Real estate can drive productivity by supporting regional centres of excellence

10.6.24 2024

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The United Kingdom, once celebrated for its industrial prowess and ingenuity, now confronts a dire economic reality marked by a persistent productivity crisis.

In 2021, our output per hour worked was a staggering 13% below the G7 average, trailing behind France by 15% and Germany by 20%.

Addressing this has been a complex challenge for successive governments. In real estate, however, the equation is simple: without a productive economy bolstering the occupational market, we inevitably face weaker occupational demand. This 
leads to sluggish rental growth and diminishing property performance — a sequence our sector cannot afford to overlook.

We boast globally competitive locales like the Golden Triangle — Oxford, Cambridge, and inner west London — which secured 31% of all UK R&D investment in 2021,2 Despite this, relying solely on these established hubs poses risks.

Government’s vital role

The government’s support for these cities is crucial. Yet, to significantly enhance UK productivity, we must extend this success to additional locations. For perspective, consider China’s strategic investment of $150 billion in its domestic semiconductor industry — a stark illustration of the global competition we face.

The government aims to position the UK as a Scientific Superpower, with plans to increase public funding to £22 billion annually by 2026/27. Last year’s announcement of £75 million3 to support economic growth in eight new regional innovation clusters is a step in the right direction. However, when compared to China’s £150 billion investment, the scale of our challenge becomes evident.

The Labour Party’s strategy proposes comprehensive reforms to eliminate barriers and foster the development of technology clusters across the UK4. They suggest overhauling restrictive planning rules and fast-tracking lab space approvals, which could be transformative in cultivating research hubs nationwide.

Unlocking regional innovation hubs 

Thriving innovation ecosystems require vibrant mixed-use developments that incorporate housing, amenities, and cultural spaces alongside workplaces. The property sector must evolve from passive providers of buildings to active catalysts for innovation. We need to adopt a proactive, entrepreneurial mindset, creating places tailored to the unique demands of innovation-driven industries. This requires an in-depth understanding of sector-specific needs, from flexible layouts for tech companies to specialised labs, and high-tech space for advanced engineering

Jaguar Land Rover’s £15 billion investment in upgrading its industrial footprint, vehicle programs, and technologies in the UK exemplifies the potential for real estate to drive innovation. Its planned 323,000 square feet innovation hub in 
the West Midlands, part of their Open Innovation strategy, demonstrates how strategic real estate investments can accelerate innovation. 

By partnering with startups and scale-ups working on technologies related to electrification, sustainability, and manufacturing, Jaguar Land Rover is driving its transformation and creating 320 regional jobs. 

The UK’s efforts to establish regional film production hubs outside of London serve as another example. By empowering local leaders through devolution deals and introducing tax relief measures, such as a 40% relief on gross business rates bills for eligible film studios in England until 20345, the government has successfully supported the growth of creative industries across the country. 

The Crown Works Studios project in the North is poised to generate £336 million in annual economic activity, and the Shinfield Studios development near Reading will span nearly 1 million square feet and include 18 purpose-built sound stages and a Berkshire Skills Hub, to nurture local talent and support the growth of the film and television industry in the region and create up to 3,000 jobs.

Driving UK productivity

For the UK to dramatically improve its productivity we require a concerted effort from the government, the real estate sector, and industry leaders. By removing barriers, providing targeted support, and investing in the infrastructure necessary for success, we can unlock the untapped potential of our regions and drive improved productivity across the UK. 

Many places have all the ingredients. But it’s got to be a 20-year plan, and the property industry has to be alive to the fact it needs to adapt to create places for this to happen. Landlords and owners can’t be passive – investing in operational property where the landlord is a proactive provider and, in some cases, a specialist, is where our sector can help.

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The Productivity Engine

The Productivity Engine is our latest groundbreaking report that addresses the UK's stagnating productivity. What powers economic productivity? An easier question to answer may be what doesn’t. 

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