COMMENT: Is it time to say goodbye to the outdated “London, South East and the rest” narrative? asks Sue Foxley, Bidwells’ research director.
Prime rents in Cambridge now stand at £41 per sq ft, an upturn of 7.9% over the past year that takes rents in the city and its surrounding prime parks ahead of other provincial UK office centres and the M25 market.
Does this suggest the need to start thinking differently about the office market? Is the long-standing delineation of London, the South East and the provinces outdated in the evolving economic activity landscape?
The Cambridge economy is disproportionately exposed to high-growth business. Research undertaken for Cambridge Ahead by the Centre for Business Research illustrates the depth of the knowledge economy to the wider Cambridge area (see graph, below).
The latest statistics underline the impact of this exposure to high-growth business sectors to the economic performance of the area. Specifically, they indicate that financial turnover growth in knowledge-intensive companies is accelerating ahead of that seen in other business sectors. But, since employment growth is not expanding at the same pace, productivity gains are achieved.
While data allows us to only estimate productivity for the city until the end of the 2016-17 financial year, improvements in productivity since 2014 are particularly notable. This is likely to be a function of a combination of factors, including growth in the breadth and depth of the knowledge economy cluster in Cambridge, emerging business opportunities with new technology and discoveries, and the increased role of the university in supporting innovation and start-ups.
These productivity gains enhance the ability of the companies that comprise the knowledge economy to compete for high-skilled staff. These gains also expand business space affordability thresholds, hence the breaking of the £40 per sq ft rent milestone.
“Traditional views of geography are increasingly irrelevant; Cambridge is emerging as core market in the same way London sub-markets materialised over the last decade.”
This is not new, of course. The restructuring of the financial sector drove productivity improvements in the late 1980s and 1990s, which set the tone for the City and latterly the Docklands office market for years to come. In more recent years we have seen a shift to high-growth industries in areas such as Shoreditch drive sharp rental increases.
Cambridge, with its pronounced exposure to science and technology companies, is seeing the same dynamic. This suggests that traditional views of geography are increasingly irrelevant; Cambridge is emerging as core market in the same way London submarkets materialised over the last decade.
As in all markets, Cambridge rents will ebb and flow with economic and business confidence circumstances. The limited scale of the market and space constraints provide much protection, with new development generally being met with robust demand.
Irrespective of the wider market cycle, defining the market from a starting point of the underlying economic drivers, whether for Cambridge or any other UK business centre, will offer a more informed view of complex futures.
