Demand for urban office space is changing: cities need more flexibility

A co-working space. Image: StartupHub/Wikimedia Commons.

What does a good office look like? When cities are thinking about intervening in their city centre office market, the temptation will be to simply build more office space. This will be the right call in some cities, but others may already have a plentiful supply of offices. In these places, the quality of the existing city centre office space will be more important, as well as the extent to which it supports the growing trends for co-working and flexible space.

But before deciding how and when to intervene, cities need to first figure out the specific gaps in their local office market where private developers aren’t responding to existing demand. There’s no single national office market, and the quality of offices on offer varies a lot across the country.

The map below – using data from the Centre for Cities’ recent report Building Blocks: the role of commercial space in Local Industrial Strategies – shows that while 39 per cent of offices in Southampton city centre is of a high quality, this drops to only 9 per cent in Coventry and Leicester.

Source: Non-Domestic Energy Performance Register 2018.

But while this data shows the quality of office buildings, it doesn’t tell us much about what occupiers want from offices. The value of offices is determined by the location, condition, and the amenities they are able to offer to occupiers, and understanding the services occupiers are demanding is key for any office market.

One growing trend in office space is the rise of co-working. Collaborative spaces such as WeWork have recently expanded in London and Manchester and in other large cities around the world.

These have two main advantages for businesses – knowledge spillovers and more efficient use of commercial space. Freelancers can rent desks in these offices, devour free snacks and coffee, and meet and do business with other enterprises who have sat down right across from them. Start-ups and larger firms also use the flexibility to easily acquire (or reduce) desks as their needs change, squeezing as much value as possible out of city centre locations by not paying for excess commercial space.

But it’s not just the big cities which are seeing office space change. In our research for the Building Blocks report, we were struck by how many other cities across England and Wales are already responding to occupier demand by providing features such as co-working or ‘easy in, easy out’ flexible leases. Warrington, Bradford, and Bristol are all embarking on co-working spaces of their own.

Demand for these innovations in office space is therefore widespread across the country. For instance, the non-profit IndyCube provides co-working office space in London, but also in cities like Wakefield, Cardiff, Swansea, Newport and over a dozen towns in Wales. Even in urban areas with very small economies such as Rhyl and Abertillery, it is possible to rent a desk, just as you can in the most up-to-date offices in large cities.

Each city should identify any weaknesses in their office market, and justify whether they should respond to them through their Local Industrial Strategy. In some places, this might be providing more high-quality buildings, and in others, it might just be more co-working and innovative space.

Crawley, for example, has a city centre which lacks large offices of 5,00m2 or more, while the average city has roughly a quarter of its office space in buildings in such large offices. Based on the evidence Centre for Cities laid out in our report on the Economy of the Gatwick Diamond, this suggests Crawley could perhaps justify intervening to supply more office space. Other cities such as Preston, by contrast, may have plenty of large offices – but have a shortage of high-quality buildings or innovations like co-working.

When it comes to interventions, cities should only act when it’s clear there is a market failure and the private sector is not responding to existing demand. Huddersfield and Derby have both supplied small amounts of new office space with features such as co-working, one step at a time so as not to swamp local demand, in response to a shortage of office space in the city centre and a lack of new private sector supply.

This is not to say that “build and the jobs will come” justifications for risky speculative office schemes will work – they won’t, as cities should be intervening in commercial property to respond to demand, rather than trying to create new demand. Improving skills and transport provision will be more important than shiny new skyscrapers in most cities.

But in cities where there is an existing kernel of high-skilled work, making sure this activity has the office space it needs in the city centre is an important step for improving local productivity. As work changes, cities should recognise that their commercial space will need to evolve too.

You can explore city-by-city data on office space with the Centre for Cities’ commercial property dashboard.

Anthony Breach is an economic analyst at the Centre for Cities, on whose blog this post first appeared.


The British government wants more mayors and fewer councils in England

York Minster, York: could this city soon be the capital of a single local district 100 miles across? Image: Oli Scarff/AFP/Getty

As the UK's Covid-19 situation gradually recedes from “all-consuming crisis” levels, the government is beginning to think about other things again – among them, how to reform local governance in England.

It's a subject that has popped up periodically since the late 1960s, with national leaders occasionally seeking to reduce the layers of local government and standardise their duties. For most of recent history, local government in most of England has had a two-tier structure: county councils control services including education, transport and social care; while smaller district councils handle issues including planning, waste, leisure and libraries. 

Now, this autumn, national government is set to release a long-awaited report documenting ministers' plans for "unitarisation", the process by which areas with two tiers of government become areas with one tier. This promises to be quite a big deal – the biggest reform to English local government in 35 years, according to the Financial Times.

The upcoming white paper will “set out our ambitious plans for more mayors, greater powers and financial incentives to be given to local councils who embrace reform, and set out the important role we want local councils to play in economic growth in the future", communities secretary Robert Jenrick, the Cabinet minister in charge of the report, said in mid-July. (It's worth noting, however, that these plans don't apply to London or other big metropolitan areas, which are moving toward two-tier systems, with councils sitting below combined authorities that have elected mayors.)

The idea is to better control the costs of local administration, but there are few signs that reform will bring the sort of tax-raising powers and fiscal independence enjoyed by city governments in much of the rest of the democratic world.

England's local councils only have the money and powers that are granted to them by national government, and having an elected mayor doesn't automatically change this. A mayor can point to a popular mandate, but the main reason this reform might lead to more powerful local government is simply because national government has promised to give councils more powers if they adopt mayors. Exactly what powers will be on offer, and whether they will live up to this billing, remains to be seen.

For councils themselves, it's a bit of a mixed bag. They probably will get more money and powers. Still, many don’t want to adopt a mayoral system, partly because it represents a radical upheaval to the system councillors are used to – and partly, if cynically, because it means more power for voters and less for local parties.

Radical reform efforts of this kind have repeatedly been abandoned but, since 1992, a growing area of the country has transitioned to governance under unitary authorities.

The areas covered by unitary councils are in red. Image: Gwdihŵ/Wikimedia Commons.

The government has repeatedly reassured councils that it won’t mandate unitarisation: instead, it plans to offer extra money and powers for those areas that adopt it, in the hope that reform will then come from the bottom up.  But two weeks ago, Britain's regional growth minister, and one of Jenrick’s deputies, Simon Clarke told a conference that any area that wanted a mayor, with the “resulting funding and freedoms”, would need to move ahead with it. Details about the exact money and powers on the table have so far stayed surprisingly hazy (the devolution deals passed so far have all been individually negoiated, and consequently all differed). Nonetheless, the message is clear: if an area wants to stay two-tier, then don’t come crying to us when you don’t get the powers your neighbours do.

The arguments in favour of unitarisation are simple. Firstly, it’s more comprehensible: If your rubbish bin wasn't emptied, you no longer need to remember whether that was a failure of your district or your county. With only one council, it must be that council's job – and by the same token, there's less room for buck-passing from the councils themselves.

Secondly, and more pressingly, it’s more sustainable, simply because it’s cheaper to run one council than half a dozen. Even before the pandemic there was a growing gap between the amount of money local governments have and the amount they need, as the cost of providing social care for the elderly ballooned even as council budgets were repeatedly slashed by austerity. Now that gap looks set to run into the billions. Not surprising, then, that the national government wants its reforms to cut costs.

Against that, though, there are two problems. One is that unitarisation risks increasing the distance between councils and the public. The combined authorities would cover larger populations and swathes of land, with most expected to represent between 300,000 and 700,000 residents.

The earliest unitary councils generally covered district-sized urban or suburban areas. More recently, though, they’ve started covering entire counties, including Cornwall (which is relatively small) and Northumberland (which isn’t). The areas now in talks about becoming unitaries reportedly include Cumbria, the East Riding of Yorkshire, and North Yorkshire. The last of these is around a hundred miles across. Some proposed mergers are already receiving pushback from the public: a petition has already attracted nearly 9,000 signatures opposing Blackburn With Darwen council swallowing its neighbours.

The other problem is that abolishing certain councils will mean putting a bunch of councillors out of a job. Those same councillors are also the activist bases of the nation's political parties. This is one reason reform has often proved difficult in the past: whichever party is in government, local government reform risks hobbling it at the next election. It remains to be seen whether an 80-seat majority in Parliament will make that any easier. 

The government's white paper, of course, is merely one stage in the policy-making process. If the plans move forward, the government will still need to turn them into legislation, and get it passed by Parliament. The bottom-up process it favours points to a lengthy period of talks among councils, too, as they agree on the boundaries of new local authorities, as well as more prosaic matters like which offices to retain. And then, the government will need to pass statutory instruments to create the new councils. 

The recent reorganisation of nine councils in Dorset into just two is, in many ways, a model for the new proposal. That process took over three years. Even if the plans aren't derailed, it will likely be some time before these proposals result in large-scale reform.

Jonn Elledge was founding editor of CityMetric. He is on Twitter as @jonnelledge and on Facebook as JonnElledgeWrites.