Written by Takumi Yamazaki
Agglomeration economies are the advantages that come when businesses and people locate near one another together in cities as well as industrial clusters. Cities form due to location fundamentals, and workers and firms cluster in cities due to the benefits that the cities provide. This concept has dictated the decision-making of locating the relevant infrastructure needed for the specific region to thrive. Cities develop from location decisions by firms and workers with transport costs being a large factor when decision-making; location decisions are driven by the cost of moving goods and people over space (National Bureau of Economic Research). Historically, transport costs were at a high-level meaning people had to commute on foot and raw materials and goods were transported via a waterway. This is the reason why today we see the most prosperous cities are situated by oceans, ports or rivers that meet the sea which emerged due to geographical reasons.
Commercial activities tend to pinpoint close to one another to take advantage of external returns and this leads to firms locating close to one other. A prime example we see is the financial institutions that cluster around Canary Wharf, London. However, there are important factors to consider when commercial activities locate close together. It results in greater competition for land with an increase in land prices, workers locating closer together resulting in congestion and higher rent, higher demand meaning higher wages to compensate workers too (The London School of Economics and Political Science). It is a proven fact that these factors are considered but the ‘London pull’ is too attractive for the big corporations to turn down. The financial institutions in Canary Wharf are an example of the external returns to scale. This results when firms locate in the same area, referred to the place-specific returns to scale as the agglomeration economies are the external benefits that arise from firms and workers locating close to one another.
Firms and workers cluster in cities to reduce transport costs and that transport costs encompass three aspects: the cost of moving goods, the cost of moving people, and the cost of moving ideas. Therefore, cities form in order to bring goods, people, and ideas close to one another to gain economic benefits (Principles of Economies, A. Marshall). London has always taken advantage of this factor and is not shy when it comes to rapid infrastructure advancements in this field. The capital has seen rapid growth in the real estate industry, with residential developments from the UK increasing day-by-day through a rise in demand, economic stability and incentives that come with it. Diverse regions consisting of unique attractions and unrivalled demand fuels innovations and expansions within the city that grab the world’s attention. The boom in properties will sustain a stable backdrop into the future as well as in the present, with investors bringing their wealth to invest in these developments which leads to economic prosperity.
Here are a few examples of the new crops of developments scattered across London that not only attract domestic but also overseas investors too. Cadence, the latest residential launch in King’s Cross is an architecturally striking project comprising 103 private homes. Developed by Argent, the red brick and dramatic arches feature a calming central courtyard and open spaces which respects the past and connects to the present. Thomas Heatherwick‘s studio has designed an outstanding shopping centre at King’s Cross, formed of two Victorian industrial buildings that reach out and touch one another.
10 Park Drive boasts a new high-end residential district just off the well-known office and commercial hub at the Docklands. Residents are best placed for Canary Wharf’s parks, waterways, and countless transportation hubs. The Atlas Building by Rocket Properties is the tallest structure in Old Street which provides 302 apartments, with an extensive array of on-site amenities catering for a luscious lifestyle. South Quay Plaza, a residential panorama situated at Marsh Wall on the Isle of Dogs, opens new access for residents to the Thames waterside and creates pedestrian routes to nearby cities such as Millwall and Cubitt Town. This landmark development is designed by renowned architects Foster + Partners. The buildings are designed to enhance visual connections and public access to the dockside as well as maximise views and daylight for the residential units.
Regardless of the uncertainties of Brexit, as well as the knock-on effects of the Covid-19 pandemic now with the new Omicron variant, London is not losing momentum in this sector. The Agglomeration Economies are truly present especially in London, whether it is for firms or individuals. We have seen that there are countless redevelopments and new infrastructure being built not only for efficiency and growth but also for the rise in demand for office space. The top 5 locations are The City, Westminster, Canary Wharf, Camden & Islington, and Lambeth & Southwark (HubbleHQ).
For more information on new redevelopments and property advice, please get in touch with our team at Falcon Investments.