University of Reading, UKReal Estate & Planning

Kathy PainNick Green

Content

Reading in ‘TIGER’

① The Reading team② Research focus③ INTERREG IIIB ‘Polynet’ Study④ World city network analysis 2008⑤ Towers of capital

The Reading team

• Kathy Pain• Nick Green • Sandra Vinciguerra• Scarlett Palmer• Sarah Smith

Consultants: Peter Taylor, Michael Hoyler Colin Lizieri

Flows and networks – Role of ReadingWP 2.2.2; WP 2.3.1; WP 2.3.2• Territorial & urban structures: A

comparative perspective• Economic flows and networks• Financial flows & impact of the financial

crisis

WP 2.3.5; WP 2.4; WP 2.5• Flows and gateways: maritime and airflows• Political cooperation and networks• Policy options

Research focus – Flows and places

GaWC focusGlobal service networksKPMG 2003

World city network analysis

• 1998 - GaWC was set up to study relations between world cities (a neglected topic but vital for understanding contemporary globalization)

Quantitative analysis:• 1999 - a network model was devised that

enabled business relations between cities to be measured

• 2000 - this model was applied to relations between 315 cities worldwide using 100 ‘global service firms’

• 2004 - the exercise was repeated to enable changes in spatial relations to be shown

• 2008 - more on this later…

The method

• The model is an interlocking network model in which firms ‘interlock’ cities through their everyday business practices

• The firms are large service firms who sell knowledge products (financial, professional, creative) to global players (corporations, states)

• To service their clients they need large office networks in cities across the world

• It is service firms’ office networks that we focus upon in this research

Firms and their offices interlock cities

• Thus unlike most networks that have just two levels, here we have three: the net level (world economy), the nodal level (cities) and a sub-nodal level (firms)

• It is the location decisions of the firms at the sub-nodal level (where they decide in which cities to have their offices) that makes the network

• The world city network is the aggregate of all the flows of people, information, knowledge, plans, instructions, ideas, etc. that connect offices in carrying out the financial, professional or creative servicing of clients

Connectivity – Proxy for flows

• But information of these commercial flows is not readily available

• Therefore we use indirect measurement based upon simple assumptions such as the bigger the office the more flows are generated

• Hence two cities both with large offices of a firm will generate more flows than another pair of cities both with small offices

• In this way we estimate connectivities between cities

Many associated projects...

‘TIGER’ objectives – Reading WPsWP 2.2.2 Territorial and urban structures: a comparative perspective

• To assess the contemporary urban structure in Europe, including the role of gateways. More precisely, to assess the position of European cities in the cities world network

• To compare the urban structure of the European territory with that of other developed world economic regions identified as strongly connected to the advanced knowledge-based global service economy

• To assess the territorial inequalities of Europe in a comparative and long term perspective

Relevant projects

1. Comparing London and Frankfurt as World Cities - A Relational Study of Urban Change, 2000-2001, with University of Heidelberg, Anglo-German Foundation for the Study of Industrial Society

European Monetary Union, APS global strategy/business practices, urban functional complementarities

2. The City of London and Research into Business Clusters, 2001-2002, with Manchester and Loughborough Business Schools, ESRC/Corporation of London

Business cluster ecology, global agglomeration economies, sustainability, cluster policy

3. POLYNET: Sustainable Management of European Polycentric Mega-City Regions, 2003-06, North West Europe INTERREG IIIB, 9 partners/8 regions

Global city expansion process informed by network analysis at 4 x scales (2000 APS firms), spaces of flows – email, commuting, business travel – focus economic competitiveness,polycentrism

The global ‘mega-city region’

London:Functional region

with western orientation...

Commuting Business

services Email traffic

14

4. Project to Map and Measure the Absorptive Capacity of UK cities and Regions, 2008, National Endowment for Science, Technology and the Arts

Knowledge network connectivity of UK regions – APS, academic/scientific, internet, air

WP 2.3 Flows and networks

To “analyze the space of flows at the world level and understand its meaning in terms of territorial development and new territorial structures” which means:

• To assess the position of Europe and its territories in different types of flows?

• To assess how the flows related to globalization impact on the territorial structure of Europe?

WP 2.3.1 Economic flows and networks (with Peter Taylor, Loughborough)

To answer the question globalization or “continentalization”. It requires assessing at different scales the openness to globalization and the geography of this openness to the outside world

• To assess the national/regional/cities position in the international division of labour

• To assess the territorial impacts of globalization inside Europe

WCN measurement

• We collect data on how important an office is within a firm’s whole office network

• For every firm being studied its city offices are scored from 0 (no office in a city and therefore no flows generated) to 5 (for the city housing the headquarters and thus generating most flows)

• In 2000 we collected such data for 100 firms across 315 cities (i.e. 31,500 pieces of information!)

GNC, FNC

• The key measure to be obtained from analysis of such data is the network connectivity of a city – the total of all its links to other cities.

• We term this the global network connectivity of a city and it is these results that are reported in this talk

• Global network connectivity indicates how densely linked a city is within the world city network: a high score indicates the presence of many offices of firms with numerous other offices in other cities

Results - 2000

• London and New York clearly much more connected than other cities

• Hong Kong a surprise third rank above Tokyo and Paris (but Tokyo was a close third to London and NY when finance alone considered)

• US cities after NY do relatively poorly• In general European cities do well in the top 50

and this is particularly so for German cities – Frankfurt, Munich, Hamburg, Dusseldorf and Berlin

• In contrast UK cities do poorly after London

Results - 2004

• From 2000 to 2004 both sub-Saharan African and US cities show overall relative decline

• There is evidence of UK cities doing better in 2004

• Both Beijing and Shanghai rise between 2000 and 2004 but only from rankings in the 30s to rankings in the 20s (neither appear in next slide)

5. Benchmarking the World City Network: City Connectivities on the Eve of the Financial Crisis, 2009-10, ESRC 2008 World City Network analysis – APS office

network locations/functions – data for 526 cities and 175

firms

The 2008 analysis

• Collected in first half of 2008 (i.e. before main effects of the financial crisis)

• Firms chosen by size• 175 firms made up of the top 75 in Financial

services and the top 25 in Accountancy, Advertising, Law and Management Consultancy

• Number of cities covered increased to 526• Data has been collected as before – cities scored

0,1,2,3,4,or 5 in terms of their use by the firms in their office networks

• With 175 firms and 526 cities there is 92,050 pieces of information

2008 Results summary

a. The same top 4 rankings as before but each city is closer to London

b. Note the surprising fall of Tokyo and rise of Sydney

c.Shanghai and Beijing jump straight into the top 10

d.All US cities bar NY fall out of the top 20e.European cities such as Frankfurt and

Amsterdam drop out but Moscow comes inf. Half the top 20 are from Asia Pacific

Global shift – 2008

NW Europe in the world - 2008

WP 2.3.2 Financial flows and the impact of the financial crisis (with Colin Lizieri, Cambs.)

• To assess the position of Europe and its cities in global financial flows

• To explore the spatial consequences of the crisis

• To analyse data on real estate investment flows in Europe that create the ‘spaces of places’ in which the global service economy operates…

Real estate and cities• Explores the relationship between

commercial real estate investment, global financial capital flows and financial crisis

• Real estate investment largely happens in cities - data on the major property deals compiled by Real Capital Analytics demonstrates how concentrated that investment is

• In particular, major property deals are dominated by office investment and office investment occurs predominantly in globalizing cities

Flows and places

• Analysis of the interconnectedness of global cities by GaWC emphasises the space of flows

• But real estate is a physical manifestation of the nodes of that network of cities, it stores and locks down (in) value

• Innovations in real estate finance and the growth of global property investment funds helped to distribute risk and further lock together the fortunes of the international financial system and the major cities that acted as the coordinating drivers of that system

2007 Financial crisis

• Global financial instability that began in 2007 has led to a resurgence of interest in financial crises, systemic risk and contagion effects

• The role of real estate in banking and credit crises has been highlighted due to the failure of mortgage backed securities acting as a trigger to the liquidity crisis and bank failures

• However, the spatial components of the role of real estate have been neglected in much of the post-mortem analysis

Real estate and risk• Systemic risk arises through the process of

real estate investment in cities and target markets due to the locking together of occupational markets (functionally specialised in financial services activities), investment markets (through acquisition of office space as an asset), supply markets (both through occupational demand drivers and the supply of finance for development), and real estate finance (through property as collateral for lending)

The evidence

• Will provide empirical evidence of the common factors driving office market performance in global financial centres

• Time series data on office rents and capital values for as broad a range of cities as possible will be collected and analysed

• Volatility of rents and values in individual cities act as a proxy for risk in those cities

The analysis

• The data will be analysed to identify common patterns of risk using multivariate exploratory techniques enabling identification of unique and systematic components of risk at city level

• Linkages between the performance of cities and transmission of shocks between markets will be explored...

K.Pain@reading.ac.uk