As we have already highlighted, central London does not have one single function or purpose. Each year, the area accommodates a growing and changing mix of residents, businesses and visitors. This chapter will explore the demographics of the CAZ/NIoD’s growing population, interrogate trends in employment by sector, geographic spread and business size, and look in greater detail at the makeup of the growing number of visitors to the district.
Part 1: A home for Londoners
For decades, central London faced a major decline in population. Between 1961 and 1983, the residential population of the CAZ10 boroughs fell from 2.5 to 1.7 million. It began to recover from the late 1980s, reaching 2.5 million once again in 2018. 38
At the borough level the estimated resident population has been growing across the CAZ10 overthe last decade. Increases in resident numbers have been highest in Tower Hamlets (37 per cent), Camden (25 per cent) and Islington (25 per cent), while only Kensington & Chelsea saw a decrease (of four per cent). 39
Between 2012 and 2018, the highest population growth in the CAZ/NIoD has been in the Hoxton area (around 200 per cent) and around King’s Cross (140-160 per cent), both sites of significant urban change, albeit of very differing natures. Elsewhere, population has grown steadily across most of the CAZ and NIoD, with some small decreases in parts of Southwark and Westminster.
Housing costs and deprivation
Central London – like the city as a whole – is a very unequal place. Some of the district’s growing population is accommodated in some of the most expensive housing in the country. The “central London premium” on property is clear at borough level: between 2012 and 2018, average house prices in the CAZ10 grew by 7.6 per cent, compared to a Greater London average of 6.2 per cent. Furthermore, as of November 2019, the average house price across the CAZ10 boroughs was £130,000 higher than the Greater London average. 40 Kensington & Chelsea – at the extreme end of the spectrum – has the highest average house price of any local authority in England. 41 But the latest data available at Lower Super Output Area level (LSOAs – spatial units comprising an average of 1,500 residents) reveals that, were it a local authority in its own right, the CAZ/NIoD would also be one of the most expensive in the nation. As of September 2017 (before a nationwide decline in overall house prices), the average house price in the CAZ/NIoD was £1.013 million, with only Kensington & Chelsea and Westminster having higher average prices in the capital. 42
The CAZ10 boroughs are also home to a significant proportion of London’s social housing stock. In the CAZ10, 37 per cent of all dwellings are local authority housing stock, compared to just eight per cent in the other 23 boroughs, 43 with the highest levels of social housing found in Southwark, Lambeth and Tower Hamlets. 44 However, these boroughs are grappling with extensive decreases in stock: for instance, Tower Hamlets has lost 60 per cent since 2000. 45 Central London therefore has concentrations of both high-cost and social housing (even if the latter is decreasing). Alongside a shortage of affordable market housing, this may be creating increasingly polarised communities.
Figure 9 shows relative deprivation at neighbourhood (LSOA) level within the CAZ/NIoD. Despite a decrease in relative deprivation levels across London boroughs between 2015 and 2019, 46 there is still great poverty across parts of the capital, including the CAZ/NIoD.
One of the central district’s LSOAs is amongst the 10 per cent most deprived in the country (the area around Elephant and Castle), and several are amongst the 20 per cent most deprived.
47 There is evidence that the pattern of poverty has been changing in London in recent years, becoming more concentrated in the outskirts of the city.
48 However, it is clear that central London also remains a place of significant inequality.
A short-term population?
Central London’s residents are demographically different to those of the wider city. As Figure 10 shows, compared to the London average the CAZ/NIoD is home to fewer children and teenagers, more adults aged 20-35, and fewer adults over 35. 49
These demographic differences are also reflected in household formation. The average household size for London was 2.47 in 2011 – the largest of any region in England and Wales. 50 However, there are significant variations within the capital, which includes local authorities with some of the lowest and highest average household sizes in the UK. For instance, the City ofLondon and Kensington & Chelsea (both in the CAZ10) were the only two local authorities in England and Wales where there were, on average, fewer than two residents per household. 44 In line with this, the majority of the CAZ10 boroughs have household sizes below the national average.
The large number of younger people and single-person households in central London suggests that many live in the area for a relatively brief period of time (as students or at the start of their career) then moving out in pursuit of more space and lower housing costs, perhaps when moving in with a partner or starting a family.
Data on longevity of residence support this analysis. 11 per cent of residents have lived in the CAZ/NIoD for less than two years, compared to five per cent London-wide. 52 Research conducted by the ONS found that the City of London and Westminster are the local authorities with the highest ratios of short-term residents (someone born outside the UK intending to stay in the UK for a period of between three and twelve months) to permanent residents in England. 53 Despite the area’s relatively small size, around half (49 per cent) of London’s short-term residents live in the CAZ10 boroughs. 54
Part 2: An engine of the economy
We have already seen how employment is concentrated – and growing – in the CAZ/NIoD. Figure 11 shows the dominance of specialist clusters within the district. In 2018, the CAZ/NIoD accounted for 86 per cent of London’s total employment in the finance and insurance sector. The district was also home to 61 per cent of the capital’s professional, scientific and technical sector employment, and 55 per cent of its jobs in information and communication.
Growth and “remixing”?
While a few sectors have seen more growth outside the CAZ/NIoD, most became more concentrated within the district between 2015 and 2018. Employment has increased particularly rapidly in some sectors and locations: food and accommodation services have grown significantly around Aldgate and Victoria, while finance and insurance has increased markedly in King’s Cross and particularly to the immediate east of Canary Wharf. Information and communication employment has increased substantially at Paddington, and also at Canary Wharf. It is no coincidence that these areas have also seen significant redevelopment in recent years, whether driven primarily by private or public investment. This has effectively established new clusters within the CAZ/NIoD.
On the other hand, there has also been growth in each of the “top five” central London sectors (by total employment figures) outside their traditional clusters, with professional services moving into the City of London, IT moving into the West End, and financial services growing in Fitzrovia (see Figure 12). Our interviewees in the property sector also suggested that businesses were beginning to move away from demanding specific locations within traditional sector-based clusters, instead becoming increasingly open to other city centre areas – with the CAZ/NIoD effectively becoming a catch-all “business” cluster.
Demands on space
With space limited in the CAZ/NIoD, land values are exceptionally high. This can make buying central London property a tough proposition, and often prices new entrants out of the market. There are also specific issues around the balance between residential and commercial uses. The CAZ was previously exempt from government’s “permitted development” policies, in place since 2013, which allow office space to be converted to residential without planning permission. This central government exemption expired at the end of May 2019, but the CAZ10 boroughs issued planning directions to continue the policy across the CAZ. Whilst these policies have helped to protect business functions in the CAZ from extensive residential development, some concerns remain about the levels of available(and appropriate) office space in the area.
In part, these concerns stem from the fact that residential property commanded a significantly higher price than commercial property across much of the CAZ in the years following the 2008 financial crash. After 2008, the price of residential land in central London grew at a significantly higher rate than land for office or hotel developments, incentivising non-commercial development. This pattern continued until at least mid-2014, when residential land values were around 30 per cent higher than pre-crash, while office and hotel values were still notably below pre-crash levels. 55
There is some evidence that the trend towards residential values exceeding commercial may now be reversing as London’s housing market cools. In the year to March 2019, residential land values in central London fell by 5.4 per cent, while office land values remained unchanged. 56 However, the effects appear to have been spatially uneven, and have not necessarily reversed the relative value of office and residential development across the CAZ/NIoD. The point remains that market pressures can incentivise development that is not in the strategic interests of the CAZ/NIoD. 57
Additionally, there are concerns about whether the amount of new office development will meet demand. For a few years, supply relative to demand in central London has been tight. During 2015, availability rates (space being marketed or available for marketing) 58 were just three per cent in the West End 59 – the lowest level since the 1980s. 60 From late 2015, availability started rising again, probably owing to a mild slowdown in the London economy and uncertainty around Brexit. 44 Yet by 2018 this trend had reversed, and availability had begun to fall again. 62
Compounding this, there is a limited development pipeline – less than four million sq ft set to complete before 2020 – meaning that vacancy rates are likely to stay low for the foreseeable future. 63 This has the potential to put pressure on the market and undermine the appeal of the CAZ as a business location. Such concerns about the supply of office space are not new: indeed, similar concerns in the 1980s contributed to the development of Canary Wharf at the NIoD. New development opportunities – including some outside the CAZ/NIoD – may help meet demand, though this is unlikely to be at a comparable scale.
The size of employers in the CAZ/NIoD is different to the rest of London, and has also shifted in recent years. The smallest business units (employment size band 0-4) occupy the highest share of overall units in the CAZ, although the largest employers employ more people overall. Between 2016 and 2019, growth in the CAZ/NIoD has been highest amongst both the smallest and largest business units (0-4 and 1000+), as Table 1 shows. However, at a citywide level, the number of business units employing 0-4 people grew by five per cent between 2016 and 2019, while numbers of all other unit sizes fell considerably (by up to 39 per cent). A London-wide decline of two per cent in business units of over 250 employees also contrasts with the positive growth rates in larger business units in the CAZ/NIoD shown below. This highlights the continued dominance of larger units in the district, alongside the faster-than-average growth in the smallest business units. 64
This changing “business demography” has been accompanied by changes in typologies and tenures of office space. Space has increasingly been provided on flexible terms in serviced offices or flexible workspaces, which tend to favour hot-desking and more efficient office design. 65 This trend should be seen within the context of a wider fall in space per worker: on average, each worker is now allocated 79 sq ft in the capital – one-fifth less than 20 years ago. 44 Meanwhile, flexible workspace in central London has more than trebled – from 1.5 per cent of total stock in 2007 to 4.8 per cent in 2018. 67 In part, this may be related to growing and changing needs: more companies are blending work and lifestyle space, and growing numbers of larger companies now lease flexible workspace for some elements of their operations.
As can be seen in Figure 13, there is a relatively even spread of the percentage of business units in the smallest size band (0-4 employees) across the CAZ, with these units making up a slightly larger proportion of the business population in areas near the boundaries of the CAZ/NIoD. On the other hand, there are some more marked differences with businesses in the 5-9 employee size band. The areas around Temple, Soho, the West End and the Strand have the highest proportion of these small businesses, which include many shops, restaurants, bars and professional services firms. Bigger employers of over 500 employees are more likely to dominate in more recently redeveloped areas such as Waterloo, Canary Wharf, Victoria and King’s Cross, reflecting the dominance of big public sector, financial, educational and cultural institutions in these places. The City of London has a fairly high proportion of each size of unit. If current trends towards flexible space continue, however, these patterns have potential to change.
When we compare this picture to that of 2014, the proportion of employment in different size bands tends to follow similar geographic patterns. There are some notable exceptions: in 2014, the highest proportion of 0-4 sized businesses were based near the edge of the CAZ, but the most recent data shows that this gap is closing as more small business space is provided in central areas. 68
Part 3: A hub for visitors
Central London also welcomes millions of visitors each day – people commuting for work, going on a shopping trip, taking in a show, or sightseeing.
Visitor numbers to London have grown significantly over the last decade – from 14.8 million in 2008 to a peak of 19.8 million in 2017. Numbers fell back slightly in 2018, but the longer-term trend towards substantial growth is predicted to continue: London’s overall tourist numbers are expected to increase by up to 30 per cent by 2025. 69
Many of London’s main visitor attractions, such as the Tate Modern and the British Museum, are located in central London. Attractions in Transport for London (TfL) Zone 1 (the best fit for “central London” given available data) drew over 50 million visits in 2018, compared with fewer than nine million visits to attractions in the rest of London. While tourist numbers grew significantly between 2008 and 2018, visits to attractions have remained stable – falling slightly in Zone 1 between 2015 and 2017, then rising again in 2018. 70
Changes in types of accommodation
The supply of visitor accommodation in London has been growing since the late 1990s, but stock is still tight and the capital has the highest occupancy rate across major European cities. 71 The majority of bedrooms in hotels and other serviced accommodation are based in the CAZ boroughs (70 per cent). 72 Within these boroughs, a quarter of the total properties are based in Westminster (26 per cent), followed by Camden (11 per cent) and Kensington & Chelsea (10 per cent). The distribution of serviced accommodation throughout the capital has also changed in the last decade, with Southwark, the City of London and Newham adding the most to supply between 2011 and 2015. 73 While the CAZ retains the majority of accommodation, the pattern of supply is changing, with notable growth in east London (an area traditionally attracting fewer tourists).
However, there have also been considerable changes in the types of accommodation that tourists use. The online marketplace for booking short-let accommodation has seen huge growth in recent years, with Airbnb listings quadrupling in London between 2015 and 2018. 74
Specifically, every borough in the CAZ10 apart from Islington and Hackney – which already have some of the highest numbers of listings in the capital – has seen growth of over 200 per cent in the number of Airbnb listings over this period (see Figure 14). 75 This demonstrates a marked change in the way that tourists visit London.
Importantly, however, the types of properties on offer in the CAZ10 are very different to those in other parts of the capital. 74 per cent of Airbnb properties in Westminster (and 65 per cent in Camden) are entire houses or apartments: 76 in other boroughs this sector of the market tends to be a lot smaller, with a higher proportion of private rooms on offer. This suggests that homeowners outside the centre may be taking on short-term guests to make some extra income. In the CAZ, however, entire properties are being taken out of the housing market for short-term visitor accommodation, further diminishing the CAZ’s limited housing supply and highlighting tensions between different needs in the district.
The number of commuters to central London has also risen over the last decade. The number of people travelling to a main workplace in central London from all regions of the UK (including other parts of London) 77 rose from 1.4 million in 2007 to two million in 2018, representing growth of 43 per cent over the period(see Figure 15). 78
Of these, around 1.2 million people enter central London 79 during the weekday morning peak. 80 Over the last 20 years, the number entering at this time has remained relatively stable (between 1 and 1.2 million), while, as outlined above, the overall number of commuters to central London has increased more sharply. 81 This divergence may result from a rise in flexible working patterns, which are more common in London than in the rest of England. 82 Such changes are driven in turn by longer commutes, overcrowded public transport and a changing relationship to work.
Most commuters to central London come from London itself (70 per cent in 2018). Another 13 per cent come from the South East and 11 per cent from the East of England, with fewer than two per cent coming from other regions of the UK. 78 Despite the fact that many commuters to central London come from London, time spent commuting remains high for people working in the CAZ. Indeed, at an average commute time of 54 minutes, those working in central London face longer commutes than anywhere else in the UK 84 – almost double the English average and nearly 20 minutes more than those working in outer London.
Over time, this disparity between central London and other regions has been consistent: in 2002 the average commute time to central London was 56 minutes. Long commute times to London’s central zone may be related to a lack of affordable and intermediate housing options in this area, particularly for people looking for larger homes. Research suggests that long commutes can have a negative impact on health outcomes, creating additional stress and reducing the time available for more enjoyable activities such as socialising with family or friends. 85
Unsurprisingly, commuters travelling to work in central London are unlikely to travel by car: only 9 per cent report doing so, compared with 67 per cent in England and 57 per cent in outer London. Policies such as the congestion charge are designed to deter commuters from travelling by car into central London, and the proportion of commuters entering central London by car during the weekday morning peak has been falling since 2001 (before the charge was introduced). 86 Despite these falls, central London’s congestion problems persist: in Q1 2017/18 average traffic speeds for the 12 hours between 07:00 and 19:00 across central London were 7.4mph, a 0.2mph (3.2%) decrease year-on-year. 87