Flight to cities to boost London businesses’ profitability

Changes to working patterns and companies flocking to cities as the spectre of Covid recedes will boost London businesses’ profitability, according to fresh analysis published today.

Research conducted by accountancy firm KPMG shows an influx of new, fast growing businesses into the capital will drive productivity and overall profitability levels up in London.

Office occupancy rates in city centres will plummet as a result of a greater proportion of Brits working from home or remotely, according to the research. This is likely to prompt businesses located outside cities to migrate into city centres to capitalise on lower rents, creating new business hubs where productivity levels typically rise.

As a result of a denser business population, productivity levels in London will jump 0.58 per cent, higher than the rate of growth for the UK as a whole.

“Firms located in denser business areas tend to be more productive and we expect overall labour productivity in the UK to rise by 0.5 per cent as the UK business landscape consolidates,” KPMG said.

Yael Selfin, chief economist at KPMG UK, said: “As we emerge from the pandemic, businesses need to adapt to the new environment they will be facing.”

“Some may choose to relocate to larger business hubs to boost profitability, while others in less central areas could see their local customer base profile change.”

Chris Hearld, head of regions at KPMG UK, said: “Over time, a shift in business location could support the rise of several major business hubs across the UK.”

“An increase in the concentration of businesses and workers has the potential to make those businesses located there more productive and enable these areas to serve as the engines of economic growth.”

The report noted there could be a revival in local high streets due to workers who spent more time in city centres due to needing to be in physical office spaces before the pandemic shopping in their local community.