Support for the creative economy

Written evidence submitted by Workspace [SCE 032]

Summary

· Workspace is a FTSE 250 Plc providing  accommodation and support for around 4,000 SMEs, including around 1,500 creatives, across London.

· Access to finance remains a significant factor in the growth of SMEs, it is not, however, the only factor.

· Issues such as Empty Rates have a largely unrecognized impact on the growth of SMEs and creatives through the knock-on impact from landlord costs limiting the supply of suitable space.

· Clusters and hubs can be incredibly important aspects of the growth of the creative sector. Where appropriate, this should be nurtured. However, there is a risk of an excessive focus on hub creation being counter-productive as businesses prefer an individual to corporate identity.

About Workspace

Workspace, a FTSE 250 Plc, is the leading provider of space for SMEs across London with around 30,000 employees and 4,000 businesses in 100 business centres across the capital.

Approximately a third of our customers are creatives including many well-known brands such as Moonpig, A Suit that Fits, and Rococo Chocolate.

In 2011 we launched Club Workspace, a new concept in flexible working supporting entrepreneurs from spare room to boardroom. With three centres currently at Clerkenwell Workshops, the Leathermarket and Kennington Park, 2012 will see up to three more Club Workspace centres rolled out.

We create unique environments that enable new and growing businesses to have the freedom and opportunity to thrive. Our customers are at the heart of London’s real economy and we provide them with the right space and services to help them grow. The flexibility of our leases and IT contracts equips our many small businesses with the tools to expand and contract, making business planning more certain.

Being a Workspace customer means being part of a community of over 4,000 ambitious businesses in over 100 London locations.

Barriers to growth in the creative industries-such as difficulties in accessing private finance-and the ways in which Government policy should address them. Whether lack of co-ordination between government departments inhibits this sector;

In 2010, Workspace commissioned a study from the Kingston Small Business Research Unit looking at factors affecting growth in SMEs. This focused on the adjustment strategies used by a sample of small firms in response to recessionary pressures, together with the effects on post-recession performance. SMEs adapted to the recession in a wide variety of ways: some implementing practices aimed at cutting costs; others focusing on generating revenue; while others sought to combine the two types of action.

One of the starting points for the study was to investigate how small businesses have managed the transition to recovery. The type and number of practices introduced vary by organisational characteristics such as the level of performance achieved and by size of enterprise. Moreover, findings suggest that larger enterprises were more likely to take actions that would generate income in 2010 than they did in 2008/09.

In terms of financing, more than half of the survey sample reported using some form of external finance in the financial year ending in 2010, mainly for working capital. However, the use of external finance during this period was not systematically related to firms with a particular level of performance. The majority of firms applying for external finance were able to obtain either all or some of it. Bank overdrafts and business credit cards were the most commonly sources. Some of the firms seeking finance from high street banks had not been able secure any, and a third of those who applied for bank loans were unsuccessful. Those firms seeking finance through other sources than banks were typically able to obtain all or some from trade credit, factoring, grants or subsidised loans, family and friends, as well as formal equity finance and business angels.

Main survey results:

· Little change in finance-related conditions due to the effects of external conditions were reported, with the exception of the level of cash at the bank.

· The survey also reported on management actions taken in response to external conditions;

· 70 per cent reported focusing principally on revenue-generating actions.

· 29 per cent concentrated on cost-cutting.

· 1 per cent reported incorporating cost-cutting and revenue-generating practices

Revenue-generators were slightly more likely to achieve better sales and profit margin performance in 2010 than cost-cutters, although the difference was not statistically significant. This suggests that businesses adapting to recession by implementing revenue-generating and cost-cutting actions are equally likely, in aggregate, to perform better during the macroeconomic recovery phase than during recession.

In terms of finance-related actions;

· About a quarter of SMEs reported renegotiating terms with suppliers.

· More businesses increased their use of personal savings (24 per cent) in 2010 compared to 2008/09, whilst reducing debts to external sources.

· Less than one in five reported any of the other specified actions-including reducing investment expenditure and shortening payment periods from customers or creditors.

The extent to which taxation supports the growth of the creative economy, including whether it would be desirable to extend the tax reliefs targeted at certain sectors in the 2012 Budget;

Empty Rates

The issue of empty rates is an ongoing political discussion. The focus has tended to be on large scale regeneration projects and property transactions. However, at a different point in the scale, the current system of Empty Rates is a tax on the growth of SMEs and a brake on economic growth.

As a business focused on providing space flexibility to entrepreneurs and SMEs it is essential to hold onto empty space, Workspace and other businesses which focus on providing space for SMEs, require around 10% vacancy rates at any one time to facilitate the churn of small business. The current empty rates regime is a liability to Workspace of £3m per year. This is the equivalent cost of creating 30,000 square feet of new, flexible, business space, which would accommodate around 120 small businesses creating around 300 jobs.

National Insurance

The Government introduced a National Insurance holiday for start-ups outside of London and the south east who take on employees. This fails to recognize the importance of London and the south east as a generator for economic growth, particularly within the SME sector.

The costs of taking on employees can be prohibitive, limiting the ability of small firms to grow by taking on permanent staff and increasing reliance on freelancers. Extending the NI holiday to firms in London and the south east and widening the definition of a start-up could generate significant returns in terms of the ability of small firms, who may otherwise rely on contract or reduced staff levels, to take on employees and better afford growth.

The importance of "clusters" and "hubs" in facilitating innovation and growth in the creative sector. Whether there is too much focus on hubs at the expense of encouraging a greater geographical spread of companies through effective universal communication;

The creation of clusters and hubs can prove exceptionally productive in terms of facilitating the growth of specific sector-focused industries. Silicon Roundabout is an example of a cluster across a small geographical area. Clerkenwell Workshops, home to over 100 creatives and tech businesses is an example of a hub within one individual building. Other examples within the Workspace portfolio include Westbourne Studios-home to a cluster of media creatives; Kennington Park-home to a number of digital and tech companies; Chocolate Factory; Barley Mow Centre; The Lightbox.

The benefits of this should not be under-estimated. Through providing an environment which attracts like-minded businesses it further facilitates networking and growth.

At Workspace, our research has demonstrated the importance of this in economic terms - businesses grow faster by providing platforms for growth through networking, social media and events as well as physical space. Across the Workspace portfolio, a significant level of our customers’ sales and contact networks come from other businesses based within the same centre. Thus, the creation of hubs and clusters is critical.

The creation of hubs and clusters facilitates greater networking by bringing businesses together in one area, thus stimulating growth across different sectors and into different business areas.

However, it is unrealistic to assume that all sectors can, or should, be accommodated in hubs and clusters. SMEs vary in size and approach and the rapid development of high quality communications makes it significantly easier to conduct effective business across geographies. Furthermore, there is a risk that too much of a focus on creating a destination hub can be counter-productive; many creatives prefer a more individual identity, larger area hubs which effectively take on a corporate identity may put some businesses off.

Similarly, responding to the need to recognise the changing nature of the work place, it is important to acknowledge that not all small businesses wish to have a fixed office space- either at early stages or at all. The increase in development of co-working space reflects the fact that business is no longer located in one area but is highly portable assuming the right technology is in place.

Workspace recently launched the third Club Workspace in London, a new concept in collaborative working space where people can sign up for membership and simply drop-in to the space to use desks, wifi and network.

Workspace – where ideas, enterprise and business comes together.

Businesses in London grow faster with Workspace by providing platforms for growth through networking, social media and events as well as physical space. 12% of purchases and 17% of our customers’ sales come from other businesses based within the same centre.

We host the capital’s leading dynamic business communities, we help connect them to other businesses, suppliers, buyers and networks. We understand what drives them and use our expertise to champion their cause.

Workspace aims to be the first choice for new and growing businesses in London. There is a range of space within and across centres to provide light industrial, workshop and office space of varying sizes; and flexible tenancies.

By facilitating the right environment for businesses to grow and network, we create destinations from locations allowing creative and enterprise clusters to flourish. Our Club Workspace concept offers an effective co-working arrangement in a flourishing busy environment for those who do not want to take fixed office premises.

Some of our leading brands include:

· Moonpig.com

· White Stuff

· Mamma Mio

· Alex and Alexa

Small business is big business; 27.4% of our SMEs trade internationally, exporting across Europe, Asia, Africa and the US.

· Setred, based at Kennington is a world-leader in new technology to assist brain scanning during medical procedures.

· TM Lewin is a major clothing designer and supplier based at Hatton Square Business Centre

· Caprice Lingerie is based in our Westbourne Studios centre, designing and supplying lingerie to the UK and internationally

Alex and Alexa - Case Study

Alex and Alexa is a fast growing luxury online childrens retailer who in 2007 saw a global opportunity through the digital space with the world as their market rather than the traditional High Street.  The UK is their home market but the international side of the business has grown to 70% of their sales.   The key dynamic of growth is through the international development of business.

Alex and Alexa chose Workspace for the combination of authentic and original building features with modern amenities and facilities and the Workspace network and support throughout London. 

The environment in which they work has been an important factor in becoming a sizeable global player. Alex and Alexa have recently expanded with Workspace taking an additional 23,000 sq ft warehouse/distribution centre as well as a 4,900 sq ft office at The Biscuit Factory.

November 2012

Prepared 17th November 2012