1. with other cities. This flow can exist

1.   
Introduction

 

In
this research paper, City of London will be used as an example to evaluate as a
conduit for the flows of international finance in term of globalisation. In the
21th century, the cities and increasingly globalised. Globalisation
changes how city works drastically. The success of a business does not restrict
to the location it chose and the flow of finance had changes from flow within
the same city to the flow with other cities. This flow can exist thanks to the
rising of advanced service provider. Advanced service provider had provided
services such as finance, law, real estate and many more.  Some of these firms act as a conduit for the
flow of finance in City of London. The purpose of this paper is to discuss how
real estate commercial office effects the flow of finance in terms of City of London.
City of London was chosen to be the example for this research paper because
City of London is one of the leading global financial centre making it the best
option to be used to discuss.

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2.   
History
of London

 

In
1983, Former prime minister, Margaret Thatcher had initiate a policy called the
Big Bang to deregulate the financial market. An agreement was signed between
the British government and the London Stock Exchange to terminate the
restriction on fixed minimum commissions, the ‘single capacity’ rule, and
allowing all foreigners from stock exchange memberships to participate. The big
bang policy had led to massive changes in the structure of the financial
markets in London.  It can be seen that
old firms were takeover by large banks. City of London had then evolved into a
global financial capital to rival New York City which had the major market
exchanges in the 1980s. Since then, city of London had become the world leading
exporter of financial services in the European country and across the world.

 

3.   
Globalisation

 

Globalisation
is the process of the world become interconnected as a result of increasing
exchange of information, trading and capital around the world. Globalization
had been taking places for the past centuries, but only recently in the last
half century that the process had speed up. The biggest company in the world
now is not only national firm but multinational firms which had set up HQ among
the world cities.

 

3.1.  World Cities Hypothesis

 

The concept of ‘World Cities Hypothesis’ was first
introduced by Friedmann in the year 1986. World cities are the major sites for the
concentration and accumulation of international capital.
(Friedman, 1986) In diagram 1, Z/Yen (2017) shows that ranked cities have linked
with others financial centre closely. The financial flows within all these
cities and London act as a concentration point for many others major world
cities. Friedmann also stated that World cities are the points of destination for
large numbers of both domestic and/or international migrants. London. The benefits
of evolving into a world city is that world cities are connected to each other.
Exchanging of information, technology and human capital is essential for the growth
of a world city.

 

3.2.  Global Cities

 

Key cities throughout the world are used
by global capital as ‘basing points’ in the spatial organization and
articulation of production and markets. The resulting linkages make it possible
to arrange world cities into a complex spatial hierarchy (Friedmann, 1986).
Headquarters of multinational corporation, advanced
producer services such as, especially financial services and banks, law firms,
real estate firms, will settle in a global city as their ‘command point’. These
global cities are interconnected with each other. A core function of the
interconnected global cities in contemporary globalization is to house the
institutional business and built physical infrastructures that allow
international financial transactions and flows to occur. (Colin Lizieri &
Kathy Pain, 2013) Global Cities links with each other to exchange information
and learn from each other.

The global control
functions of world cities are directly reflected in the structure and dynamics
of their production sectors and employment. (Friedmann, 1986) According to
Friedmann, workforces in a global city are separated into two major categories:
high-skilled professional that focus in service functions and low-skilled
workers such as in manufacturing. A global city such as Shanghai clearly
defined the statement. Shanghai highly employed low skilled workers in their
manufacturing business such automobile manufacturing whilst high-skill workers
are employed in the financial sector. Human capital is still one of a factor
that a city can become a global city. Business certainly wanted a city which
can provide enough workforce.

 

3.3.  City of London

 

After the big bang event, City of London
had been the base of many multinational firms. The turn to macro-scale analysis
above the level of regional and national urban systems emphasized
interdependencies between ‘world city’ formation and global economic
restructuring (Wolff, 1982; Friedmann, 1986). From the research Global
Financial Centres Index (GFCI) 22 that was conducted by Z/yen (2017), London as
one of the top global cities, was ranked as the top 1 in 5 major sector such as
business environment, human capital infrastructure, financial sector
development and reputation as shown in Diagram 3. London is also ranked number
one in the financial centre competitiveness assessment and winning a head of
other global cities such as New York, Hong Kong, Singapore, Tokyo dated
September 2017. London had been quite consistent in the raking of GFCI
throughout the research from 2007 until today as shown in Diagram 4. Diagram
also shows that in the year of 2017, other top rank global cities as mention
above had decrease in rating while only London had increase the rating. This shows
that there is a drop of confidence in the leading cities.

 

3.4.  Clustering

 

Michael Porter (1998) also emphasises that
“Clusters are geographic concentrations of interconnected companies,
specialised suppliers, service providers, firms in related industries, and
associated institutions in particular fields that compete but also cooperate. A
cluster doesn’t define as the institutions that are in the same fields gather
together but also the institutions that are supporting each other. Nowadays,
huge amount of service centres that support world economy had been highly
concentrated in global cities. (Sassen,
1991). Qualitative research also has shown that
the location of international banking and financial service firms plays a
critical role in supporting and sustaining global city APS clustering (TAYLOR et al., 2003; PAIN, 2007) endorsing the importance ascribed to the role of
international financial centres. Businesses clustered together to has a higher
efficiency of using the resources and infrastructure nearby. Firms wants to be
near to relevant institutions and activity. For example, when a valuation firm
or a law firm will appear next to a bank. By establishing business near each
other, business can also gain access to workforce easier. From a report by City
of London (2015), 36% and 26% of workforce were employed in financial services
and professional services respectively in the city. This shows that more than
60% of workforce was hired in professional sector that had clustered in the
city.

 

4.   
Players
in London – Advanced Producer Services (APS)

4.1.  Location of APS

 

As
technology changes rapidly in this era, the roles of location of firms became
less and less important. Firms do not require a physical shop to run business.
However, location of a firm is still an important key for a business to be successful.
Location affects competitive advantage through its influence on productivity
and especially on productivity growth. (Michaels Porter, 2000) When businesses
are close together, they create competition. It is vital for a competitive firm
to have close connection with its supplier, buyers and other supporting
institution. Ranking of the Global Centre Financial Index is produced using the
methodology
of comparing the competitiveness of a financial centre. Workers and businesses that are close together are
likely to learn from each other. This create a phenomenon called ‘knowledge
spillover’. Firms will start to compete with each other and improve in the
future, stimulating the economy of London.

 

4.2.  Real Estate Firms and
Financial Service Firms

 

As mentioned before,
institution of supporting roles generally will clustered together to enjoy the
use of infrastructure and resources. The practice of clustering can be
illustrated using the example of a real estate firms and a financial service
firms. Example of a financial service firms is the HSBC bank in the UK. HSBC
bank is one of the largest and single most important banks in the world. From
the maps achieved from Google Maps, we can see that HSBC bank has set up
several branches near City of London. Institutions of supporting roles such as a
Real Estate Firms, e.g. Savills can be seen from google maps as well that they
practice the habits of clustering. Both of these institutions are located in a
close proximity and supporting each other. This allowed the economy of London
to run smoothly. The breadth of the London’s economy means that it is not
shaped by the product it produced, it was shaped by the ways of firms working
together. Working together will induced growth to the economy.

5.   
Commercial
Real Estate Office

 

Dated
at the 30th September 2017, the Office Stock Estimate of B1 floorspace was
estimated to be 8.77 million m2. (City of London, 2017) From a
statistic by City of London, it is estimated that for each of the financial
years from 2017/18 to 2020/21 there will be constant net increase in office
floorspace ranging between 280,000m2 to 400,000m2. This
is because City of London must ensure that the global city will be able to
provide the highest quality of office spaces to serve the demand for long term
employment growth. Diagram 6 shows the concentration of office space in terms
of number of office addresses and quantity of floorspace. From the diagram, we
understand that the office spaces tend to have higher concentration in the
eastern part of the London City and in the eastern part of City of London,
offices spaces with spaces ranging from 25,000m2 to 100,000m2
is this under construction. Eastern part of London of City also has a higher
concentration of workforce in Financial & Insurance Activities and in the
western part of the city has higher concentration of Professional & Estate
Activities, which can be studied in Diagram 8 and Diagram 9 respectively. The
pattern of the distribution of B1 office spaces is relatively similar with the
pattern of the distribution of the workforce. With the amount of workforce for
Professional & Estate Activities together with Financial & Insurance
Activities, these two major industrial sectors in the City of London take up to
70% of the workforce. (City of London, 2014). 
According to ONS Business Register Employment Survey 2014, this is
because City of London is an internationally recognised as the global leading
financial hubs and business centre, employing 414,600 people across the square
mile. Financial activity is embodying and embedded in real estate, the office
space in which the transactions and information flows occurs. The quantity and quality of the existing office stock
market provided and the market’s ability to produce new office space suitable
for global financial firms and linked specialist service supplier forms part of
the attributes that create an international financial centre and cannot or should not be assumed away.
(Lizieri; Pain, 2014).

6.   
International
financial Markets and Real Estate Office Market

6.1.  International Financial
Centre  

 

A lot of business still choose London as
their base for their company despite the effects of Brexit. A report from
Savills’s stated that the leasing activity of London was 17% higher than the long-term
average in the first three quarter of 2017. This shows that despite the fact
that British to leave European Union, the City of London still the choice of
business to settle for business. This is because the amount of workforce and
infrastructure cannot just be simply moved to other location. International finance is partially grounded in high-density
office infrastructures, for example the City of London (Taylor., 2003). Human
capital is one of the major work force for international financial centre.
Dated in 2015, more than 700,000 of workforce was employed in financial sector.
(Business insider UK, 2018) Business that require professional workforce will
still consider City of London as their base.

 

6.2.  REITs Market

 

REITs was brought and legislated in the UK in year
2007. But in year 2008, it was not easy for REITs in the UK during the facing
financial crisis. After the end of financial, the increasing of foreign investors
in the UK played a key role in the rise of City of London hence then developed
into global finance centre. Foreign investors had accounted for more than 50%
of acquisition volumes since 2014. And now, nearly 10 years later, more than
80% of the listed property company had converted to REITs. (Ernst & Young,
2016) According to Colin Lizieri; Kathy Pain (2014), real estate is a physical manifestation of the nodes
of that network of cities and a conduit for flows of finance: it stores and
locks down value. The market value
of UK real estate is £1.662 billion, representing 21% of total net wealth. Real estate
contributes a total worth of £94 billion to the UK economy, which represent
5.4% of London’s GDP. (BPF, n.d.) This clearly shows that the real estate is
such a significant role in the induce of finance flow for City of London.

1.   
Introduction

 

In
this research paper, City of London will be used as an example to evaluate as a
conduit for the flows of international finance in term of globalisation. In the
21th century, the cities and increasingly globalised. Globalisation
changes how city works drastically. The success of a business does not restrict
to the location it chose and the flow of finance had changes from flow within
the same city to the flow with other cities. This flow can exist thanks to the
rising of advanced service provider. Advanced service provider had provided
services such as finance, law, real estate and many more.  Some of these firms act as a conduit for the
flow of finance in City of London. The purpose of this paper is to discuss how
real estate commercial office effects the flow of finance in terms of City of London.
City of London was chosen to be the example for this research paper because
City of London is one of the leading global financial centre making it the best
option to be used to discuss.

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For You For Only $13.90/page!


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2.   
History
of London

 

In
1983, Former prime minister, Margaret Thatcher had initiate a policy called the
Big Bang to deregulate the financial market. An agreement was signed between
the British government and the London Stock Exchange to terminate the
restriction on fixed minimum commissions, the ‘single capacity’ rule, and
allowing all foreigners from stock exchange memberships to participate. The big
bang policy had led to massive changes in the structure of the financial
markets in London.  It can be seen that
old firms were takeover by large banks. City of London had then evolved into a
global financial capital to rival New York City which had the major market
exchanges in the 1980s. Since then, city of London had become the world leading
exporter of financial services in the European country and across the world.

 

3.   
Globalisation

 

Globalisation
is the process of the world become interconnected as a result of increasing
exchange of information, trading and capital around the world. Globalization
had been taking places for the past centuries, but only recently in the last
half century that the process had speed up. The biggest company in the world
now is not only national firm but multinational firms which had set up HQ among
the world cities.

 

3.1.  World Cities Hypothesis

 

The concept of ‘World Cities Hypothesis’ was first
introduced by Friedmann in the year 1986. World cities are the major sites for the
concentration and accumulation of international capital.
(Friedman, 1986) In diagram 1, Z/Yen (2017) shows that ranked cities have linked
with others financial centre closely. The financial flows within all these
cities and London act as a concentration point for many others major world
cities. Friedmann also stated that World cities are the points of destination for
large numbers of both domestic and/or international migrants. London. The benefits
of evolving into a world city is that world cities are connected to each other.
Exchanging of information, technology and human capital is essential for the growth
of a world city.

 

3.2.  Global Cities

 

Key cities throughout the world are used
by global capital as ‘basing points’ in the spatial organization and
articulation of production and markets. The resulting linkages make it possible
to arrange world cities into a complex spatial hierarchy (Friedmann, 1986).
Headquarters of multinational corporation, advanced
producer services such as, especially financial services and banks, law firms,
real estate firms, will settle in a global city as their ‘command point’. These
global cities are interconnected with each other. A core function of the
interconnected global cities in contemporary globalization is to house the
institutional business and built physical infrastructures that allow
international financial transactions and flows to occur. (Colin Lizieri &
Kathy Pain, 2013) Global Cities links with each other to exchange information
and learn from each other.

The global control
functions of world cities are directly reflected in the structure and dynamics
of their production sectors and employment. (Friedmann, 1986) According to
Friedmann, workforces in a global city are separated into two major categories:
high-skilled professional that focus in service functions and low-skilled
workers such as in manufacturing. A global city such as Shanghai clearly
defined the statement. Shanghai highly employed low skilled workers in their
manufacturing business such automobile manufacturing whilst high-skill workers
are employed in the financial sector. Human capital is still one of a factor
that a city can become a global city. Business certainly wanted a city which
can provide enough workforce.

 

3.3.  City of London

 

After the big bang event, City of London
had been the base of many multinational firms. The turn to macro-scale analysis
above the level of regional and national urban systems emphasized
interdependencies between ‘world city’ formation and global economic
restructuring (Wolff, 1982; Friedmann, 1986). From the research Global
Financial Centres Index (GFCI) 22 that was conducted by Z/yen (2017), London as
one of the top global cities, was ranked as the top 1 in 5 major sector such as
business environment, human capital infrastructure, financial sector
development and reputation as shown in Diagram 3. London is also ranked number
one in the financial centre competitiveness assessment and winning a head of
other global cities such as New York, Hong Kong, Singapore, Tokyo dated
September 2017. London had been quite consistent in the raking of GFCI
throughout the research from 2007 until today as shown in Diagram 4. Diagram
also shows that in the year of 2017, other top rank global cities as mention
above had decrease in rating while only London had increase the rating. This shows
that there is a drop of confidence in the leading cities.

 

3.4.  Clustering

 

Michael Porter (1998) also emphasises that
“Clusters are geographic concentrations of interconnected companies,
specialised suppliers, service providers, firms in related industries, and
associated institutions in particular fields that compete but also cooperate. A
cluster doesn’t define as the institutions that are in the same fields gather
together but also the institutions that are supporting each other. Nowadays,
huge amount of service centres that support world economy had been highly
concentrated in global cities. (Sassen,
1991). Qualitative research also has shown that
the location of international banking and financial service firms plays a
critical role in supporting and sustaining global city APS clustering (TAYLOR et al., 2003; PAIN, 2007) endorsing the importance ascribed to the role of
international financial centres. Businesses clustered together to has a higher
efficiency of using the resources and infrastructure nearby. Firms wants to be
near to relevant institutions and activity. For example, when a valuation firm
or a law firm will appear next to a bank. By establishing business near each
other, business can also gain access to workforce easier. From a report by City
of London (2015), 36% and 26% of workforce were employed in financial services
and professional services respectively in the city. This shows that more than
60% of workforce was hired in professional sector that had clustered in the
city.

 

4.   
Players
in London – Advanced Producer Services (APS)

4.1.  Location of APS

 

As
technology changes rapidly in this era, the roles of location of firms became
less and less important. Firms do not require a physical shop to run business.
However, location of a firm is still an important key for a business to be successful.
Location affects competitive advantage through its influence on productivity
and especially on productivity growth. (Michaels Porter, 2000) When businesses
are close together, they create competition. It is vital for a competitive firm
to have close connection with its supplier, buyers and other supporting
institution. Ranking of the Global Centre Financial Index is produced using the
methodology
of comparing the competitiveness of a financial centre. Workers and businesses that are close together are
likely to learn from each other. This create a phenomenon called ‘knowledge
spillover’. Firms will start to compete with each other and improve in the
future, stimulating the economy of London.

 

4.2.  Real Estate Firms and
Financial Service Firms

 

As mentioned before,
institution of supporting roles generally will clustered together to enjoy the
use of infrastructure and resources. The practice of clustering can be
illustrated using the example of a real estate firms and a financial service
firms. Example of a financial service firms is the HSBC bank in the UK. HSBC
bank is one of the largest and single most important banks in the world. From
the maps achieved from Google Maps, we can see that HSBC bank has set up
several branches near City of London. Institutions of supporting roles such as a
Real Estate Firms, e.g. Savills can be seen from google maps as well that they
practice the habits of clustering. Both of these institutions are located in a
close proximity and supporting each other. This allowed the economy of London
to run smoothly. The breadth of the London’s economy means that it is not
shaped by the product it produced, it was shaped by the ways of firms working
together. Working together will induced growth to the economy.

5.   
Commercial
Real Estate Office

 

Dated
at the 30th September 2017, the Office Stock Estimate of B1 floorspace was
estimated to be 8.77 million m2. (City of London, 2017) From a
statistic by City of London, it is estimated that for each of the financial
years from 2017/18 to 2020/21 there will be constant net increase in office
floorspace ranging between 280,000m2 to 400,000m2. This
is because City of London must ensure that the global city will be able to
provide the highest quality of office spaces to serve the demand for long term
employment growth. Diagram 6 shows the concentration of office space in terms
of number of office addresses and quantity of floorspace. From the diagram, we
understand that the office spaces tend to have higher concentration in the
eastern part of the London City and in the eastern part of City of London,
offices spaces with spaces ranging from 25,000m2 to 100,000m2
is this under construction. Eastern part of London of City also has a higher
concentration of workforce in Financial & Insurance Activities and in the
western part of the city has higher concentration of Professional & Estate
Activities, which can be studied in Diagram 8 and Diagram 9 respectively. The
pattern of the distribution of B1 office spaces is relatively similar with the
pattern of the distribution of the workforce. With the amount of workforce for
Professional & Estate Activities together with Financial & Insurance
Activities, these two major industrial sectors in the City of London take up to
70% of the workforce. (City of London, 2014). 
According to ONS Business Register Employment Survey 2014, this is
because City of London is an internationally recognised as the global leading
financial hubs and business centre, employing 414,600 people across the square
mile. Financial activity is embodying and embedded in real estate, the office
space in which the transactions and information flows occurs. The quantity and quality of the existing office stock
market provided and the market’s ability to produce new office space suitable
for global financial firms and linked specialist service supplier forms part of
the attributes that create an international financial centre and cannot or should not be assumed away.
(Lizieri; Pain, 2014).

6.   
International
financial Markets and Real Estate Office Market

6.1.  International Financial
Centre  

 

A lot of business still choose London as
their base for their company despite the effects of Brexit. A report from
Savills’s stated that the leasing activity of London was 17% higher than the long-term
average in the first three quarter of 2017. This shows that despite the fact
that British to leave European Union, the City of London still the choice of
business to settle for business. This is because the amount of workforce and
infrastructure cannot just be simply moved to other location. International finance is partially grounded in high-density
office infrastructures, for example the City of London (Taylor., 2003). Human
capital is one of the major work force for international financial centre.
Dated in 2015, more than 700,000 of workforce was employed in financial sector.
(Business insider UK, 2018) Business that require professional workforce will
still consider City of London as their base.

 

6.2.  REITs Market

 

REITs was brought and legislated in the UK in year
2007. But in year 2008, it was not easy for REITs in the UK during the facing
financial crisis. After the end of financial, the increasing of foreign investors
in the UK played a key role in the rise of City of London hence then developed
into global finance centre. Foreign investors had accounted for more than 50%
of acquisition volumes since 2014. And now, nearly 10 years later, more than
80% of the listed property company had converted to REITs. (Ernst & Young,
2016) According to Colin Lizieri; Kathy Pain (2014), real estate is a physical manifestation of the nodes
of that network of cities and a conduit for flows of finance: it stores and
locks down value. The market value
of UK real estate is £1.662 billion, representing 21% of total net wealth. Real estate
contributes a total worth of £94 billion to the UK economy, which represent
5.4% of London’s GDP. (BPF, n.d.) This clearly shows that the real estate is
such a significant role in the induce of finance flow for City of London.

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