LONDON BUSINESS SURVEY SEPTEMBER 2017 Sponsored by
London s business climate 10% feel more optimistic about the economy over the next six months 16% feel more optimistic about their business prospects over the next six months 73% ranked Uncertainty over the UK s role in Europe as their top business concern Recent political impacts on business 57% of businesses plan to maintain their current investment plans 27% of businesses are considering moving part of their operations into other countries in Europe 55% of businesses think the Government ought to prioritise Securing unconstrained access to the EU single market as the UK negotiates leaving the EU London s global competitiveness 91% of businesses rate London as a good place to do business 65% of businesses believe tech and creative sector will be the key sector for London s economic growth over the next five years 69% of businesses cited Crossrail 2 as the infrastructure project they would like to see prioritised in London London s future workforce 62% of business believe there will be sufficiently skilled people available for their organisation to recruit to meet their needs over the next 5 years 88% of businesses employ citizens from the EU 54% of businesses do not have a strategy to address any skills shortages in the event restrictions are placed on EU nationals working in the UK
Foreword 2017 has continued in the same vein as 2016, with continued political uncertainty casting a shadow over London s businesses. The uncertainty was reflected in this edition of the CBI/CBRE London Business Survey, where business optimism declined. Only 10% of firms felt more optimistic about the economy over the next six months, compared with 19% six months ago. This also translated to businesses view on their own prospects, with only 16% stating they felt more optimistic about their business prospects over the coming six months, a decrease of 10% from the previous survey. Recent political developments are the primary source of business concern. Unsurprisingly, firms remain focused on the UK s future relationship with the EU, with 73% citing Uncertainty over the UK s role in Europe as their primary business concern, an increase of 2% from the last survey. Regarding the on-going Brexit negotiations, the majority of London s firms indicated they think the Government ought to prioritise Securing unconstrained access to the EU single market during the Brexit negotiations. Despite recent political developments, it is encouraging to note over 57% of businesses plan to maintain their current investment plans, an increase of 3% from the previous survey. In addition, 91% of businesses continue to rate London as a good or very good place to do business. These findings indicate the underlying fundamentals of a healthy business environment remain strong in London, which is encouraging to see. Beyond the political context, businesses continue to be alert to the emerging sectors in London, with the majority citing the tech and creative sector as being the key area for London s economic growth over the next 5 years. In addition, businesses reiterated the importance of continuing to develop London s infrastructure, with the majority citing Crossrail 2 as the infrastructure project they would like to see prioritised in London. Regarding London s future workforce, despite concerns over the final deal the UK may reach with the EU, 62% believe there will be sufficiently skilled people available for their organisation to recruit to meet their needs over the next five years. While the findings of the CBI/CBRE London Business Survey suggests firms require certainty from the Government across numerous issues, primarily relating to the UK s exit from the EU, the fundamentals underpinning business activity remain strong in London. Eddie Curzon CBI LONDON DIRECTOR Adam J Hetherington CBRE MANAGING DIRECTOR, LONDON
London s business climate The on-going Brexit negotiations have appeared to dampen business optimism regarding the future of the economy and their own organisations over the next six months. The top issue of concern for firms in London remains the uncertainty over the UK s role in Europe. As the Brexit negotiations progress, businesses will be looking for early signs of progress to provide the certainty they need as the UK leaves the EU. Business and economic prospects Following a turbulent first half of 2017, business optimism declined with only 10% of firms feeling more optimistic about the economy over the next six months, compared with six months ago, where 19% of firms felt more optimistic. While the decrease in business confidence is notable, it remains higher than the lowest level (4%) recorded directly after the EU referendum. The percentage of firms who feel less optimistic about the next six months has increased by eighteen points to 61%. While this increase is concerning, it is considerably lower compared with fourfifths of respondents (81%) feeling the same last year. Firms are more pessimistic about their own business prospects than they were six months ago, with under a fifth (16%) feeling more optimistic about their business for the next six months. This level of optimism is ten percentage points lower than six months ago (26%). Half of the firms surveyed (50%) reported feeling the same about their future business prospects as they did six months ago. Around a third of firms (34%) reported feeling less optimistic about the next six months compared with over a half saying the same last year (55%). See Exhibit 1.
Exhibit 1: The percentage of firms feeling more optimistic about business and economic prospects (%) 100 75 Business prospects Economic prospects 50 25 0 Oct'10 Apr'11 Sept'11 Apr'12 Oct'12 May'13 July'13 Nov'13 Apr'14 May'14 July'14 Nov'14 June'15 Dec'15 July'16 Dec'16 Aug '17 Top issues of concern Uncertainty over the UK s role in Europe continues to be the top concern for firms. 73% of firms ranked this as their number one concern, increasing from 71% six months ago. This development is unsurprising as firms continue to operate under the context of the on-going Brexit negotiations. With economic growth showing signs of cooling in recent months, Lack of economic growth registered as businesses second largest concern with 66% of firms citing this as a challenge. Retaining our best people (48%), Price increases and inflation (43%) and Lack of appropriately skilled staff (38%) are all highlighted as the third, fourth and fifth biggest concerns for business. Despite the above, a majority of firms (60%) reported planning to expand their organisation over the next 12 months. Of those businesses planning to expand their operations, the majority (35%) plan to do so both in London and elsewhere in the UK, with business expansion plans outside the UK coming second (34%).
Exhibit 2: Major issues of concern for business over the next year (%) Uncertainty over UK s role in Europe 7173 Lack of economic growth 60 66 Retaining our best people 48 Price increases and inflation 38 43 Lack of appropriately skilled staff Regulatory pressures 38 38 33 36 Reduced consumer demand 23 29 Residential property prices 14 22 Commercial property prices 11 21 Energy costs and security of supply 11 16 Availability of credit 7 7 Other 10 2 None of these 2 0 20 40 60 80 Contingency plans and hiring intentions As the UK negotiates its exit from the EU, companies are beginning to turn their attention to developing contingency plans, with 69% of firms either having already developed a plan, or signalling their intention to do so in the future. Regarding business hiring intentions, over a third of firms (39%) are increasing their head count, whereas 23% of firms intend to make redundancies. Furthermore, just under a quarter (23%) of firms envisage continuing a recruitment freeze over the next six months. Firms are beginning to turn their attention to developing contingency plans.
69% of businesses have either developed, or plan to develop a contingency plan following Brexit
Recent political impacts on business Firms remain resilient with many maintaining their investment plans and continuing with their current hiring intentions. With the Brexit negotiations setting the political context, businesses place the outcome of those negotiations among their highest priorities for the Government. Unrestricted access to the EU single market, maintaining the rights of EU citizens living in Britain and securing a transitional agreement with the EU topping their priorities. Immediate investment plans London s continued attractiveness as a place to invest and do business was highlighted with over half of firms (57%) maintaining their current investment plans and just under a fifth of firms (17%) citing their intentions to increase their investment plans in the capital. The findings demonstrate the fundamentals underpinning London s business climate remain solid. The fundamentals underpinning London s business climate remain solid.
17% 57% will increase their investment plans will maintain their investment plans 9% 6% will reduce their investment plans will freeze their investment plans
Business Contingency plans for Brexit In preparation for the conclusion of the negotiations for the UK to leave the EU, the majority of firms reported either already having a contingency plan in place, or planning to develop one (69%). Interestingly, 21% of firms stated they have no intention of producing a contingency plan for Brexit. The UK s decision to leave the EU has generated concern that firms may choose to re-locate parts of their operation abroad. While the majority (63%) of firms stated they currently have no plans to move any part of their operation overseas, over a quarter (27%) of businesses indicated they are now planning to move part of their operations abroad. 27% of businesses are considering moving part of their operations into other countries in Europe Business priorities for the Brexit negotiations As the Brexit talks continue, the CBI/CBRE London Business Survey asked firms which areas they would like the Government to prioritise as desirable final outcomes of the negotiations. The majority of firms would like the Government to prioritise securing unconstrained access to the European Single Market (55%) as their primary goal. This priority is closely followed by businesses wish for the Government to guarantee the right for EU citizens to remain in the UK (54%). This is coupled with an agreement to be reached on interim transitional arrangements by the end of 2017, aimed at ensuring a smooth and orderly exit from the EU (53%).
Over a quarter (27%) of businesses indicated they are now planning to move part of their operations overseas.
London s global competitiveness As the Brexit negotiations progress, retaining London s position as a global hub for business activity is now more important than ever. Firms continue to rate London as a good or very good place to do business. Looking to the future, businesses have identified the tech and creative sector as the primary sector for economic growth in London over the next five years. The development of London s infrastructure will continue to play an important role in shaping its ability to compete globally. To that end, businesses want the Government to prioritise progressing Crossrail 2 for London s infrastructure. The overwhelming majority of businesses in London continue to rate the capital as a good or very good place to do business (91%). As businesses look to identify emerging sectors for economic growth over the next five years, the tech and creative sector was identified as the primary area (65%) for economic growth. This was followed by professional services (49%) and the financial technology sector, otherwise known as Fintech (47%). Business infrastructure priorities Businesses recognise the importance of developing London s infrastructure as a means of catering for London s projected population increase. Adding further capacity to London s infrastructure will be an essential tool in retaining its position as a major global city. Following the recent General Election result, the majority of business indicated they want the Government to focus on pushing ahead with the construction of Crossrail 2 (69%). Over half of businesses (59%) indicated they would like the proposed expansion of Heathrow airport to be given priority, and over a third (35%) stated they would like to see progress on High Speed Rail 2.
Exhibit 3: London s businesses infrastructure priorities for the top three projects Crossrail 2, Heathrow Airport expansion and High Speed Rail 2 (%) Crossrail 2 69 Heathrow Airport expansion 59 High Speed Rail 2 35 Bakerloo line extension East London river crossings 27 26 Other None of these 4 6 Don t know 3 0 20 40 60 80 Adding further capacity to London s infrastructure will be an essential tool in retaining its position as a major global city.
London s future workforce The UK s forthcoming exit from the EU has brought the issue of its workforce into sharp focus. For businesses and the economy to grow, access to a sufficient number of skilled people for firms to recruit will be vital. An overwhelming majority of London s businesses recruit EU citizens. Therefore, the issue of the status of EU nationals living in the UK is of particular importance to London s businesses. The majority of businesses reported feeling confident (62%) there will be sufficiently skilled people, across all levels, to meet their needs over the next five years. For example, 58% of firms believe there will be enough people to fill low-skilled jobs over the next five years. 64% are confident there will be enough people to fill intermediateskilled roles. 60% are confident there will be enough people to fill highskilled roles and 66% are confident there will be enough people to fill leadership and management-level roles.
When asked which level of skills businesses are lacking among their current workforce, the majority of firms reported there being a lack of higher-levelled skilled talent (34%) as their primary shortage. This was followed by intermediate skills (16%) and lower-level skills (11%). Business workforce concerns 62% of businesses feel confident there will be sufficiently skilled people, across all levels, to meet their needs over the next five years 34% of businesses are lacking higher-levelled skilled talent
Regarding the type of skills businesses feel they lack among their current workforce broken down by sector, most businesses reported a lack of digital knowledge (32%). This was followed by engineering and construction (22%) and financial skills (14%). Regarding the Brexit negotiations, in the event restrictions are placed on EU nationals living in the UK, the majority of businesses (62%) reported to either currently having a plan or propose to develop a strategy to address the skills shortages that could arise. This is particularly relevant to London s businesses as the overwhelming majority (88%) reported to be currently employing staff from the EU. 32% of businesses report a lack of skill in digital knowledge 62% of businesses have or plan to develop a strategy to address skills shortages
88% of London s businesses employ staff from the EU The issue of the status of EU nationals living in the UK is of particular importance to London s businesses.
About the survey The London Business Survey was carried out between 3 July 2017 and 4 August 2017. We received 271 responses, many directly from CEOs of leading companies. Professional services were the largest sector, covering 29% of the total sample, followed by other sectors (18%), Information, communications and technology (13%), Banking, finance & insurance (11%), Energy, manufacturing and construction (11%), Hospitality, leisure and retail (7%), Property (6%) and Transport and distribution (3%). About the sponsor CBRE s capabilities extend broader and deeper than any other real estate services provider, offering unparalleled tools and resources, leverage, credibility, market coverage and local expertise. London s dynamic real estate market demands the full spectrum of these specialisms to ensure market-leading advice. At CBRE our uniquely integrated London team of over 300 local experts, achieve this by leveraging our scale, perspectives and connections to create world-class solutions to our clients most demanding real estate challenges. This combination and approach achieves exceptional outcomes through the advantage we create for our clients in everything we do. About the CBI The CBI s mission is to promote the conditions in which businesses of all sizes and sectors in the UK can compete and prosper for the benefit of all. To achieve this, we campaign in the UK, the EU and internationally for a competitive business landscape.
For the CBI Eddie Curzon CBI LONDON DIRECTOR T: +44(0) 20 7395 8106 E: eddie.curzon@cbi.org.uk For CBRE Adam J Hetherington MANAGING DIRECTOR, LONDON T: +44(0) 20 7182 2321 E: adam.hetherington@cbre.com John Kent EXECUTIVE DIRECTOR, LONDON T: +44(0) 20 7182 2419 E: john.kent@cbre.com
For further information, or for a copy in large-text format contact: Daniel Woolf Assistant director, policy T: +44 (0)20 7395 8242 E: daniel.woolf@cbi.org.uk September 2017 Copyright CBI 2017 The content may not be copied, distributed, reported or dealt with in whole or in part without prior consent of the CBI. Product code: 11963 www.cbi.org.uk/london