In recent years, London has played an increasingly important role in hosting the headquarters of multinational corporations (MNCs) – yet this aspect of London’s commercial activity has been somewhat understudied in comparison with its role as a centre for global tech, finance and creative industries. This is partly because headquarter (HQ) location choice is usually a secretive process, ¹ and partly due to the diverse range of functions that can comprise “HQ activities”.

Nonetheless, the decisions of large businesses play a major role in shaping cities, and the public debate over how headquarters should relate to their cities has also intensified. As technology multinationals have grown tremendously in size and value, their monumental headquarter investments are attracting attention. Amazon’s HQ2 public auction and Apple’s new HQ in Silicon Valley have rekindled debate about using public budgets to attract headquarters: some in US cities see them as a lifeline, others as a mixed blessing. ² IBM ³ and Adidas ⁴ have expanded their regional HQs in Shanghai this year, and Alibaba is now transitioning to a two HQ model, in Hangzhou and Beijing. ⁵

London has also attracted new corporate temples as Bloomberg, Facebook and Google have made very large investments in new central London offices. However, Brexit has brought into question London’s position as a centre for European HQs: the location of multinationals’ offices has featured heavily in Brexit debates, and in the press every headquarters, move becomes “about” Brexit.

This report seeks to better understand London’s current HQ economy, its impact on London, how it has developed to date, the risks that it faces, and how policy should respond to these. This introduction first surveys London’s success as an HQ location – both through a review of recently reported locations in, and relocations from London, and through analysis of longer-term trend data on London’s performance.

Case studies: London’s HQ stories

Brexit has brought about a wave of stories relating to the relocation of global and regional headquarters into or out of London. Perhaps unsurprisingly, the picture is much more complex than the headlines may suggest. There is a huge variation in HQ activity amongst businesses of different sizes, sectors and countries of origin. Whereas London is experiencing decline or uncertainty in some areas, it appears to be thriving in others. Some examples of the different types of “HQ stories” about London are included in the case studies below.

HQ stories

Recently committed to stay:

• HSBC, reportedly considering leaving for Hong Kong on multiple occasions
  particularly post-crash in response to banking regulations), committed in 2016 to keep its global headquarters in London – although up to 1,000 employees could move to Paris. ⁶ HSBC’s UK headquarters is now in Birmingham, but the global HQ is in London.
• Unilever had planned to consolidate from London to Rotterdam but shareholders forced the company toback down – so it announced in 2018 that it would maintain a “duallisted” structure. ⁷
• In 2019, Citi are buying their HQ in London, but also expanding their Paris office. ⁸

Moving into London from out of town:

• Amazon’s UK business is headquartered in London and is taking new office space for at least 1,700 people in corporate functions in Hackney and is also doubling its London R&D function, after moving out of Slough. Plans were announced
  in 2014. Amazon also invested in smaller headquarter functions in other European cities including Paris, Madrid and Milan, while its European base was originally set up in Luxembourg in 2006. ⁹
• In 2018, medicine company Novartis unveiled plans to move from its Surrey business park into London – to be part of a new life sciences cluster in White City. The business is headquartered in Switzerland but the UK office will be “supporting the global operations of Novartis”, including through R&D functions. ¹⁰
• Kraft Heinz’s European HQ moved from Hayes to central London in 2017. ¹¹

Older HQ moves to London from abroad:

• In 2014, Starbucks announced plans to move their European HQ from the Netherlands to London. ¹² Reporters linked the move to a change in tax rules introduced by the UK government, but Starbucks said that the move would enable them to “better oversee the UK market, where more than half our European stores are located”. In 2018 Starbucks announced plans to close their offices in Amsterdam and consolidate its European headquarters in London, as it moves to a model where it leases its stores in several other European countries to an “operating partner”. ¹³
• Insurance firm Aon moved its global HQ from Chicago into London, shifting its domicile to the UK in 2012. ¹⁴ The move was high profile, because of Aon’s size – the company has “approximately 500 offices worldwide, serving 120 countries with 50,000 employees”, but also because it became the first company in US stock market S&P 500 to be domiciled in the UK. ¹⁵ According to Aon, “the move provides greater access to emerging markets and takes better advantage of the strategic proximity to Lloyd’s and the London market asone of the key international hubs of insurance and risk brokerage.” Analysts also attribute the move to a specific change in tax rules for “Controlled Foreign Companies” introduced by the government in 2012 ¹⁶ – though changes have since been found by the European Commission to “partially break” EU rules on state aid”. ¹⁷ This move to London also coincided with an expansion of Aon’s presence in Dublin – specifically its Global Risk consulting function. ¹⁸

Large upcoming or recent commitments to London:

• Apple announced in 2016 that it was expanding its London presence, leasing new office space at Battersea. At the time of the announcement, Apple planned to move 1,400 employees there, with space for 3,000 employees in total. Apple’s European HQ remains in Cork, Ireland, where it employs 6,000 staff – mostly in admin, sales, and some in manufacturing functions. Reports claim that the London site will be one of Apple’s largest outside America. ¹⁹
• Google announced in 2013 the construction of a much larger London HQ, at an estimated cost of £1 billion, planning to host 7,000 employees. ²⁰ Google also has a base in Ireland for its support functions for Europe, and has announced three subsequent expansions there since 2003. ¹⁸
• Bloomberg invested in a new building to “bring its 4,000 London-based employees under one roof” – the building opened in 2017 and hosts Bloomberg’s European HQ ²² – and Facebook also opened new London office space in 2017.

Startups heading to London:

• Spotahome – a Spanish property rental platform announced its relocation to London in 2019 – a decision that their founder attributes to senior staff’s preference for London: “I was talking to top executives and it happened either they were already in London or were more willing to relocate to London [than Madrid]”. ²³
• Airwallex, an international payments start up based in Melbourne unveiled in 2019 its plans to expand in Europe and Asia, and has chosen to locate their European sales, development and compliance functions in London. ²⁴

Scaleups moving HQs within London:

• Since 2018, Monzo is moving to larger premises in the City. ²⁵
• Revolut moved from an incubator in Level39 to Columbus Building HQ on Canary Wharf estate in 2018. ²⁶
• In 2018, Digital Shadows moved to Columbus Building HQ on Canary Wharf estate. ²⁷

European regulators out:

• In 2019, The European Medicines Agency has relocated its HQ from London to Amsterdam due to Brexit, taking around 900 jobs. ²⁸
• The European Banking Authority has moved its HQ from London to Paris in 2019 due to Brexit, taking 185 jobs. ²⁹

Companies leaving London:

• Shionogi, a Japanese medicine company, has based its European HQ in London in 2014 but in 2019 unveiled plans to “merge its UK-based operation with a Dutch subsidiary”, which “would see the substantial financial dividends of Shionogi’s European operations bypassing London in favour of the new headquarters”. ³⁰ Shionogi’s plans are not expected to lead to “significant” movements of staff but London may be missing out on some executive jobs or potential.
• Panasonic moved its European HQ from Berkshire to Amsterdam in 2018. Reasons for the move made public were uncertainty about the UK’s “access to free flow of goods and people”, “improved efficiency and cost competitiveness”, and tax treatment: “Panasonic’s decision was driven by a fear that Japan could start considering the UK a tax haven if it cuts corporate tax rates to attract business” according to Panasonic Europe’s Chief Executive. Panasonic said that “fewer than approximately 10” people would be affected by the move, out of a staff of 30 – but this excludes new hires in Amsterdam. ³¹ Other Japanese companies are reportedly making similar moves after uncertainty around how Japanese tax authorities will treat such mergers after Brexit – in 2019, Sony announced it a shift to Amsterdam.
• Dyson announced in 2019 that it would move its corporate head office to Singapore. Reasons advanced by Dyson were to locate closer to its growth markets and manufacturing activities. The Chief Executive is already based in Singapore and wil be joined by the Chief Financial Officer and Chief Legal Officer. Outside sources attribute the shift to the UK’s disclosure rules for privately owned companies, stricter than Singapore’s. Another corporate tax expert quoted by the Financial Times mentions that the Singapore Economic Development Board may have offered a corporate tax break on the account that Dyson “produces high-end goods that would transfer technology to Singapore; it will probably increase capital expenditure and high-skilled headcount; and it would boost R&D activity in the country — all of which is of interest to Singapore.” ³²

Companies not coming to London

• Our knowledge of these is very poor, because location plans are highly secretive. Asked about examples of companies not coming to London, one interviewee mentioned that the city missed out on a “hot European fintech unicorn, with over £1 billion revenue,” which was looking to expand from another European city. “Their natural choice would have been London but they went for Berlin”, because executives wanted to be certain of their future ability to recruit talent throughout the EU.
• The same interviewee also mentioned examples of Japanese companies not coming to London: “Their corporate centre preferred London for longstanding reasons. But because of Brexit they prefer Amsterdam or Germany.”

London’s HQ story in numbers

These much-publicised moves should be seen against a backdrop of considerable success. London has a long history as a location of choice for global corporations’ head offices, yet data suggest that this trend has recently intensified. New and converted office landmarks are changing the face of London’s central business districts as well as that of emerging locations such as Hammersmith, Battersea and King’s Cross.

1. HQ employment and output

National statistics chart a formidable rise in employment in headquarters and related functions since 2007. As Figures 1 and 2 show, there were three and a half times more jobs in “activities of head offices” in 2016 than in 2007. This trend is not restricted to London – employment in activities of head offices has risen just as fast in the UK as whole.

Some of this growth may be explained by a change in how national statistics account for staff. In 2007, the Office for National Statistics expanded its definition of “head office activities” from “employment in multisector conglomerates” to become an industry in itself. ³³ But the growth in head office employment has continued since that change, and correlates with a marked increase in the number of foreign investment HQ projects into London, which is discussed further below.

Not only has head office employment boomed: so has employment in professional service activities such as accounting, public relations, real estate, management consulting and tax advisory – which typically support decision-making and senior management functions in HQs (Figure 1). Looking at the past two decades, employment in these sectors has also risen much faster than the London average (twice as fast in “accounting and tax consultancy activities”, nine times as fast in “management consultancy activities”; Figure 2). And while this professional services cluster doesn’t only serve London-based clients, its growth does suggest that London has become more specialised in servicing corporate decision makers, and that this cluster has been one of the leading forces in London’s economy.

The economic output of “activities of head offices” and “management consultancy activities” has shot up too, increasing sixfold since 1997 as shown in Figure 3 (data is only available for the UK as a whole). This increase is greater than that in employment, meaning that these sectors’ productivity has risen, an anomaly in a time of stagnating (or even falling) productivity for the UK. Output from office administrative support and from accounting and tax consultancy activities has also risen faster than the “all services” baseline, albeit less impressively and only since 2012.

2. London’s global position

The growth of employment and output in head offices and related functions is mirrored by the persistent strength of London and the Wider South East (extending from Cambridge and Oxford to the south coast) as the leading European base for the world’s largest MNCs, and by the increase in the number of overseas HQ investment projects in the region.

Fortune Global 500 companies

Apart from a few exceptions, global HQs usually remain in their country of origin – but multinational companies often set up regional offices that provide corporate leadership for a group of countries in which the company trades. While the UK’s position in global HQ rankings is eroding slowly (as more non-European companies enter the Fortune Global 500), London’s position as a centre for regional headquarters is very strong. London is by far the preferred location for non-European multinationals’ European headquarters. According to a 2018 Deloitte study, out of the 201 Fortune Global 500 companies that have a headquarters in Europe, 114 had located them in the UK, of which 111 were in London and the Wider South East. In other words, London (87 HQs) and the Wider South East (24 HQs) together accounted for 55 per cent of top companies’ European HQs – followed by Geneva (7 HQs), Amsterdam, Dusseldorf and Brussels (5 HQs each). ³⁴ Overwhelmingly, the biggest multinationals have chosen London as their European HQ.

Foreign direct investment (FDI) into headquarters

London is not only a major centre for existing companies’ headquarters – the city is also a great attractor of overseas investment into new headquarters projects, large and small. According to the fDi Intelligence database – which is not exhaustive but is regarded as the industry standard ³⁵ – London was the top-ranked destination city globally for foreign direct investment into headquarters between 2003 and 2018 measured by number of projects, and third-ranked by capital expenditure (Figure 4). London hosted six per cent of the world’s HQ foreign direct investment projects – and that figure increases to eight per cent if we include the rest of the Wider South East.

Since the UK’s vote to leave the EU, London is increasingly presented as being in competition with other European cities. Nevertheless, in recent years, London and the Wider South East has continued to stand out as the leading attractor region of “HQ” FDI projects, attracting one-fifth of all those into Western European countries since 2003 (Figure 5). This is a significant flow of new investment, albeit less than the region’s 55 per cent share of Fortune Global 500 European HQs. Still, London’s attraction of HQ investments has continued at pace, against a backdrop of slowing growth elsewhere since 2008 (Figure 6).

The fDi data also suggest that nearly all HQ investment projects into London serve international markets (Figure 7) – half serve other European countries, a further 19 per cent also serve markets outside Europe (often EMEA), and 12 per cent are investment projects for global headquarters. (This excludes 20 per cent of projects where data on markets served is unspecified.)

See a larger version of Figure 6 on Page 23.

See a larger version of Figure 7 on Page 24.

Risks of complacency?

These statistics tell a strong story: London hosts 55 per cent of the world’s largest companies’ European HQs, and attracts a fifth of Western Europe’s new investment in HQ projects. But whilst these figures may inspire confidence, they only show a partial picture, and should not act as a pretext for complacency.

First, the 2018 Deloitte study reveals that three-fifths of the Fortune Global 500 top companies do not have European headquarters – though this does not necessarily mean that they don’t have a European presence. London is a hub for Europe, and to some extent for the world, but fast-expanding markets are not in Europe and it would make sense if the governance of multinational companies were to shift to the East.

Second, the data carry mixed messages for other UK cities. Only three of the 117 European headquarters of Fortune Global 500 companies are in areas of the UK outside the Wider South East (two are in the Midlands, one is in the North). That said, the fDi data show that Greater Manchester and the West Midlands are in the 20 Western European “regions” that attract the most HQ projects – and still performed better than Brussels, Stockholm or Milan between 2003 and 2018.

Third, it is worth noting that another database of HQ investment analysed by EY records a marked fall in the number of HQ investment projects into the UK, after peaking in 2015. The FT’s FDI data, which we use in this report, does not record such a marked fall for the UK as a whole, but does suggest a slowdown in growth. ³⁶

Finally, the most recent figures for business visitors to London suggest that the city may be on the brink of less buoyant conditions for the first time since 2009. According to ONS estimates, business visits and business spend in London both fell by 5 per cent between 2015 and 2017, their first fall since 2009 – and the first three quarters of 2018 show this trend continuing.

Will the outsized contribution of HQ activities to the city’s growth continue? Confident voices mention London’s long history as a centre of corporate power and control, while others remember London before its urban and economic “renaissance”, and refuse to take the city’s attractiveness for HQs as a given.

To understand how London’s position might change, and the implications of this, we need to investigate the reasons behind the rise of London as an “HQ city” and what impact the presence of HQs has on the city’s economy.

Investigating HQs

This report charts the rise of the HQ economy in London and provides a framework for understanding the value, as well as the challenges, that HQs bring to the capital. How are headquarter functions changing? Are the criteria for their location changing too? Will HQs become a durable engine of growth for the city? Where are London’s long-term strengths and vulnerabilities, and what can be done to address these?

We draw on a mixed methods approach to answer these questions, including:

• A literature review of the HQ economy, its benefits and costs, and how strategic corporate decisions are made.
• Quantitative data on London’s position as a global HQ centre, using foreign direct investment metrics.
• Qualitative data from 25 research interviews with advisers on HQ decisions (in business consulting, real estate and investment agencies in London) and senior executives of London headquarter companies, to gain insight into how companies see their headquarter functions changing and what influences their global location. All but two of our interviews were with London-based professionals – the remainder were with Paris-based organisations.

Chapter 1 defines HQ functions and describes how these are changing; Chapter 2 summarises the value and the challenges that HQs present to global cities; Chapter 3 delves into the criteria companies use in making HQ location decisions; Chapter 4 looks at the strengths and weaknesses of London’s position against these criteria; and Chapter 5 charts the implications for London’s policymakers and business leaders.