In the wake of the financial crisis and the outbreak of the “war for talent”, London’s position on the global stage has encouraged a number of high-profile businesses to move employees back into the capital as a safe haven during the downturn.
London’s appeal to the millennials has been difficult to compete with, despite escalating housing costs.
However, history has a habit of repeating itself and this cycle is proving to be no exception. With the competition to recruit and retain skilled staff in London intensifying and a rapidly widening rent/business rates gap, the tables may now be turning.
During the last economic cycle, the demand for call centres triggered the creation of many new jobs in the regions, particularly the North East.
The inexorable drive to reduce overheads encouraged many corporates to go one step further by outsourcing functions to India and other low-cost locations. Offshoring became the watchword, but this wasn’t without its challenges. Management issues, rising labour costs and negative customer feedback made some corporates reconsider their strategies.
So offshoring gave way to nearshoring, with businesses striving to find the right balance between cost and quality control closer to home or, in the case of Santander, back in the UK itself.
Businesses have learned the hard way that this is not simply about saving money by moving existing jobs to cheaper locations. The critical success factor for most is the ability to access the right demographic catchment in order to maintain customer service levels and loyalty.
The new buzzword is northshoring and all eyes are on the UK regions as the trend comes full circle.
This phenomenon was debated at the House of Commons on Budget Day last month, when panel members from Hewlett Packard, Balfour Beatty and Accenture articulated their own reasons for relocating functions to Cobalt and Quorum business parks in Newcastle upon Tyne.
Bringing us right up to date, a few notable relocations have occurred since the downturn. In 2013, Deutsche Bank announced a major expansion in Birmingham and Hogan Lovells a new legal centre in the city. Ford Credit, Berwin Leighton Paisner and Latham & Watkins have all moved staff to Manchester in the past 18 months.
At the same time, the UK is witnessing the start of greater devolution from Westminster. With both major parties supporting this, it is likely that, whatever outcome the election yields, a number of local authorities across the country will gain more control over their own finances.
HSBC’s recent announcement that it will move 1,000 staff from London to Birmingham marks a step change and should be seen as a major coup for the city.
A number of other household names are known to be considering a “hub and spoke” solution, retaining a smaller head office in London supporting back-office functions elsewhere.
The digital economy will play an increasing part in the regional office markets as the spread of accelerator facilities spawn new start-ups, supported by the government’s Tech City UK initiative.
We also anticipate further growth in outsourcing where location decisions by third parties made on demographic and cost grounds are likely to benefit the regions.
The factor that may inhibit this ripple of demand from London becoming a wave in the regions is the lack of appropriate office space. The development tap has yet to be turned on in most locations and prelets will continue to be the exception to the rule.
I would hesitate to conclude by saying “build and they will come” but the regional glass certainly seems to be half full.
Charles Dady is partner, head of UK business space, Cushman & Wakefield
