The Arch Company - Volterra Report

Dual access commercial units on Albert Embankment, direclty next to Vauxhall tube, train, and bus station.

The socio-economic impact of businesses in the railway arches

Final report

September 2024

The Arch Company

The socio-economic impact of businesses in the railway arches

Contents

Executive Summary

Introduction

Spaces for small businesses

Industrial space in London

Economic impact assessment

Social and community impact

Future economic impact

The socio-economic impact of businesses in the railway arches

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The socio-economic impact of businesses in the railway arches

Executive Summary

1.1

This report highlights the significant socio-economic contribution made by businesses in the railway arches. The currently occupied spaces within The Arch Company portfolio are estimated to support 25,600 Full Time Equivalent jobs (FTEs). Organisations in The Arch Company spaces provide key supply chain links for local communities and urban economies, with this having a multiplier impact supporting further indirect jobs. Volterra estimates that this additional activity supports 16,100 FTEs as a result of indirect impacts and a further 1,400 FTEs as a result of induced impacts through worker expenditure. This results in a further 17,500 FTEs supported in addition to those directly based within the portfolio. Employment by organisations within The Arch Company portfolio support a significant amount of economic activity. Measured in Gross Value Added (GVA) terms, this is estimated to total £2bn each year. When combined with the GVA indirectly supported and induced by these businesses, this figure rises to £3.3bn. If the commercial property occupied within The Arch Company portfolio were a local authority, and the indirect and induced impacts are taken into account, it would rank above 162 of the 375 local authorities in the UK in terms of its economic contribution. The cumulative economic output created by businesses within this large collection of smaller scale properties is a material contribution to the national economy. The economic activity directly supported by these organisations feeds into tax revenues for Government, estimated to total £590m to £790m annually through income, business and property taxes. This excludes any indirect impacts supported by the supply chains of these organisations. Of this figure, commercial property maintained by The Arch Company is estimated to support £42m annually in business rates payments. The Arch Company supports a number of impacts that go beyond the direct economic impacts associated with investing in and managing space. By prioritising the refurbishment of existing spaces, particularly underused spaces tailored to small and local businesses, the company not only contributes to the conservation of historical and urban landscapes but also promotes sustainable development and regeneration practices. The wider socio-economic and environmental impacts that benefit local communities include: ● Supporting the foundational economy – The foundational economy refers to the concept of the services and goods that are essential to everyday life, and is often linked to concepts such as 15 minute cities, which is the principle that basic amenities should be accessible within 15 minutes for each resident via sustainable transport modes. The Arch Company spaces, which are generally small in size and so disproportionately benefit small businesses, acts to support these concepts by creating spaces for businesses that serve their local communities. ● Providing sustainable spaces – The most sustainable spaces are those that already exist. The retrofit of industrial space by The Arch Company has been estimated to reduce carbon generation by 50% compared to building new industrial space. 1 The refurbished space delivered under the company’s ongoing regeneration programme alone would be estimated to save 60m kgCO 2 e compared to comparable new developments. This is equivalent to 35,000 times the average yearly emissions per car in the UK, and so would be equivalent to eliminating the carbon footprint of 35,000 cars on the road for a single year. ● Providing local employment opportunities – Skilled trades and machine operative roles provide valuable skills development opportunities. These roles are estimated to be more prevalent in The Arch Company properties than in the general workforce. Businesses in the railway arches also support local employment opportunities; 32% of workers in the portfolio are estimated to live in the same local authority as they work.

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1 Engineering Services Consulting Ltd., 2022. Embodied Carbon Assessment & Benchmarking: New Light Industrial Space.

The socio-economic impact of businesses in the railway arches

1.5

Whilst the portfolio’s combined economic impact is already significant, it has not yet reached its full economic potential. If all of the portfolio was occupied, this could unlock new spaces that support a further estimated 8,200 direct FTEs, generate £630m of economic activity annually and bring in between £190m and £250m in additional tax revenues each year. This forms a key expansion programme on the way to fulfilling the portfolio’s maximum economic potential, that is estimated to be up to 33,800 FTEs and £2.6bn a year in GVA were all properties to become occupied.

1.6

The socio-economic impact of businesses in the railway arches

Introduction

2.1

As The Arch Company turns five years old in 2024, this report reflects on the scale of the impact delivered by the businesses in the railway arches. It also demonstrates the role that The Arch Company portfolio can play in delivering further socio-economic impact in the future. Key impacts for The Arch Company are presented for the overall portfolio and for six case study local authorities including Southwark, Lambeth, Tower Hamlets, Wandsworth, Manchester and Hackney. This report uses internal data provided by The Arch Company to estimate the socio-economic impact of businesses in the railway arches. 2 This data is composed of a snapshot of their internal portfolio data, as well as a variety of other internal data sources provided by The Arch Company. Volterra has built on this data to provide estimates of key metrics, such as the number and type of businesses, and the economic impacts of the portfolio. The methodology of estimation is based on a combination of existing research, expertise from Volterra, and the application of industry standards.

2.2

Overview of The Arch Company’s portfolio

The Arch Company is the largest landlord to small businesses in the UK. 3 Their 5,300 properties, acquired from Network Rail in 2019, consist of railway arches, and other properties deemed non-essential to the running of the railway system. 4 Around 70% of these properties are railway arches with the remainder comprising a mixture of former railway buildings and parcels of land. The Arch Company manages these properties, maintaining and leasing them out to a range of customers, most of which are small businesses. Of the 5,300 properties in the portfolio, 3,600 are rented by approximately 3,200 individuals and organisations, with some customers renting multiple spaces. 5 Figure 2.1 breaks down the geographical composition of the portfolio, showing the share of properties, referred to as ‘Rental Spaces’, and overall value in The Arch Company portfolio by region. As shown, 82% of the ‘Estimated Rental Value’ (ERV) of the portfolio is based in London .

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Figure 2.1 – The majority of the portfolio is based in London

Share of portfolio properties and valuation by region.

Source: The Arch Company internal data, 2023

2 This data is valid as of August 2023

3 National Audit Office, 2019. Network Rail’s Sale of Railway Arches.

4 Since 2019, The Arch Company has split some rental spaces into multiple rental spaces to better reflect the nature of the space. For example, Network Rail may previously have had an intermediary landlord in place and therefore counted this as one single rental space. In practice, this may have comprised of multiple spaces with multiple subtenants. This is why the rental space figure has increased from 5,200 in 2019 to 5,300 today.

5 Note: The disparity between the number of properties and customers is due to the fact that some customers rent multiple properties.

The socio-economic impact of businesses in the railway arches

2.5

Figure 2.2 displays the geographical composition of the portfolio in greater detail, mapping its properties across England and Wales. The composition of the portfolio can be seen to broadly reflect the composition of the railway network, with large clusters in London and the industrial cities of the North West, and more numerous but smaller clusters in the less industrialised South East.

Figure 2.2 – The composition of the portfolio reflects that of the railway network

Location of properties in portfolio. Bubble size represents the number of properties in a given postcode.

London

Manchester

Number of properties

Source: The Arch Company internal data, 2023, MapTiler, 2024

2.6

The Arch Company portfolio comprises 24.8m square feet (sqft). This includes 10.0m sqft of internal floorspace and 14.8m sqft of land and estate areas.

2.7

The dominant type of spaces in The Arch Company portfolio are industrial spaces. Parts of the report use a comparison of Arch Company industrial space with general industrial space as the appropriate comparison example, rather than other use types. Throughout this report, industrial spaces are defined as including areas for light industry such as workshops, vehicle servicing and food manufacturing, as well as logistics and storage spaces such as ‘final mile’ distribution areas .

The socio-economic impact of businesses in the railway arches

Table 2.1 shows the amount of floorspace in The Arch Company portfolio by use class and location. 6 As previously highlighted, the majority of floorspace is concentrated in London, with industrial being the largest category, closely followed by retail and leisure. 7

2.8

Table 2.1 -- Use types include industrial, office, retail and leisure

Floor space by use type and location (gross internal area (GIA) m 2 )

Use type

London

Other UK

Total

Office space

27,600

15,900

43,500

Retail space

65,700

43,600

109,200

Industrial space

398,500

161,200

559,700

Leisure space

77,500

44,600

122,100

Other/unclassified space

44,200

112,000

156,200

Currently vacant space

193,500

123,400

316,900

Total commercial space

807,000

500,6000

1,307,600

Source: The Arch Company portfolio data. NB: floorspace figures are rounded and do not sum.

2.9

As well as having the largest amount of total floorspace, London also contains the largest share of properties in industrial space, which represents 65% of all occupied units across the region. Figure 2.3 shows the proportion of The Arch Company properties that are used for industrial - including logistics – usage across different regions.

Figure 2.3 – London has the highest proportion of industrial use types

Percentage of rented spaces used for industrial uses by region (%)

Source: The Arch Company internal data, 2023.

6 Note: some use types are flexible and use types are not recorded for every rental space. These spaces are recorded as other/unclassified space in the table.

7 Note: Figues may not sum due to rounding.

The socio-economic impact of businesses in the railway arches

The six case study areas used in this report

2.10

This report presents the key economic impacts of The Arch Company in six case study local authorities. These local authorities represent some of the local authorities with the highest amount of commercial floorspace operated by The Arch Company, together contributing 46% of the total commercial space within The Arch Company portfolio. In order of total rental value, these are Southwark, Lambeth, Tower Hamlets, Wandsworth, Manchester (City of) and Hackney.

2.11

These case study areas are as follows and are mapped in Figure 2.4 :

● ● ● ● ● ●

Southwark

Lambeth

Tower Hamlets Wandsworth

Manchester (City of)

Hackney

Figure 2.4 The six case study areas used in this report

The socio-economic impact of businesses in the railway arches

Spaces for small businesses

3.1

One of the largest benefits of The Arch Company’s operations is its contribution to meeting the need that small businesses have in finding suitable lettable space. By creating spaces for these small businesses, The Arch Company’s operations play an important role within local and regional economies , as well as the national economy. This section explains how.

The importance of small businesses as a driver for growth

Small businesses are the backbone of the UK economy. Small and medium-sized enterprises (SMEs), 8 constitute 99.9% of all UK businesses and are responsible for 60% of private sector employment. Small businesses form an important component of local economies. For every £1 spent with a small or medium- sized business (SME), 63p is re-spent in the local area compared to 40p in every £1 spent with a larger business. 9 New and small businesses are vital for a growing economy. Small businesses account for a disproportionately large share of new jobs created in most major economies in the 21 st century. 10 These firms are also disproportionately responsible for developing new services and products within markets and delivering innovation. 11 Put simply, without the freedom for new and small businesses to grow, it would not be possible to deliver the jobs and economic opportunities needed for the growth of the UK ’s economy . This is acknowledged across UK Government in strategy. 12 The Labour party’s Plan for Small Business (2023) states that “ it is no exaggeration to say that without a diverse and thriving ecosystem of small businesses our country would not just be poorer, but the communities we live in would be as well ”. 13 Beyond their role as key suppliers to the UK, small businesses are in part responsible for the future direction of its growth. One of the most significant trends affecting the UK economy is the ‘productivity puzzle’, which is the term used to describe the decline in the growth of output per worker, or productivity. Since 2010, the UK has seen marginal to no growth in the productivity of its workers. Had the productivity of UK workers followed the trend seen in the 00s, output per worker would now be 16% higher than it currently is. 14 This trend is seen internationally but is particularly evident in the UK. Increasing output per worker to German levels would, for example, boost UK GDP by almost £200bn each year. 15 One of the most popular current explanations of why the puzzle is so severe in the UK is referred to as the ‘long - tail’ of productivity for UK businesses. In the UK, the gap between the top performing and bottom performing businesses is significantly larger than that of other countries and is growing. 16 Smaller spaces for start-ups and scale-ups are required to enable new business formation and survival, that can help to tackle the UK economy’s productivity issues.

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Space as a barrier to growth

3.7

New and small businesses need space and facilities to grow. The absence of viable and affordable commercial space is listed as one of the key barriers preventing growth by small businesses. The Small Business Survey (2022) shows 20% of UK small businesses report the availability and cost of finding

8 Less than 250 employees. 9 FSB and the Centre for Local Economic Strategies, 2013. Local Procurement – making the most of small businesses one year on 10 OECD, 2015. Young SMEs, Growth and Job Creation 11 Enterprise Research Centre, 2020. The Role of Innovation in Small Business Performance: A Regional Perspective

12 Department for Education, 2022. Action Plan: Small and Medium Sized Enterprises 13 UK Labour, 2023. The Beating Heart of Our Economy: Plan for Small Business 14 MakeUK, 2022. The UK's Productivity Puzzle - what's the deal 15 PwC, 2019. The Productivity Puzzle Revisited. 16 A. Haldane, 2018. The UK’s Productivity Problem: Hub No Spokes

The socio-economic impact of businesses in the railway arches

premises as a major obstacle to the success of their business. 17 This has risen from 12% in 2020 and does not reflect the countless number of small businesses and organisations that cannot locate suitable workspaces. High levels of demand acts to push up the rents for commercial properties, and so can act as a deterrent to start-ups who may not be able to compete financially with larger or older businesses. 18 Such conditions can act as a deterrent against the formation of new businesses and undermine long-term economic growth. This deterrence can be seen clearly in the five London-based case study areas, where the rate at which new businesses are created per 100,000 population of 834 was lower than the London-wide figure of 867. This figure falls to 657 further if Hackney, which performs well in terms of business starts, is excluded. 19 The importance of sufficient space to facilitate business start-ups and survival cannot be understated. This is particularly the case for industrial space in London, which is discussed in the next chapter.

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3.9

Railway arches act as engines for growth

3.10

As the largest landlord to small businesses in the UK, The Arch Company’s portfolio plays a vital role in ensuring that small businesses have access to the facilities they need to start-up and scale-up. The Arch Company portfolio provides a range of options for the types and characteristics of spaces required by businesses and organisations. These range from highly affordable spaces tailored towards storage and industrial businesses (such as the propertie s on Randolph Street in Camden, outside London’s core ), to relatively more high- end spaces that attract higher footfalls and cost relatively more (such as the Findlater’s Corner property outside London Bridge station, which was unoccupied for several years prior to investment by The Arch Company through its capital regeneration programme). A significant proportion of the portfolio is based in areas where start-ups may face barriers to the commercial property market. The portfolio’s strengths of accessibility, price, and size acts to support start- ups in those areas. Due to its proximity to major transport hubs and high level of accessibility, a significant proportion of properties in The Arch Company portfolio are in areas that face high demand for commercial space. The five London-based case study areas, for example, contain 39.6% of all commercial space within the portfolio and all lie within Inner London, which faces high demand for such space. The range of options within The Arch Company portfolio ensures that organisations can occupy space that is affordable for their given budget and provides value for money. When choosing a commercial property to rent, businesses must weigh up a number of different factors, such as affordability, size and location. This section provides benchmarks for how the range of properties within The Arch Company portfolio perform on these factors.

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3.12

Affordability

3.13

Arch spaces provide value for money for small businesses and organisations that would otherwise be unable to access commercial spaces. Commercial space is affordable where it is cost effective considering its type and location. Retail space with relatively high footfalls is often more expensive than larger industrial space that does not have the same requirement for footfall. Comparing the affordability of property requires consideration of these factors to provide a like-for-like comparison.

3.14

Focusing on industrial property only (the dominant type of The Arch Company’s space), Figure 3.1 compares the estimated average rental rate in spaces operated by The Arch Company to all industrial

17 Department for Business & Trade, 2023. Longitudinal Small Business Survey 2022.

18 Chamber of Business, 2023. What is the Long-Term Impact of Rising Rent Costs for Business in the UK?. Available at: https://www.chamberofbusiness.co.uk/articles/what-is-the-long-term-impact-of-rising-rent-costs-for-business-in-the-uk/

19 ONS, 2022. Business Demography.

The socio-economic impact of businesses in the railway arches

properties within each of the six case study local authorities (including The Arch Company space) referred to throughout this report. In four of these six local authorities, The Arch Company makes up more than one third of all industrial property listings in the area. Affordability figures are estimated using data from the Valuation Office Agency (VOA). Where possible, properties from the portfolio are matched against the VOA’s valuation list, and the portfolio estimated rental value (ERV) is compared against the VOA’s rateable value estimate. The ratio between the two is then applied to the unmatched properties in the portfolio to estimate what their VOA rateable value would be, allowing comparisons between the two groups to be made. The results of this exercise show that, even without considering further characteristics that often make The Arch Company space more attractive (such as smaller footprints and highly urban locations), The Arch Company ’s industrial space is often more affordable. In Southwark, Lambeth, and Tower Hamlets, the local authorities with the greatest number of The Arch Company properties, industrial properties in the portfolio have a lower median ERV per m 2 than their local counterparts. Likewise, properties in the portfolio perform similarly well against other properties in Hackney. In Wandsworth and Manchester, industrial space in The Arch Company portfolio is marginally less affordable than average. In Wandsworth, this is largely because The Arch Company spaces are mainly clustered around Battersea, one of the most expensive areas for property in the borough and in one of the most central clusters of manufacturing, storage and distribution activity.

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Figure 3.1- On average, The Arch Company industrial properties are more affordable in 4 of the 6 local authority case study areas

Median estimated rental value per m 2 of The Arch Company industrial properties and all local industrial properties

Volterra estimates using: VOA, 2023. Non-Domestic Floorspace: Stock of Properties Including Business Floorspace, and data provided by The Arch Company.

3.18

Demand for railway arch spaces has increased significantly over the last twenty years with a corresponding rise in market rents. The Arch Company is a commercial landlord that takes affordability into account when determining rents with established customers. At the point of contractual rent reviews or lease expiry,

The socio-economic impact of businesses in the railway arches

customers may have access to a stepped rent deal if they can demonstrate that they might otherwise struggle to adjust to changes in market rent.

3.19

These agreements help ensure that short- term shocks to an organisation’s finances do not affect their ability to continue to lease the space and facilities they need by providing gradual ‘steps’ in rent over time to market rates. Over the past two financial years, The Arch Company estimates it has contributed more than £1.5m in rents to the businesses and organisations that need them most through these agreements. The commitment to ensuring that businesses and organisations are less affected by financial shocks is reflected in The Arch Company’s approach to the pandemic. Just over one year into the company’s acquisition of properties from Network Rail, the pandemic caused significant financial issues for occupants of spaces. The Arch Company responded to these pressures by providing 1,550 customers with three months' rent free as part of an £12m Hardship Fund.

3.20

Size

3.21

The spaces maintained by The Arch Company are predominantly small units. More than 90% of spaces in the portfolio are less than 5,000ft 2 , 20 the smallest amount of space needed under current guidance for a small company with 50 workers. 21 These smaller spaces disproportionately cater for the needs of small businesses. An industrial micro-business, for example, would typically employ 1 – 10 people, and so would require on average between 36m 2 and 360m 2 of floor space; 22 77% of industrial properties in The Arch Company portfolio meet this criteria in Inner London, whilst just 46% of all industrial properties in the same geography do so. 23 Likewise, 88% of The Arch Company industrial properties in Outer London meet this criteria, compared to just 51% for all industrial properties in the area. The average commercial space in The Arch Company portfolio is 247m 2 , with the average industrial space being 244m 2 . Under current standards for the average amount of space occupied per worker, an industrial space of 244m 2 would support approximately 7 workers onsite. 24 The figure below shows the distribution of the sizes of these properties.

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20 This statistic uses GIA as the basis of analysis.

21 100ft 2 per employee is generally considered the minimum within office workspaces. Other types of uses requiring machinery, retail space, storage, etc would require larger spaces. See Eptura, 2023. How Much Space Do You Need per Employee?

22 Using the employment density for the B2 – General Industrial use class.

23 VOA, 2023. Summary valuations: non-domestic rating list entries 2023

24 Current national estimates from the HCA, 2015. Employment Density Guide, and London-based estimates from the CAG Consultants, 2021. London Sites Database, both put the average amount of occupied space per worker in B2 or light industrial space (not including warehousing, storage, etc) at 36m 2 per full-time worker. 244m 2 / 36m 2 per worker = 6.8 full-time workers.

The socio-economic impact of businesses in the railway arches

Figure 3.2 – The majority of The Arch Company properties have less than 200m 2 of total space

Number of rental units within size bands across the portfolio (% of units)

Source: The Arch Company portfolio data, 2023

3.24

Figure 3.3 shows the proportion of industrial properties in each size range for the portfolio and London. London has a fairly uniform distribution of sizes, whilst properties in the wider portfolio are heavily weighted towards the smaller size categories. The differences in the larger categories are stark, 25% of London industrial properties are in the 10,000 to 25,000 square foot range (929m 2 to 2,322m 2 ), 25 for example, compared to just 3% of industrial properties in The Arch Company portfolio. 75% of The Arch Company portfolio is in the smallest two size categories, compared to just 21% across London. This highlights how The Arch Company properties are likely better suited to smaller businesses.

25 Equivalent to the 930 – 2300m 2 range

The socio-economic impact of businesses in the railway arches

Figure 3.3 -- The portfolio has a far greater proportion of small properties than London, using industrial properties in London as the use type to compare

Percentage of industrial properties in London by floorspace (square feet)

Source: GLA, 2020. London Industrial Land Supply Study 2020. The Arch Company internal data, 2023.

Location

3.25

The historical context of the portfolio gives it a number of unique qualities that differentiate it from other commercial spaces. The Arch Company spaces are predominantly small archways running along railway lines into economic centres. The location of properties in the portfolio therefore aligns closely with major railway hubs, and so a significant portion of them are based in densely populated and highly developed areas that are also well connected to the road network. Figure 3.4 quantifies this factor, measuring the accessibility of industrial properties in the portfolio against other industrial properties in their respective local areas. Each property is assigned to an ‘Accessibility Decile’ based on the quantity of employment accessible within a 60-minute commute from the property, 26 with a value of 10 indicating that the property is within the top 10% most accessible industrial properties in the area, and 1 indicating it is in the bottom 10%. The mean ‘Accessibility Decile’ is then calculated for properties in the portfolio and properties not in the portfolio. The Arch Company properties outperform other properties on this measure in four of the six case study areas.

3.26

26 Data on the amount of employment accessible within 60 minutes is taken from Torres and Arther, 2024. Public transport accessibility indicators to urban and regional services in Great Britain.

The socio-economic impact of businesses in the railway arches

Figure 3.4 -- Industrial property in The Arch Company portfolio is more accessible than overall industrial space in four of the six case study areas

Average level of accessibility for industrial property within The Arch Company portfolio and total by borough

Source: Volterra estimates, 2023. The Arch Company internal data, 2023. VOA, 2023. and Torres an Arthur (2024).

3.27

These areas, generally characterised by high footfall and good transport links, may usually be prohibitively expensive for many small and micro businesses to rent in. The Arch Company acts as a gateway into these prime areas for many small and micro businesses, allowing them to participate in the local economy and strengthen the resilience of the local supply chain.

The socio-economic impact of businesses in the railway arches

Industrial space in London

4.1

A key way that the portfolio addresses constraints in the commercial property market is through industrial space, which is the dominant type of space within the portfolio, comprising approximately 51% of total commercial space and 55% of rental value. 27 Industrial space has remained the dominant type of space since the acquisition of the portfolio from Network Rail, with The Arch Company continuing to support a wide range of businesses and organisations.

Pressures on industrial space in London

4.2

In recent years, the amount of industrial space in urban areas has fallen significantly across the UK, largely because of conversion to housing. 28 In London, the amount of land in industrial use has fallen from approximately 8,250ha in 2001 to 6,900ha in 2020, with this decline occurring faster in inner London (inner London saw a 36% decline in space compared to an overall 18% fall). This decline is predicted to continue in future years. 29 The declining stock for industrial space aligns with a period of rising demand. The growth of e-commerce and last-mile logistics has meant that industrial space near consumers and businesses is increasingly highly sought after. Some estimates suggest that already in the UK, more than 500 football pitches worth of last- mile space is required to serve this demand, and this figure is growing rapidly. 30 This last-mile delivery space is crucial to ensuring local economy principles, particularly in the supply chain, are still applied in urban centres, with this type of space being used by businesses across a wide range of industries that support the urban economy. Industrial businesses and industries are crucial to sustaining economies and communities, enabling businesses to meet their supply chain requirements and providing jobs for local residents. However, the cost and availability of industrial space continues to be a barrier to business activity. This is particularly true in urban areas where industrial land faces increasing conversion pressures. In urban areas in particular, industrial and logistics space is being lost at a rapid rate. In London, the city lost 26% of its industrial floorspace to other uses between 2001 and 2023. 31 Similar declines can be seen in each of the largest urban centres in which The Arch Company operate: in Manchester 34% of the city’s industrial floorspace has been lost. In the central areas of cities and towns, this figure is even higher.

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27 Of the properties used for commercial purposes, excluding car parks, residential properties, and properties for which the use class is not recorded. ‘Industrial’ encompasses general and light industry, storage & distribution, and vehicle repair and servic ing.

28 Centre for London, 2022. Making Space: Accommodating London’s Industrial Future.

29 Greater London Authority, 2023. London Industrial Land Supply Study 2020.

30 Knight Frank, 2021. How much space is needed to service the last-mile and where is consumer demand greatest?

31 Centre for London, 2022. Making Space: Accommodating London’s Industrial Future.

The socio-economic impact of businesses in the railway arches

Figure 4.1 – The amount of industrial space has been declining across urban centres and nationally

Index of amount of industrial floorspace by geography (2001 = 100)

Source: Valuation Office Agency, 2023. Non-domestic Rating: Business Floorspace 2023

4.6

The loss of urban industrial floorspace has occurred despite significant and growing demand for industrial space. Whilst London lost 26% of its industrial floorspace, the vacancy rate for floorspace dropped from 16% in 2001 to 4% in 2021. The data recording this shift is most widely available for London, but similar trends are happening across the UK’s urban areas. Such low vacancy rates undermine the healthy functioning of the sector. The lack of industrial floorspace prevents businesses from creating jobs and meeting the needs of residents and businesses.

Arches as spaces for light industry

4.7

Within London, The Arch Company portfolio contains more industrial space than has been delivered by new industrial development across London over the last 10 years for which data are available. 32 The high volume of commercial space provided by The Arch Company is true across all sectors, with the portfolio providing more commercial floorspace than 11 of the 33 individual London boroughs. 33 This becomes even more pronounced when looking at industrial space, where the amount in the portfolio is greater than the amount in 14 of the 33 individual London boroughs. 34 The role of the portfolio in supporting businesses can also be seen through the lens of industrial space. Industrial space (including manufacturing, logistics and storage space) is a vital piece of infrastructure to support the national economy. It support s millions of the UK’s jobs, approximately 14% of the country’s economic output (£232bn in 2021), 35 and many of the inputs and products needed for the functioning of the economy and our everyday lives.

4.8

32 The GLA, 2021. London Development Database records a total completion of 496,000m2 of B2 floorspace over the period FY2009- FY2019.

33 VOA, 2023. Non-Domestic Floorspace: Stock of Properties Including Business Floorspace

34 VOA, 2023. Non-Domestic Floorspace: Stock of Properties Including Business Floorspace

35 NLA, 2023. Industrial & Logistics: Can London Deliver?

The socio-economic impact of businesses in the railway arches

4.9

Arches play an important role in supporting smaller manufacturing and craft businesses, who are often highly specialised in what they do. They play an important part within wider supply chains, for example food production and distribution where proximity to local restaurants and retailers is crucial. The Arch Company spaces can promote the clustering of businesses, a phenomena whereby businesses group near to one another, drawing from common talent pools and collaborating with each other. This can have particularly large benefits for SMEs, leading to higher survival rates, increased innovation, and improved productivity. 36 Indeed, there is evidence of this occurring organically within The Arch Company portfolio, such as the clusters of breweries in Bermondsey and taxi repair and servicing businesses in Bethnal Green. Within London, the industrial space within The Arch Company portfolio is vital for the capital to meet its required provision of space. The Arch Company portfolio contains more industrial space than has been delivered in new development across London over the last 10 years for which data are available. 37 As of 2023, there is more industrial space supported by The Arch Company in London than there is in 14 of the 33 London boroughs. 38 This comparison becomes more pronounced when only Inner London boroughs are considered, with The Arch Company portfolio containing more industrial space than 9 of the 14 Inner London boroughs. Note that when looking at commercial space as a whole (across all use types), the Arch Company’s total portfolio is larger than 11 London boroughs, still a substantial relative quantum. Given the focus of the company on smaller flexible spaces in the heart of urban areas, this space supports many of the capital’s small and growing industrial businesses.

4.10

Figure 4.2 – There is more industrial space in The Arch Company portfolio in London than in the entirety of many London boroughs

Amount of industrial floorspace by inner London borough and The Arch Company (2022 000s m 2 )

Source: The Arch Company internal data, 2023. VOA, 2023. Non-Domestic Floorspace: Stock of Properties Including Business Floorspace. NB: Space within The Arch Company portfolio is excluded from borough totals.

36 JP Morgan and Chase, 2014. The Missing Link: Clusters, Small Business Growth and Vibrant Urban Economies

37 The GLA, 2021. London Development Database records a total completion of 496,000m2 of B2 floorspace over the period FY2009- FY2019.

38 VOA, 2023. Non-Domestic Floorspace: Stock of Properties Including Business Floorspace

The socio-economic impact of businesses in the railway arches

Economic impact assessment

5.1

The businesses and organisations located in spaces managed by The Arch Company support a range of economic impacts. This section groups these impacts into:

● The ‘direct’ impacts within the commercial spaces themselves, such as the number of jobs supported, the corresponding economic activity, and the tax revenues this activity generates; and ● The ‘indirect and induced ’ impacts delivered elsewhere as a result of their operations in property managed by The Arch Company, such as the local spending by workers and supply chain impacts.

Direct economic impacts

Employment

5.2

The Arch Company portfolio provides space that in turn supports employment by businesses and organisations who use that space. The exact level of employment within the spaces operated by The Arch Company is not accurately known, and likely changes daily based on the working patterns of occupants. However, this section estimates employment by applying industry average employment densities split by the use type of space. Industry standard measures of the average density of workers supported per area of floorspace are applied to occupied space to calculate the number of FTEs within each space. 39 These figures are then converted into an estimated number of jobs (accounting for the fact that some workers work part-time) using industry averages for the level of part-time working. 40 This estimation process is repeated across each property in the portfolio to provide high level estimations of overall employment. The total quantity of employment supported by the portfolio is presented in Table 5.1 . As shown, the businesses and organisations currently operating in The Arch Company portfolio are estimated to support 25,600 FTEs, or 30,300 jobs once accounting for part-time working patterns. For reference, this is roughly equivalent to the total number of people employed across Europe by the company Shell, the largest company registered in the UK. 41 Table 5.1 also breaks down the 25,600 figure into broad groups, showing that the largest source of jobs is from industrial uses, a grouping that incorporates manufacturing, food and beverage production, and motor vehicle service and repair, amongst other industries. This category is closely followed by retail and leisure uses.

5.3

Table 5.1 – The largest share of FTEs supported is in industrial uses

Estimated FTEs supported in The Arch Company portfolio by use type

Use class

FTEs supported

Industrial

12,100

Retail

5,200

Leisure

4,300

39 For each space in The Arch Company portfolio, an estimated use class (retail and F&B, office, light industrial, general industrial, storage and distribution, and leisure) is applied based on the anticipated usage of the space, and then the employment density for the relevant use class is taken from the standards in Homes & Communities Agency, 2015. Employment Density Guide and CAG Consultants, 2022. London Employment Sites Database 2021.

40 Assuming 2 part-time employees = 1 FTE, then the density ratio is multiplied by ((1-(PT/2))/1), where PT is the share of part-time workers in an industry.

41 As of 2022, Shell PLC reports employing 30,000 workers in Europe. See Shell, 2023. Annual Report and Accounts 2022.

The socio-economic impact of businesses in the railway arches

Use class

FTEs supported

Office

4,000

Total (current occupation)

25,600

Total (if all spaces occupied)

33,800

Source: The Arch Company internal data, 2023. Volterra estimates, 2023. NB: jobs figures are rounded and do not sum to total

Economic activity

5.4

The employment supported by businesses and organisations in the portfolio deliver economic output. This contribution is commonly measured through the Gross Value Added (GVA) of the output delivered by these organisations, defined as the additional economic value created by these organisations. To measure the economic activity of the businesses and organisations in the portfolio, assumptions are obtained based on the average level of activity supported by each worker within a given industry and area of the country. Through this methodology, the activity currently supported within The Arch Company portfolio is estimated to total £2bn in GVA terms each year, with £1.4bn of this figure falling within London.

5.5

5.6

In Southwark, it is estimated that approximately £1 of every £70 of economic activity generated in the borough (1.6%) is through an organisation located within one The Arch Company’s spaces. 42

Tax revenues

5.7

The economic activity supported by the portfolio acts to generate tax revenues for local and national government. By comparing national statistics on GVA in the years 2001 to 2021 with public sector receipts in each year, it can be shown that tax revenues typically account for between 30% and 40% of GVA, through business rates, value-added tax (VAT), corporate, and income tax (among other smaller taxes). 43 Applying these benchmark figures to the GVA generated by businesses within The Arch Company portfolio, it is estimated that currently occupied spaces in the portfolio support between £590m and £790m in tax revenues for the UK government each year. Locally, the direct contribution of The Arch Company portfolio can be felt through its generation of business rates payments for local authorities. Using estimates of the level of business rates payments for local spaces, 44 The Arch Company portfolio is estimated to generate £42m of business rates payments each year. £21m of this figure is estimated to be generated in the six local authorities of Southwark, Lambeth, Tower Hamlets, Wandsworth, Manchester and Hackney, with £6.8m of this figure being retained by local authorities. Table 5.2 breaks down these figures for each of the six case study areas, presenting the retained business rates and contribution to the local authority’s budget for each area.

5.8

42 Estimated GVA supported in The Arch Company space in Southwark totals £320m per year, with Southwark recording a total GVA of £22bn in 2022 in ONS, 2024. Regional GVA by Industry and Local Authority

43 ONS, 2023. Public sector finances and ONS, 2023. Regional gross value added (income approach). For an example of the application of this assumption, see DfT WebTAG (2022) guidance for the appraisal of transport interventions.

44 And after accounting for the business rates discounts given to small businesses and charitable organisations.

The socio-economic impact of businesses in the railway arches

Table 5.2 – Estimated business rates generated each year by property within The Arch Company portfolio compared to total spending power of local authorities

Business rates generated by the portfolio

Business rates retained by local authority

Retained business rates as a % of local authority core spending power

Local Authority

Southwark

£7.8m

£2.3m

0.6%

Lambeth

£5.9m

£1.8m

0.5%

Tower Hamlets

£3.4m

£1.0m

0.3%

Wandsworth

£2.1m

£0.6m

0.3%

Manchester

£0.6m

0.1%

Hackney

£1.4m

£0.4m

0.1%

Source: Volterra estimates, 2023; Department for Levelling up, Housing and Communities, 2022. Core spending power: provisional local government finance settlement 2023 to 2024.

Indirect and induced economic effects

Note on methodology

1.1

It should be noted that gross, and not net, impacts are presented in this section as displacement is not considered within this study. In other words, the calculations in this section do not account for the likelihood that economic activity directly supported by The Arch Company would displace economic activity elsewhere to some degree. Displacement is not considered as the wide range of types and locations of businesses within The Arch Company portfolio make it difficult to accurately determine the level of displacement across the portfolio. The displacement rate will also vary dependent on the geography or study area being assessed.

Worker expenditure

5.9

Indirect and induced effects result from the knock-on activities of the organisations located in The Arch Company portfolio off-site. The most common framework for understanding these effects groups them into supply chain (or indirect) effects, associated with the products bought and businesses supported by The Arch Company occupants, and income and expenditure (or induced) effects, associated with the increased income and expenditure of workers. Worker expenditure is often one of the most significant impacts of development and economic activity for local communities. In general, worker expenditure is spent in proximity to places of work, and therefore has impacts within the local economy. A recent GLA study estimated that office workers in London spent on average £13 a day in the local area around their place of work. 45 By adjusting this figure for the differences in pay between industries and regions, and applying it to the direct jobs supported within The Arch Company Portfolio, it is estimated that the 25,600 FTEs currently estimated to be located in The Arch Company spaces would support a total of £47.4m in worker expenditure each year in the local areas surrounding their places of work.

5.10

5.11

45 GLA, 2021. Lost worker vs. tourism expenditure in the Central Activities Zone (CAZ) during the COVID-19 Pandemic

The socio-economic impact of businesses in the railway arches

Supply chain and multiplier impacts

5.12

The Arch Company portfolio indirectly supports employment through its interactions with supply chains. Businesses operating at The Arch Company properties support employment in their respective supply chains by buying supplies, employing business services, or providing goods upon which other businesses rely. The ‘multiplier’ measures the magnitude of this supply chain effect, providing an estimation of how many additional jobs are supported by a job in a given industry. For example, the manufacture of motor vehicles, which requires a large number of specialised parts and equipment, has a high multiplier. Conversely, veterinary services, whilst important, do not require large-scale supply chains and logistics and so has a low multiplier. In this report we combine existing ONS national multiplier estimates for industrial classifications with workspace and employment data to estimate the multiplier for each category of job supported by the portfolio. 46 These multipliers are then applied to the number of FTEs supported by industry to estimate the indirect FTEs associated with the portfolio. In addition to the number of workers generated by activity within the supply chain of organisations in The Arch Company portfolio (indirect employment generation), The Arch Company would support additional employment through the spending by workers located in The Arch Company spaces. Taking the total of £47.4m spent by workers locally each year, it is possible to estimate approximately how many jobs this would deliver in addition to those supported by the supply chains of organisations within The Arch Company portfolio. T he supply chain impacts of the currently operating companies in The Arch Company spaces are estimated to indirectly support a further 16,100 FTEs, and worker expenditure is expected to support a further 1,400 FTEs on top of this figure. This creates a combined figure of a further 17,500 FTEs supported in addition to those directly based within the portfolio. By analysing the composition of each industry’s supply chain in conjunction with industry standard multipliers, it is estimated that the indirect and induced FTEs generate £1.3bn of GVA . When combined with the current GVA that is directly supported by the portfolio, the total GVA associated with the portfolio is £3.3bn . If the commercial property occupied within The Arch Company portfolio were a local authority, and these indirect and induced impacts are taken into account, it would rank above 162 of the 375 local authorities in the UK in terms of its economic contribution.

5.13

5.14

5.15

5.16

Economic impact within six case study areas

5.17

This report presents the key economic impacts of The Arch Company in six case study local authorities of Southwark, Lambeth, Tower Hamlets, Wandsworth, Manchester, and Hackney. These local authorities represent some of the local authorities with the highest amount of commercial floorspace operated by The Arch Company, together amounting to 46% of the total commercial space within The Arch Company portfolio. As shown in Table 5.3 below, The Arch Company space supports an estimated 4,900 FTEs within the borough of Southwark alone. Taking these six areas in combination, The Arch Company portfolio supports over £870m in economic activity (as measured through GVA) every year.

5.18

46 Multiplier impacts taken from ONS, 2023. FTE multipliers and effects, reference year 2019

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