Prime rents in Cambridge now stand at £41psf, an upturn of 7.9% over the last year. (Our View on Cambridgeshire Offices & Labs Summer 2018, Bidwells). This takes rents in the city and its surrounding prime parks ahead of other ‘provincial’ UK office centres and the M25 market. Perhaps this suggests the need to start thinking differently about the office market – is the longstanding delineation of London, the south east and the provinces outdated in the evolving economic activity landscape?
|% OF COMPANIES THAT ARE KNOWLEDGE INTENSIVE||% OF EMPLOYEES THAT ARE KNOWLEDGE INTENSIVE|
|Cambridge Ahead Area||18.9%||22.4%|
|Rest of the UK||14.5%||10.2%|
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, illustrated in the table below. The latest statistics from the same organisation, summarised in Bidwells’ recent comments (Cambridge growth figures reveal complexity of scale) underline the impact of this exposure to high growth business sectors to the economic performance of the area. Specifically, these figures 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.
Source: ONS; Cambridge Ahead; Bidwells
While data only allows us to estimate productivity for the city until the end of the 2016/17 financial year, improvements in productivity are particularly notable since 2014. This is likely to be a function of a combination of factors, including the growth in the breadth and depth of the knowledge economy cluster in Cambridge, emerging business opportunities with new technology and discoveries, and possibly 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 in a location to compete for high skilled staff. Bidwells’ experience in this market shows how these gains also expand business space affordability thresholds, hence the breaking of the £40 psf rent milestone.
This is not new of course. The restructuring of the financial sector drove productivity improvements in the late 1980s / 1990s which set the tone for the City and latterly 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 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. Bidwells’ will discuss this topic in further detail in a forthcoming paper on the industrial cluster life cycles in the Oxford and Cambridge context.
Clearly, the capacity for higher rents amongst companies in high growth business sectors across the Cambridge market presents affordability issues for those in other business areas. This will include many long standing companies. We are already seeing increased activity in surrounding centres as a result. To maximise value across the wider area, the ambitious improvements to transport connectivity across the Oxford to Cambridge CaMkOx Arc will be crucial.
As in all markets, Cambridge rents will ebb and flow with economic and business confidence circumstances, although we do not anticipate an interruption to the current market. The limited scale of the market and space constraints provides much protection; new development coming forward is generally being met by robust demand. However, 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. Perhaps we can say a goodbye to the outdated ‘London, south east and the rest’ narrative.
Click here to view the article in EG.
Bidwells has also just released our Summer 2018 Cambridgeshire Offices & Labs databook paper. Find out more >