Civil Engineering – how the proposed relocation of 22,000 civil service roles might impact London and the north

The concept of relocating public sector staff is, of course, not new. The 2004 Lyons Review proposed the relocation of 20,000 roles out of London and the South East over a six-year period. More recently, 14 super-hubs have been created in many of the UK’s main regional commercial centres, led by HM Revenue and Customs – although this has been driven by the benefits of improving and consolidating the central government estate rather than by relocation out of London and the south east.

The scale of the current proposal is considerable, and 22,000 roles represents a quarter of all civil servants located in London. However, the timescale of 2030 means it will take nearly a decade to fully implement.

Importantly, the 2030 target date goes well beyond the next election (and indeed beyond the subsequent one), so political priorities may well change significantly. Given the need to adjust to the new realities of Brexit, the turbulence around COVID-19, and the high probability of further unforeseen events, there will doubtless be many higher priorities for the Government.

There are also many issues around implementation, and it is important to note the difference between roles being transferred out of London and relocating people - whilst the roles may relocate, many staff may not. Experience shows that there can be a high attrition rate amongst employees in long-distance moves, for a range of personal and practical reasons. As an example, the ONS relocated to Newport in 2005/6 as part of the Lyons initiative, but only circa 10% of the staff chose to relocate, resulting in a ‘brain drain’ from the service. 

However, the Lyons programme demonstrates what can be achieved - the target of 20,000 roles was achieved early, and was eventually exceeded, with over 25,000 roles relocated.

Based on the Government’s current average occupational density of 9.2 sq m per full time employee, relocating 22,000 roles could mean around 2 million sq ft being vacated in the London office market. This would be principally in the Victoria and Westminster sub-markets. 

Given office stock in these sub-markets of 21 million sq ft, 2 million sq ft represents nearly 10% of the total office space. Even in normal conditions, this would have a significant market impact, but it will be compounded by the current uncertain outlook for office demand. Of course, civil servants are based in a variety of locations across London, and so some impact could occur in other submarkets.

The announcement comes at a time when central London is already struggling economically as a result of COVID-19, and it would exacerbate the inevitable reduction in space occupied as the working from home revolution plays out (as well as being a psychological blow). However, the lack of available quality stock across the regional markets will necessitate pre-lettings to accommodate the proposed scale of role relocations, and these generally have a lead-in time of 3-4 years. This phasing, plus the overall 10-year timescale will help to cushion the impact on the London office market.

The civil service occupies a mix of government-owned and leased stock, and it is the leasehold estate that is likely to bear the brunt of the downsizing, based around those buildings with upcoming breaks and expiries. There are likely to be good opportunities for conversion to residential (particularly for some older buildings with architectural merit), and given the timescale, the market should be well into recovery phase.

Most of the released office stock is likely to be secondary, and would probably need major refurbishment if retained as office space. This will also depend on the outlook for long-term demand for office space, and the type of space that will be required in the future. 
In the wake of the recent announcement that the GLA is leaving City Hall for the Royal Docks in Newham, we may now be seeing a broader trend towards government roles being relocated out of central London.

The ongoing working from home revolution will probably mean most employers across the public and private sectors will require less space, although it remains an open question as to the extent. Therefore, it is likely that considerably less new space would be required by the civil service than is vacated. In addition, the space in new bespoke buildings could be utilised more efficiently than the current mixed bag of London buildings.

Assuming the current average occupational density of 9.2 sq m per FTE reduces to, say, 7 sq m per FTE, then only 1.5 million sq ft would be required, compared with a potential 2 million sq ft being vacated. This is still a considerable requirement, especially if it is focussed on locations in northern England outside of the established office centres such as Leeds and Manchester. It is, for example, about twice the combined average annual take-up of Sheffield, Newcastle and York (measured over the last five years).

The public sector has already been the lynchpin of take up in some key regional markets this year, particularly as the private sector has been holding fire in the current uncertainty over both the path of economic recovery and future office working patterns.

A shortage of quality stock has been a constraint reflected across most regional markets. The top ten regional office markets have seen very limited development in the last economic cycle following the 2008 recession, and there has been little or no significant grade A stock actively coming through the development pipeline in most smaller towns and cities in the north of England (although many have potential sites for such stock).

The Government’s proposal will provide regional developers with an opportunity to bring forward schemes. For those towns and cities that are chosen for the new hubs, the potential opportunities can be far broader than simply the economic benefit of the jobs created, including placemaking and the reinvigoration of town centres. Local authorities can play a significant role, and there can be benefits to a joined-up approach between local and central Government. For large relocations, a further consideration is the impact on local housing markets in terms of demand, supply and pricing.

It is easy to see the ‘push’ benefits of relocating civil servants out of London. Occupancy and labour costs will be lower (although this will be partly offset by the costs of implementing the proposals). It also provides an opportunity to offer higher quality accommodation that meets a wide variety of objectives, including improved energy efficiency, lower running costs, layouts better suited to collaborative working, and ‘wellness’ features that improve the health and wellbeing of staff.

The ‘pull’ benefits are perhaps even higher up the Government’s list of priorities, given its ‘levelling up’ agenda to boost economic growth in regions outside of London and the south east, particularly in the north of England, and to make policy and decision-making less London-centric.

20% of all civil servants are based in London, which accounts for a corresponding 20% of the overall stock in the central estate. Given London’s size and status, this does not appear unduly weighted towards the capital, when one considers that 25% of UK output is generated there.

But of course, the objective is to help increase the level of output contributed by the rest of the UK. There are sound economic arguments for this, and it is one of the keys to raising the UK’s woeful productivity performance as the economy rebuilds post-COVID-19.

The original Lyons project gives cause for optimism on the potential benefits to the regional economies. Research in 2015 by the Spatial Economics Research Centre found that the Lyons strategy did indeed benefit local economies. It estimated that for every 10 civil service jobs that relocated to an area, 5.5 local private sector jobs were created (although there was some crowding-out of the manufacturing sector).

The over-centralisation of government decision-making in London is widely acknowledged as a problem for the UK (and England in particular). Although a fifth of civil servants are London-based, the picture looks very different when considering the seniority of roles. According to the Institute for Government, 68% of senior civil servants are located in the capital, whilst only 9% of the less senior grades are located there. In the northern regions, the picture is reversed. The North East, for example, accounts for 7% of all civil servants, but has only 2% of senior civil servants.

The relocation strategy is targeted across all civil service grades with an objective that many senior grades are relocated. This is a vital element for the success of the project, but the decision-making process must also be devolved.  The Government’s proposal is unlikely to succeed by simply relocating large numbers of civil servants to some selected cities in the north, if key decisions continue to be taken in London.

In reality, there is likely to be a natural limit to how much relocation can occur. London remains the nation’s capital, and it is perhaps inevitable that the most important policy decisions will be taken there. Many of the senior roles will still need to be in London for much of the time, and there will probably be resistance to the proposals. The risk, therefore, is that it will be predominantly the lower level jobs that will move, potentially undermining the concept.

Then there is the question of which towns and cities should benefit, and there will inevitably be winners and losers. The agglomeration of skills has always been a key ingredient of economic success, both for organisations and places. Successful places build on their existing strengths, specialisations and skillsets, and it can be difficult to artificially create them.

Choosing the optimum locations will be a fine balancing act - the wrong choices could be detrimental to the civil service whilst not providing the hoped-for economic benefit. HS2 may well influence where the new regional civil service hubs are based. Rapid access to London could be an advantage if senior civil servants are required to attend meetings in London on a regular basis.

But perhaps there is a more fundamental question mark over this approach, to uproot jobs from one part of the country to another. Is this concept now outdated, given the increase in home working and speculation as to how the entire office model and its role in supporting businesses might evolve?