Making the right move
The UK, like the rest of the world, is facing an economic downturn, but this has brought out a range of incentives for businesses looking to relocate here. Stuart Mitchell of Business Moves Advisory Centre explains how to choose the best and most commercially viable location for an overseas business venture into the UK
How things change
Twelve months ago, the contents and
comments contained in my 2008 article
remained relevant for a good part of the
year. Until of course the economies of the
US, the UK and other world economies
went haywire, generating many pithy media
phrases such as “credit crunch”, “credit
paralysis”, “tortured economy”, “financial
famine” and, my personal favorite, “moneyless
woebegone days”!
So it’s with some trepidation that I sit here, in March 2009, trying to put together an overview describing the commercial attractions the UK has to offer. I guess the first thing to say is that the economic trough we have fallen into can’t last forever. The consensus of most of the economic pundits here in the UK appears to be that we should be able to see the economy bottoming out and the beginning of a recovery within the next 18 months – followed by a fairly sharp upward swing.
Positive thinking
In anticipation of this upswing, there are already a lot of UK-based initiatives aimed at attracting overseas commercial investors or entrepreneurs. And the levels and volumes of these initiatives are expanding exponentially. A good example of such an initiative is that of the Mayor of London, Boris Johnson, who wants to lure overseas organizations to the City of London. Think London, the city’s officially sanctioned foreign investment agency, is extending to overseas firms its Touchdown plan, organized with office supplier Avanta. The offer includes a range of incentives, including up to 12 months of free office space and a dedicated adviser to help businesses establish an operation in the capital.
The dedicated adviser will assist with obtaining visas, work permits, company registration, opening a bank account and access to accountants, insurance brokers and lawyers – as well as helping people to find somewhere to live in the city. Free rents up to the value of £150k will be funded by Aviva. And, given the value of the pound sterling as at March 2009, it is also, at least for now, cheaper to live in London than in NY City.
Many other inward investment teams across the UK are also busying themselves working on the creation of similar competitive and attractive incentives. So there’s little doubt that organizations or entrepreneurs looking to have representation in the UK, or perhaps by proxy in Europe, will be spoilt for choice and be welcomed with open arms.
Action stations
As anyone in business will confirm, “down time” is bad news for business. And this is especially true if you’re trying to get to grips with an unfamiliar national or international marketplace, as well as a new environment for your business and for your people. But, by contrast, getting yourself ahead of the game always creates huge dividends and creates the ability to leapfrog over slower and less business savvy competitors.
In 2009, this looks like being particularly true because it has already turned into a highly unpredictable year for businesses in the US which, by natural extension, affects British, European and world markets too. So if you’re considering a business venture in Britain, or using it as a beach head into Europe, it will be increasingly important to understand the crucial dos and don’ts to be aware of. The rest of my article is therefore aimed at highlighting some of the key issues that can help CEOs and business executives to “hit the ground running”.
Research by INREV, the European association for non-listed real estate, says global fund managers regard London as their top pick across the world. The latest INREV “investor intentions” survey shows that the UK is likely to reap the rewards when the market starts to take off again. The UK and its capital city represent great value for dollar and euro-dominated investors. The survey also shows that emerging markets are actually no longer emerging! At the peak of the boom, boom years, Brazil, Russia, India and China were the hottest locations for cross-border investors. But they have now fallen a long way behind.
Where to go?
Choosing the best and most commercially viable location for an overseas business venture into Britain or Europe is not necessarily all that easy. Britain may not be a huge country, but when it comes to what a particular town, city or area can offer the options are actually very diverse. And if you plan to use Britain as a springboard to Europe, these differences are magnified several fold.
The now rather hackneyed old property maxim of focusing on “location, location, location” has been trotted out for donkey’s years – and in Britain it’s boosted by a popular property TV series of the same name. It’s true, of course, that the City of London has always been, and remains, a Mecca for financial services organizations. But many of the IT-based companies are now eschewing what the cognoscenti tend to call “The City”, ie London, in favor of less expensive locations – very often those offering fast thruway corridors to airports and customers. Many US-based organizations have come to realize that the grass is often greener in a wide variety of attractive – and less expensive – British or European towns and cities.
The advice here is to do your homework and get professional and independent advice on the best location for your particular business needs. If you have any niggling doubts. an independent feasibility study can be a very good idea. It will help ensure your plans are subjected to careful scrutiny and on the ground testing (or to put it another way, it’s a reality check!).
My company, Business Moves Advisory Centre, regularly carries out a wide variety of independent relocation feasibility studies and relocation reviews, both nationally and internationally, and we don’t fall into the trap of automatically assuming your thoughts, ideas and plans will necessarily work. Take the case of Daimler Chrysler who needed to relocate 2,000 office staff to another site in order to expand their workshop areas. The Managing Director had a particular location in mind, but the Finance Director suggested a second location, with the HR Director suggesting a third. So we were brought in to evaluate which option would really be the most viable, as well as being the least costly and disruptive. We thoroughly researched all three and recommended the third option, which saved what would have been gargantuan expenditures if either of the other two options had got the green light.
Real estate costs
Virtually all business rents across the UK have been affected by the economic downturn. The March report produced by the Royal Institution of Chartered Surveyors (“RICS”) shows an across the board average reduction in UK rents of almost 20%, with the most dramatic examples being in London and former “hot spots” such as Leeds and Manchester. Ongoing volatility will remain in the commercial property sector and it will probably take at least 12 months before we can expect to see more certainty and stability.
Therefore any organization considering moving to the UK in 2009 should make “how much?” one of their first questions to pose to their selected property adviser. And bear in mind, London isn’t the only hot spot for businesses in the UK. A number of leading towns and cities such as Reading, Milton Keynes, Leeds, Manchester, Birmingham and Bristol claim they can be equally attractive for incoming organizations and if rents and occupation costs are an issue for your business they probably have a point. Prime rents (per sq ft) outside of London are definitely lower than early 2008, with Birmingham having dropped 15%, Bristol 25%, Leeds 25% and Manchester 28%.
Deals are available, of course, and we regularly negotiate much
better terms than those suggested by the landlords’ agents. Agents
prefer to keep the quoted headline rent intact so these reductions
generally take the form of a substantial rent free period – or
on some occasions even a reverse premium where the landlord/
developer pays the tenants a lump sum up front equating to X
months of the rental costs. And with the general slackening off of
demand for commercial property, which began in late 2007, rents
are under pressure, thus creating an increasingly attractive scenario
for incoming organizations.
London knocks out competitors
Despite the higher costs of running a business in Britain the inherent prestige and “comfort blanket” of being in a business cluster of like organizations is often attractive. A recent survey shows London retaining its pole position as the best location for business, with Paris ranked second, Frankfurt third, Barcelona fourth and Amsterdam fifth. London was ranked top in six out of the 12 business needs criteria used to evaluate the merits of each city – with no other location achieving more than one top spot.
Accessibility (Roads)
The UK still suffers from increasingly congested towns and cities and this inevitably does clog up roads. The former Mayor of London, Ken Livingston, tried to ameliorate this congestion by introducing, and then extending, a Central London congestion charge (and other towns and cities have been considering following suit). The current Mayor of London, Boris Johnson, is quoted as saying he recognizes the case for keeping London’s traffic as unclogged as possible. However, there are varying views on whether or not he is actually prepared to follow the public’s overwhelming call for extending the measures further.
The introduction of congestion charging has certainly helped central London businesses, but for those needing to drive anywhere near the M25 (London’s outer ring road) face delays on the roads every single day. If Henry Ford was ever reincarnated, and visited the UK he would be totally amazed at the extent of our modern day love affair with the car.
Outside of London’s metropolitan area, the picture is much better. However, most of the thruways are increasingly experiencing more and more bottle necks and the attendant and inevitable delays. This despite the sum of £11.5bn. being spent on our roads since 1997 – compared to roughly 10% of this figure (£1.16bn) of that being spent on our railways during the same period.
Accessibility (Trains)
Business travel by train (and by the ubiquitous London “tube system”) is, by comparison, quite effective – but uncomfortably crowded during peak times. Passenger travel by train is increasing year on year and the wise CEO investing into Britain will make sure that the office is situated close to a train and/or, in London, a tube connection.
Accessibility (Flights)
Britain has a number of strategically situated airports around the country which serve most of the major cities and towns. The south east of England alone can claim at least seven airports offering international flights. And nationally there are daily scheduled long distance flights to all main destinations from eight British airports. All of these airports have good thruway and train connections so the investor is spoilt for choice and can safely assume that all main cities and towns being considered as their new base can offer multi-access options.
The “Daddy” of all UK airports is of course Heathrow. British Airways has moved into the completed Terminal 5, opened by the Queen, and has managed to recover from the unfortunate chaos of the first few weeks of flight cancelations, delays and the general mayhem. This massive building, exclusive to BA and with 110 stands, cost £4.3bn to build, can handle 30m passengers each year, and processes 12,000 bags each hour. With this massive increase in passenger numbers the prudent travelers will probably opt to travel to Heathrow by public transport rather than to sit in traffic, twiddling their fingers, closely examining the exhaust pipe of the car in front and worrying about catching their flights.
Recruiting
Labor markets vary around the country. Inevitably the London market is the most problematic – both in terms of the costs and the turnover of staff. In the London area office managers earn on average between £24k to £31k per annum (compared to £22k to £29k in the south east) whilst Marketing Managers earn between £33k to £43k in London (compared to £32k to £39k in the south east). Overall average salaries in central London are roughly 7.3% higher than those in the south east. Salaries elsewhere in the country are certainly lower, but business hot spots (such as Reading and Milton Keynes) are inevitably higher than less successful and commercially active locations.
Predictably, staff turnover rates in London are also higher, though this of course depends on the attractiveness of the salary levels and the working environment. Recruiting and retaining staff is at its most problematic in call centers where turnover rates can be well over 30%. The wise investor will seek advice on the best location in which to set up business and recruit high quality staff to help the business venture take off and fly.
Overall Conclusions
In summary, any organization thinking of setting up business in Britain or in Europe should:
- Check out the locations that will maximize your commercial advantages
- Be open minded and take professional advice
- Play the field – there are deals to be done
- Understand the local labor market that you will need to operate in
- Ensure good accessibility to/from your chosen business location
Good hunting!
For more information, contact:
Stuart Mitchell
MCIM MIHT MTPS
Business Moves Advisory Centre
Tel: +44 (0) 1903 202754
Website: www.business-moves.com
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