Will Hutton had a piece in the Observer last Sunday on the importance of the Heathrow expansion to the British economy. He described London as “the de facto capital of Europe”. Whilst he points to a large concentration of global and European corporate HQs in Britain, he really means London and its sphere of influence.
Britain does have one trump card. It is the location capital of the world. Britain is the European or world headquarters of 469 global companies, according to the EY Inward Investment Monitor. No other European country comes close: Germany is home to 86 global companies, Switzerland 84 and France 77. The resulting dense concentration of high-end business decision-making spawns whole industries to service it. These include IT, law, accounting, insurance, lawful banking, design and advertising. It represents the unspoken and dynamic core of the British economy worth many millions of jobs.
The same factors that cause this clustering probably also result in the remarkable clustering of commercial real estate investment in London. I’ve been working with Steve Devaney, Anupam Nanda and Nicola Livingstone on an IPF project looking at aspects of real estate market liquidity in international real estate markets. In earlier work that only looked at Europe, Anupam and I struggled to accept that London, out of 28 major European cities, accounted for around 50% of all the cross-border real estate investment in Europe (in the office sector). However, we were reassured by other researchers that the figures were plausible.
In the recent study for the IPF that included other major cities such as Tokyo, New York, Hong Kong etc. we found some further confirmation. Whilst it was for a sample of 37 cities – so not all major cities were covered – London account for 16% of office transaction activity by value. New York accounted for 13%. Just to provide some sense of how much transaction activity is concentrated in London – the following cities together in aggregate accounted for slightly less than 16% of the total – Hong Kong, Munich, Melbourne, Berlin, Madrid, Osaka, Amsterdam, Warsaw, Barcelona, Manchester, Rotterdam, Gothenburg, Lyon, Mumbai, Johannesburg, Dubai, Istanbul, St Petersburg and Sofia.