The UK's Finance Sector is Changing - Creating Big Inward Investment Opportunities for UK Regions

Wednesday 24 June 2015
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Financial Services: other UK locations are available...
The UK's Financial Services sector is delivering growth, with recent surveys reporting business volumes and profits on the up. But it's also a sector that's undergoing radical transformations, creating significant inward investment opportunities for UK locations outside London.

Here's a summary of these key transformations, and the resulting Financial Services growth opportunities for the UK's cities and regions:

1. London Property Costs are Increasing

The return to growth has caused office supply constraints and increasing rents in London/The City. Sources including Savills and BNP Paribas are now reporting London prime office rents of up to £90 per sq ft (psf), with averages of around £60 psf. That compares with averages of less than £30 psf in the UK's major provincial cities, and well under £20 in smaller cities with established Financial Services capabilities.

And businesses need to see lots of added value to justify 100% higher rents!

2. New Business Models and 'Fintech' Technologies are Disrupting UK Finance 

In the words of Accenture, 'the digital revolution is well advanced in financial services, and its both a threat and an opportunity for banks'.

New, technology-focused business models are being adopted, and new 'challenger' businesses are entering the market, with the 'Fintech' (financial technologies) revolution transforming areas including payments and data analytics. As recent JLL blogs have highlighted, when the techies and their disruptive technologies move in, the landscape changes fundamentally.

Old certainties no longer apply, including those relating to business location.

3. Competition is Increasing in the UK's Finance Sector

According to a recent CBI/PwC survey, 'increased competition is one of the top concerns' for UK finance sector businesses in 2015. That's partly a result of new, disruptive business models and technologies. But its also because the UK government is committed to 'incentivising innovation and competition within the banking sector' as one of its key reforms in the wake of the banking crisis.

And more competition means more downward pressure on costs...

4. New Regulations are Creating New Business Structures

A key element of the UK's Financial Services (Banking Reform) Act 2013 is the 'ring fencing' of banks' 'high street' operations from riskier activities such as investment banking. These reforms will create new kinds of businesses, potentially with new location requirements. HSBC's decision to relocate its high street operation, along with 1000 jobs, from London to Birmingham, highlights the fact that these operations may not need to be based in London, as well as the scale of the opportunity for the UK's regions.

So How are UK Regional Locations Responding to the Financial Services Inward Investment Opportunity?

As always, the picture is mixed. Birmingham is one big city location that's making a strong play as an alternative finance centre, based on advantages including infrastructure, connectivity, reduced costs and high-quality, prime office developments. As well as HSBC, the city is attracting new, large-scale investment from Deutsche Bank which - significantly - includes 'front office' functions as well as the usual 'back office' relocations.

Elsewhere, smaller centres including Norwich and Bournemouth/Poole present strong propositions based on cost bases that are lower even than the UK's major provincial cities, combined with established finance clusters and workforce strengths. Essex is another 'challenger' location to watch - offering a highly distinctive combination of low property costs, a sizeable finance workforce (many of whom commute to London) and fast connectivity to the City of London hub.

There are other locations which, based on fundamentals including established finance clusters, sizeable labour forces and reduced cost bases, should be in pole position, but appear not to have yet arrived at the track.

What's for certain is that the Financial Services investment opportunity for the UK's regions is here and now.

Now is the time for the UK's regional investment promotion agencies to pin down their location value propositions and take them to market...

Nick Smillie
MD, Clarity Business Strategies Ltd.

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