Fewer London firms plan to expand within the capital reports CBI

As we’ve reported previously London is enjoying a booming office rental market, but according to the latest CBI/KPMG London Business Survey, high operating costs are making the capital less of an attractive prospect. While more of London’s businesses plan to expand during the next year, fewer are planning to do so in the capital, with high operating costs and housing shortages cited as the biggest concerns. London’s firms also plan to spend relatively more on recruitment and training; product and process innovation; and IT plant and machinery, but less on land and buildings.

While the majority (92%) of London businesses rated the capital as a good or very good place to do business compared with other global cities, overall operating costs are seen as a major weakness.

Nearly two-thirds of London firms (62% compared with 53% in December) plan to expand during the next year. However there was a drop in the number wishing to do so in London (29% from 54% in December) and an increase in the number seeking to expand overseas – 45 per cent from 27 per cent last December.

Housing was highlighted as the second most significant weakness, rising from third place in December. Transport was ranked third in the list of weaknesses.

The three strengths stayed the same as in the last survey: skills and talent pool; access to global markets; proximity to customers and clients.

Sara Parker, CBI Director London, said: “It’s encouraging that more London firms plan to expand but worrying that fewer expect to do so in the capital.

“Some of the perennial challenges of doing business in the capital, like high operating costs, housing shortages and transport challenges, threaten to undermine investment confidence.

“This is a wake-up call – we need to make sure that London does not lose ground to global rivals.

“We urgently need to translate some of the good work that has been done on paper, in the Mayor’s 2020 vision, the Roads Task Force report and by the London Finance Commission, into action.”

Matt Lewis, London Partner for KPMG’s National Market practice, said: “London firms need reassurance that the capital will still be a good place for them to operate in 2020 and this is particularly important for the vital SME community in the capital.

“With London’s population expected to grow to 10 million by 2030, businesses need to be confident that the infrastructure, particularly rail and airport capacity, will improve. The cost and availability of housing also needs major attention, especially for smaller businesses which need to attract skilled individuals to what is increasingly becoming a very expensive city to live in.

“London is a great place to do business but complacency is not an option – the competition is hot on its heels.”

When asked about the prospects for their own business 52 per cent felt about the same as in the last survey, 40 per cent felt more positive and only 9 per cent felt more pessimistic.

When asked about their main concerns, London businesses highlight the lack of economic growth (65%, up from 53% six months ago) followed by uncertainty about global economic prospects (53%). The third most cited concern was the lack of a clear government strategy to deliver growth, cited by 47 per cent (compared with 32% in December).

The number of businesses freezing recruitment dropped to 17 per cent, its lowest level in two years, down from 31 per cent in December and 51 per cent a year ago, but 68 per cent of firms are still only hiring where essential.