Cities and regions address the powers and pitfalls of clusters and corridors

Are city clusters a good thing or prohibitive to economic growth? For Richard McCarthy, executive director of Capita, they are not always a good thing.

Speaking at EG’s UK Cities, clusters and corridors debate, McCarthy said clustering was a “relatively weak concept”.

“You can’t force it, you can’t make it happen, but you can think about making the links so areas can perhaps benefit from clustering,” he added.

He says part of the problem is that it is a concept that is in its infancy in the UK. However, the government removing administrative boundaries has helped and the thinking is shifting towards the “economics of a place”.

Eddie Smith, strategic director of development at Manchester City Council, agreed that the UK was in the early stages of embracing the cluster concept and that the government is “trying to get its head around the economic potential” but realising that full potential is a generation away.

Transport connectivity is one of the key links of realising the combined power, he believes. “If someone wants to live in Manchester and work in Sheffield then why not, but they cannot do that now. Why is someone coming from Huddersfield to Manchester to start a business, why aren’t they starting it in Huddersfield?”

So are transport links at the heart of creating a powerful cluster? McCarthy said it was more than that. “Clustering is about an economic term. Just putting in transport won’t necessarily work, you have to work out what you are selling. North East and Tees Valley is a powerful cluster but doesn’t operate as a cluster.”

That is not to underestimate what has been achieved with infrastructure. Smith said: “With Transport of the North, fantastic progress has been made with local authorities coming together and you could not have said that 10 years ago.”

And there is also evidence of how the power of a clusters brand is reaping a reward. Paul Marsh, head of development and finance, capital investment directorate at Department for International Trade said: “We have seen a 61% spike in investment in cities in the Northern Powerhouse… people would recognise it as a brand. It has some resonance.”

UK cities are key to unlocking clusters

Scarborough Group’s chairman Kevin McCabe is no stranger to negotiating deals with foreign investors, having last year secured a partnership with Hualing Industry and Trade Group on three projects in the UK with a development value of £1.2bn.

When talking about the part city clusters play – a collective brand such as the Northern Powerhouse – McCabe wondered whether perhaps overseas investors understood it better than those in the UK and his answer? “Yes, they get it straight away.”

But he also stressed the importance of not forgetting the key economic driver – or key city within a cluster – suggesting there is a trickle down effect in economic growth. The emphasis should be on creating good links as well as driving economic growth across the region, he said.

Scarborough has projects across the north with bases in Manchester, Leeds and Sheffield and therefore works closely with the city councils in those cities, but McCabe says it takes someone special to lead a city region.

“For someone to guide Manchester/Greater Manchester or Sheffield and South Yorkshire or Leeds and West Yorkshire it has got to be  a special person. Yes it needs a mayoral structure but it is a tough job to do because of the individual selfishness between the towns and cities within the regions.

“I would like to see people who are experienced enough and able enough to drive it. It is a particular skill.”

Regional cities grab 36% of investment

Large regional cities grabbed more than a third of regional commercial real estate investment last year – the highest levels for three years, writes EG’s senior analyst Graham Shone.

Major UK cities accounted for 36% of CRE investment in 2016 as they grow in dominance, commanding an increasing share of occupational activity and investment interest.

That trend is most prevalent in the North West and Yorkshire cluster of major cities, where Liverpool, Manchester, Sheffield and Leeds between them accounted for 61% of the region’s total commercial investment – up from 39% in 2013.

This is mirrored on the occupational side of commercial property, with 14 cities taking 30% of all office and retail space let last year, reflecting a shallower rise than the investment share, coming up from 28% in 2013.

In Scotland, Glasgow and Edinburgh commanded the lion’s share of letting activity, accounting for 75% of all office and retail space transacted in 2016 – up from 54% in 2013.

In essence, these cities took a larger slice of a smaller pie, as activity slowed across the board for UK commercial real estate.

As governmental focus on improving connectivity and collaboration between major cities intensifies, this trend is likely to increase in the coming years as regional hubs look to harness their individual and collective strength to remain resilient in the face of accelerating change.

>>> Download your copy of EG’s UK Cities Investor Guide for more research and analysis


 Paul Marsh, head of development and finance, capital investment directorate, Department for International Trade

Kevin McCabe, chairman and founder, Scarborough Group International

Roger Marsh, chair, Leeds City Region Enterprise Partnership

Richard McCarthy, executive director, Capita

Dermot Kiernan, director, fund management, M&G Real Estate

Eddie Smith, strategic director, development, Manchester City Council

Chaired by Damian Wild, editor, EG

MIPIM-logoClick here for all the news, views and analysis from MIPIM 2017