Audit, Legal, Tax, and Advisory services. It operates in 147 countries and territories and has more than 219,000 people working in member firms around the world. Each KPMG firm is a legally distinct and separate entity and describes itself as such. KPMG International Limited is a private English company limited by guarantee. KPMG International Limited and its related entities do not provide services to clients.