1. Agglomeration and urban development:
the evolving business geography of Greater London
Duncan Alexander Smith
CASA Seminar- 23/2/12

2. Overview
Can a more in-depth analysis of real-estate dynamics and business location
improve our understanding and modelling of city structure and evolution?
Empirical Analysis of London Office Real-Estate
Property tax data for analysis. Diversity and increasing polarisation in London’s urban
structure evident, cannot be explained with aggregate employment models.
Agglomeration and Sub-Markets
Sectors vary considerably in their locational demands, related to varying specialisation of
sub-centres. Sub-centre dynamics from planning policy, development and structural
economic change.
Scenarios of Future Growth in London
Planning policy intends to shift the focus eastwards to locations such as Stratford for
greater equality in job opportunities, but how realistic is this?

3. Why does business geography matter?
Improve Urban Modelling
Business location driver of property markets, urban development. Aspects of complex
systems- positive feedback, tipping points. New dynamics in urban structure evolving.
Policy Relevance-
Economic Competitiveness
Ability of cities to facilitate knowledge economy affect growth, employment, economic success.
Also speculative investment in real estate so large need to manage boom and bust cycles.
Regeneration and Access to Employment
Commercial investment key part of regenerating post-industrial areas. Can potentially boost
employment opportunities and services in more deprived areas, though equally gentrification
can push out local populations.

4. Theoretical Models of Urban Land Use
Neo-Classical Monocentric Approaches
Static equilibrium urban models (Alonso, Muth, Mills).
Accessibility determines demand, land use and value.
Monocentric accessibility structure produces steep
density gradient and concentric land uses.
Land Use Transport Interaction Modelling
Dynamic interaction approach between accessibility
and land-use (Hansen). Traditional differentiation
between basic and non-basic employment (Lowry).
Recent models include varying cycles of travel, location
and development (Wegener).
Contemporary Cities and Economic Diversity
Models yet to get to grip with increasingly specialised
urban economic sectors, agglomeration processes, and
spatial patterns of polycentric cities (Anas, Scott,
Cervero).
Need empirical evidence from which to develop new
models with sectoral disaggregation, agglomeration
processes.

5. 1. Empirical Analysis of London Office Real-Estate
Measuring Office Floorspace and Rents in London
Greater London Office Scope 800
Data currently for GLA only. Linked processes
occurring across South East (see Hall & Pain, St James's
700 Mayfair
Reades, Smith). Limiting study to office activities.
Mean Rateable Value per unit Floorspace (£/m2)
Data Source- Business Rates Tax 600
Knightsbridge
Use business rates data from VOA. Includes
floorspace and ‘Rateable Value’- predicted annual 500 Victoria
rental cost of premises. Soho North Oxford Street
Mean RV/m2 provides location rent proxy, closely Covent Garden
Strand
matches ‘headline rents’. Discrepancy due to 400
‘rent free periods’- City currently offering 2-3 Holborn
times rent free periods of West End (LOPR, 2009).
300 City
Southwark
Wimbledon Canary Wharf
Valuation Office Data
200 Isle of Dogs Chiswick
+ Comprehensive (all commercial property), Ealing
Stratford
floorspace & rateable value, fine scale. Kingston Stockley Park
Uxbridge
Romford Croydon
Enfield Wembley
- Lacks detailed function (only office, retail, 100
industrial), 5 year updates so no detailed
dynamics.
0
0 200 400 600 800 1000 1200
Analysis of floorspace change achieved here using
Headline Rent (£/m2)
London Development Database 2000-2010.

6. Office Density 2000 and Rent 2003

7. Office Density 2010 and Rent 2008

8. 1. Empirical Analysis of London Office Real-Estate
Explaining Geography of London Office Market
GLA Trends-
Highly centralised. Development trends reinforcing centralisation, due to market and
policy factors. Fits with LUTI theory.
Division between East and West is getting bigger in price/demand terms, and to a
degree in development terms. Need to explain this trend.
Modelling Office Rents-
Static Regression Model of Office Rents
Introduce Urban Development Variables

9. 1. Empirical Analysis of London Office Real-Estate
Regression Model of Office Rents
Hedonic Model
Revealed preference approach. Assuming location office rent results from combination of
underlying factors that can be estimated in regression model. 500m grid scale; squares
with 0 commercial floorspace excluded.
Dependent variables- two versions of model for VOA rent proxy 2003 and 2008.
PT Accessibility to Employment
Independent Variables- Attractiveness of Office Locations
Accessibility & Connectivity
Access to labour, access to employment, measured using Hansen indices with
transport network model (Smith, 2011). Connectivity variables- airports, PT
stations, motorways- travel time to nearest through same network model.
Prestige & Urban Realm
Heritage area based on listed buildings proportion. Mixed-use areas with retail Travel time to Heathrow
and restaurant activity proportion.
Office Specification
Age, design. Data limited, use premises size, larger higher spec.
Listed Buildings Proportion

10. 1. Empirical Analysis of London Office Real-Estate
Bivariate Pearson Correlations
Density Accessibility Urban Realm Spec.
P P R L P
T T a H i M G r
O O P i A e s e r e
f f A A T l i a t a e T m N
f f c c r t e n e h i e
i i c c S T p h d n a s w
c c e e t e o r H s m e
e e s s a r r o B o p e s O
s s t m t w u u a s f
F F i i i s c S f
S S t t o n P P l e e P i i
o o n u T T d r z c
2 2 W s T i P P o e e
0 0 E P T n r r x
0 1 m o a W i i g i o . A %
0 0 p p l a m m s c x v
l u k l e e e . e
o l k % .
y
Office Rent Proxy 2003 .38 .36 .51 .44 -.31 -.4 -.02 -.41 .19 .34 0.3 .18 .12 .19
Office Rent Proxy 2008 .4 .4 .59 .53 -.31 -.46 -.02 -.38 .23 .42 0.6 .17 .1 .19

11. 1. Empirical Analysis of London Office Real-Estate
Stepwise Multivariate Regression
Goodness Standardised Coefficients
Dependent Variable Significance
of Fit R2
Variable Name Beta
PT Access to Employment .561 .000
Heathrow PT Time -.226 .000
Office Rent Proxy 2003 .67
Listed Buildings Proportion .205 .000
Office New-build Proportion .141 .000
Listed Buildings Proportion .344 .000
Rail Terminus Time -.242 .000
Office Rent Proxy 2008 .52
Heathrow PT Time -.213 .000
PT Access to Employment .196 .000

12. 1. Empirical Analysis of London Office Real-Estate
Office Rent Model Results
- Accessibility variables most influential, in line with LUTI theory. More
prominent with increasing centralisation.
- Prestige variables rated highly in multivariate regression, connected to
western bias.
Reasons for higher prices in West London-
• Prestige & urban realm- high quality historic architecture.
• Connectivity- particularly to Heathrow Airport.
But... Why has western bias increased?
In addition to growth of key West End sectors, extreme prices closely
linked to urban development dynamics.
Look at development patterns...

13. 1. Empirical Analysis of London Office Real-Estate
Urban Development 2000 - 2010
400
Massive Intensification
New FS 2000-10 – 8 million m2 St James
350 Mayfair
Lost FS 2000-10 – 4.3 million m2
Change in Rental Value 2003-2008 (VOA 2005, 2010)
Knightsbridge
Office FS 2010 – 26.4 million m2
300
Restricted development in West End 250
for policy & heritage reasons.
North Oxford Street
Victoria
200
Expansion Curtails Rent Rises Covent Garden
Soho
Main expansion City of London, and 150
Canary Wharf. Expansion curtails Holborn
prices locally. 100
Southwark
Question is why are Western End 50 City
Wimbledon
businesses refusing to move to take Romford Isle of Dogs Canary Wharf
advantage of lower prices in City, CW? Enfield
Stratford
Chiswick
0
Ealing
-100000 Kingston Stockley Park
0 100000 200000 300000 400000 500000 600000 700000
-50
Office Development 2000 - 2010 (LDD)

14. 2. Agglomeration and Submarkets
Agglomeration and Specialisation
Growth of Knowledge Economy Industries Linkages
amongst
Urban advantages for sectors generating, transmitting firms in City
and consuming information (Hall, 1999)- of London
i. Finance and business services Source: Cook
et al. 2007.
ii. ‘Command and control’- HQs of TNCs, int. & nat.
government
iii. Creative and cultural industries, related tourism
growth
iv. Information technology- software, telecoms, web
2.0.
Agglomeration Advantages
- Knowledge sharing, spillovers.
- Shared specialised labour markets.
-Economies of scale in markets for
clients/customers and intermediate inputs.
Survey evidence from London clusters. Linkages
amongst
firms in Soho
Can use business survey data (ABI 2008-2010) to profile media cluster
business centre specialisation... Source:
Nachum
2003.

15. 2. Agglomeration and Submarkets
West End 185,000
Radio broadcasting 7.1 City of London 328,000
Motion Picture product. 4.7 Holding company activ. 8.0
Fund management act. 3.7 Reinsurance 7.4
Real-estate development 3.6 Insurance 7.1
Sound recording 3.3 Fund management act. 5.6
Advertising 3.1 Trust funds 5.3
Real-estate activities 3.1 Finance auxiliary 5.1
Hotels 2.9 Banking 4.7
Prof. Membership organ. 2.6 Legal 4.7
Media reproduction 2.6 Security systems 4.5
Head Offices 2.3 Accounting 3.3
Management consult. 2.1 Technical testing 3.2
Financial serv. Other 2.9
Financial and Business Serv:
Financial Services
Business Services
Information Technology
Creative & Tourism:
Creative Industries
Tourism & Heritage
Command & Control:
Business management
Central Government
Imagery © Bing Maps.

16. 2. Agglomeration and Submarkets
Sector Rent
Business Sub-Markets
Higher Rent
a663_Fundmanagementactivities 393
a941_Activitiesofprofessionalmembership 374
a551_Hotelsandsimilaraccommodat 350
Very High Degree of Local Specialisation a731_Advertising 342
a643_Trustsfundsandsimilarfinan 336
Much higher diversity in the West, balances a701_Activitiesofheadoffices 324
out demand fluctuations in particular a411_Developmentofbuildingproje 313
a900_Creativeartsandentertainme 307
sectors. City financial and business services a661_Activitiesauxiliarytofinan 306
only, current oversupply. a591_Motionpicturevideoandtelev 306
a642_Activitiesofholdingcompani 303
a702_Managementconsultancyactiv 298
Clearly different sectors have varying a581_Publishingofbooksperiodica 294
a692_Accountingbookkeepingandau 293
locational priorities. Will affect probability of a942_Activitiesoftradeunions 290
particular sectors relocating to new centres. a683_Realestateactivitiesonafee 287
a649_Otherfinancialserviceactiv 286
a749_Otherprofessionalscientifi 284
Ranking Sectors by Rent a691_Legalactivities 283
a910_Librariesarchivesmuseumsan 280
Lower sectors more price sensitive and more a641_Monetaryintermediation 274
likely to be relocating to emerging centres a721_Researchandexperimentaldev 273
a561_Restaurantsandmobilefoodse 272
(except government). a711_Architecturalandengineerin 271
Most likely sectors are IT industries and a651_Insurance 269
a639_Otherinformationserviceact 263
some creative industries- photographic, a949_Activitiesofothermembershi 260
architectural. a662_Activitiesauxiliarytoinsur 258
a732_Marketresearchandpublicopi 255
Extreme West End prices likely to push a741_Specialiseddesignactivitie 255
creative industries to relocate... a620_Computerprogrammingconsult 253
a631_Dataprocessinghostingandre 251
a619_Othertelecommunicationsact 239
a841_AdministrationoftheStatean 237
Lower Rent
a842_Provisionofservicestotheco 237
a742_Photographicactivities 233
a602_Televisionprogrammingandbr 221
a712_Technicaltestingandanalysi 215
a181_Printingandserviceactiviti 170

17. 2. Agglomeration and Submarkets City Fringe North 160,000
Telecomm. Serv. 9.7
Other information serv. 7.3
Business Location Dynamics Market research 5.5
Technical testing 5.1
Photographic 4.9
Printing services 3.5
Specialised design 3.1
Legal 3.1
Data processing 2.8
Banking 2.7
Architecture & engineer. 2.6
Publishing 2.1
City Fringe South 120,000
Market research 11.5
Accounting 5.2
Data processing 5.1 Canary Wharf 106,000
Publishing 4.3 Financial serv. Other 11.8
Insurance 3.0 Trust funds 10.5
Sound recording 2.8 Information serv. Other 10.1
Architecture & engineer. 2.7 Banking 8.2
Prof. Membership organ. 2.7 Finance auxiliary 7.6
Photographic 2.2 Wireless telecomm. 6.1
Imagery © Bing Maps. Libraries & Museums 2.2 Office admin. Activities 2.0

18. 3. New Centres and Future Scenarios
Prospects for New Office Centres
New Clusters Emerging, Despite Persistence of Agglomerations
Emerging centres in City Fringe- Shoreditch, Southwark.
Can use analysis of business location patterns to try and profile growth
prospects for new emerging business centres.
Rush of New Business Centres Initiated
Development timeframe decades and many developments plans
initiated during mid-2000’s property boom, including strong
government initiatives to further regeneration in East London.
Now in difficult economic conditions greater competition and limited
prospects for creating new centres.

19. 3. New Centres and Future Scenarios
New Inner-London Business Centre Developments
Stratford
Kings Cross
Completed 15,000m2, considering 85,000m2.
320,000m2 planned, also residential and
Massive brownfield regeneration scheme in
retail. Pushed back by recession, now first
deprived area. Good transport connections
stages under construction.
already in place. Huge shopping centre &
Best London/UK/European rail accessibility in
residential completed, Olympic park. No
the UK, massive site. Poor image legacy
established business cluster, central
changing.
government push towards IT, part of ‘tech
city’.
Paddington 33,000
Head Offices 8.4
Hotels 7.5
Natural sciences R&D 6.0
Financial serv. Other 4.8
Civil Engineering 3.9
Paddington
Started 1998. Completed 160,000m2, Advertising 3.9
further100,000m2+ planned. Large Greenwich Reach
Data processing 3.3 150,000m2 planned, 30,000m2 completed.
residential and hotel role also.
Highly accessible; best connectivity to Telecomm. Activities 2.1 More isolated location but attractive
Heathrow in Central London; near waterside setting close to Canary Wharf.
established business markets.
Imagery © Bing Maps.

20. 3. New Centres and Future Scenarios
East-West Division and Major Infrastructure Developments
Advantages to Centres with Established Markets
Rapid success for Paddington. Difficult to repeat as demand more limited.
Strong accessibility advantages for Kings Cross, likely to outcompete
Stratford as a new office location.
More Level Playing Field with New Infrastructure?
Crossrail
Greatly improved accessibility and capacity for East-West travel 2018. Direct
connections to Heathrow Airport for Central and East London. Greater interchange
role for Farringdon and Stratford.
New Thames Estuary Airport?
Over 100,000 direct jobs at Heathrow, plus many more 000’s indirect jobs. Cost
£150+ billion, great uncertainty and long timeframe of 20-30 years. Potential to
completely reorientate London’s business geography.
Connectivity differences between East and West levelling out
Will come down more to historical inertia of existing clusters and ability to change
perceptions of East London. ‘Olympic effect’ could speed up this process. Also
general UK economic performance important, as current low growth leads to
oversupply and prevents new centres emerging.

21. Conclusions
New Opportunities for Urban modelling with Business and Property Data
Detailed analysis of commercial property markets and business location, feed into LUTI and agglomeration
research. Could also be applied to other sectors- retail, residential. Indeed markets closely connected.
Strong Submarkets and Western Diversity Underlies East-West Division
Locational asymmetry from varying demands of sectors, and rapid expansion of City-CW versus highly
restricted West End. West highly diverse and City narrowly focussed; price difference persisting through
recession. City-fringe balancing factor with emerging creative and IT clusters.
Difficult to Establish Major New Business Centres in this Cycle
Oversupply and lower demand, advantages to more established Paddington, Kings Cross, White City. Stratford
starting from scratch and would need to establish new specialisation, likely in IT. Medium term reorientation
more promising with Crossrail and long term possibly of new Airport.
LUTI Modelling needs to include employment submarkets
Varying locational preferences, and growth or decline of particular sectors strongly influence urban change.
Disaggregate approach in the Arcadia model.
Trends towards ‘mega’ development challenging to model
Massive ‘lumpy’ urban development- creates new urban realm in previously unattractive locations. More
difficult to model than incremental development, as creates new value rather than being market responsive.
Also volume of new commercial construction has important sustainability impacts , given insufficient attention
in UK policy.

22. Thank you for listening! Welcome questions and feedback.
duncan.a.smith@ucl.ac.uk
Info on current projects:
Arcadia Project City Dash-Board: Real Time Urban Blogs:
Mike Batty, Camilo Vargas. Data Website
Andy Hudson-Smith, Ollie O’Brien Urban Geographics:
Working paper on employment model: geographics.blogs.casa.ucl.ac.uk/
http://www.bartlett.ucl.ac.uk/casa/publi
To be presented at the CASA event
cations/working-paper-177 Simulacra:
in April.
simulacra.blogs.casa.ucl.ac.uk/
Camilo will be presenting aspects of this
model CASA Seminar 14/3/2012.