The bigger picture

25 February 2008

Whether we’re heading for a 1920s-style slump or nothing worse than a short period of belt tightening, the headlines in the financial press don’t make for comfortable reading. There are a lot of unknowns out there – and financial markets don’t like uncertainty. As we struggle to get to grips with a whole new lexicon of phrases – like sub prime, credit crunch and non doms – everyone’s asking the same question: what effect will all this have on London businesses?

The short-term answer is that this slump – or correction, call it what you like – is affecting all manner of businesses, from banks to book-keepers. Everyone needs to keep a sharp eye on cash and order books, brace for a tighter sales environment – and look for opportunities to squeeze out better deals from their suppliers. But the long-term answer, for some sectors at least, is that the slowdown may not be the most important factor for you to worry about.

Take commercial property, the latest sector to feel the pinch. A number of real estate players have seen their share prices come under pressure and the value of their portfolios marked down, and some high-profile deals have fallen through because of fears over the immediate prospects for the retail sector. But is it just the current economic climate – or are longer-term trends also affecting commercial property values?

British Telecom’s Business Regeneration Report http://www.insight.bt.com/reports/BT-Business-Regeneration-Report-Survey/, published at the end of last year, suggests that there may be other issues at play. The report makes some interesting comparisons of British businesses between 2007 and 1997. Much of the story is predictable – the continuing decline of British manufacturing, and the ongoing troubles of the agricultural sector. What’s eye catching, though, is the growth in what BT terms “post and telecommunications enterprises”.

Every area of the country has seen a significant increase in the numbers of these types of company, with London and the South East seeing a jump from around 4500 firms in 1997 to around 7700 in 2007. Other areas of the country have seen even bigger percentage increases in this category, albeit starting from lower bases. It’s one of the fastest increasing sectors of the UK economy, and most companies in it are still small, with no more than 10 people.

So what’s driving this growth? According to BT, it’s the trend towards homeworking. Large companies are closing and downsizing offices, and encouraging staff to work at home. Lots of those post and telecommunications companies are contracted by larger firms to manage remote working arrangements – including small hub phone switches, internet access, network provision and computer support. Given the price of office space in big cities – and the fact that desk space in most offices is horribly under-utilised – that’s not particularly surprising. And of course, it’s greener to work at home, you avoid a tedious commute, and you don’t have to tolerate the office bore at the water cooler.

This isn’t just an issue for the property sector – or for the post and telecommunication industry. Whether you’re in IT, media or fashion, the businesses that make it over the long-term are the ones that interpret these kinds of trends as effectively as they handle the vagaries of economic cycles.

Incidentally, the BT report highlights one unusual success story. A company in Cambridge is selling cardboard coffins which can be decorated and coloured to your own personal taste. The eco coffin can support even the largest individual and will fully biodegrade. Although it’s not exactly geared towards repeat business, unlike an office, we’ll all need one sooner or later – so recession or not, sales prospects look pretty ‘healthy’.

Written by George Fletcher, Webster Buchanan Research