London rated second only to Silicon Valley for tech investment

Source: EY

London is seen by international investors as a major tech destination, second only to Silicon Valley, according to EY’s annual UK Attractiveness Survey, which monitors foreign direct investment (FDI) into the UK and across the globe.

The survey - which interviewed over 440 international companies - asked which three cities offer the best chance of producing the next tech-giant, with investors naming London, second to San Francisco/Silicon Valley (up from fourth in 2015) - a huge vote of confidence in its innovation capacity.

London - a global magnet for investors

Internationally, investors continue to regard London as by far the most attractive city for FDI in Europe, followed by Paris, Berlin and Amsterdam, according to the report.

“London is the most important city for FDI in the UK and indeed in Europe – a status it has held every year since the survey began in 1997,” said Caroline Artis, EY’s London Market Segment Leader.

“47% of survey respondents chose the capital as the most attractive place to establish operations in the UK – a rise of 2% year-on-year.”

By UK city, the capital secured the most FDI projects (406) in 2015 - a 7% increase on 2014 – followed by Manchester with 54 projects, Edinburgh (41), Leeds (31) and Glasgow (22).

7,026 jobs were created by FDI in London last year – double the level of employment generated by FDI in 2014 and the second highest level (7,509 in 2000) since the survey began in 1997. London achieved a market share of 17% of all UK FDI employment in 2015 – the highest level recorded since 2009 (24%).

Software hot-spot

As in previous years, the three leading sectors generating investment for London were software, business services, and financial services – together accounting for 59% of investment into London in 2015, slightly down from 63% in 2014.

The city also won more than half (56%) of all software FDI into the UK, underlying its continuing appeal to innovative businesses worldwide.

The countries generating investments into London in 2015 were the US (31%), followed by China (11%) and India (6%).

Artis adds: “London’s burgeoning status as a world city is further confirmed by the type and sources of the FDI projects it is securing. Investments from China and India combined accounted for 17% of the total number into London in 2015 – a far higher proportion than the rest of the UK, and a powerful illustration of London’s attractiveness to new and emerging sources of FDI.”

Resurgent regions

However, amid the positivity the share of all UK projects secured by London has fallen from 47.5% in 2013 to 38.1% in 2015, below its decade-long average of 41.8%.

Artis comments: “With the UK’s devolution agenda gaining momentum London will face intensifying competition not just from other FDI hot-spots across the world, but also from the UK’s own resurgent regions.”

An influx of investment into regions outside of London, particularly Scotland, the North and the Midlands, powered the UK to a record breaking FDI performance in 2015. Ranked as the leading destination for FDI in Europe, the UK saw a 20% growth in number of projects, the steepest year-on-year uplift recorded in the past decade, and a 35% increase in the number of jobs created – to more than 42,000.

While London experienced a modest 7% growth in the number of FDI projects secured in 2015, the North West saw a 118% increase, contributing to a 127% growth in FDI levels across the Northern Powerhouse, since the term was coined two years ago.

Scotland had its most successful year ever, recording a 51% rise in projects, while the West Midlands posted a 46% increase. Only three regions saw a decline in projects secured during the year – The South East of England (22% fall), Northern Ireland (62% fall) and Wales (2% fall).

Artis concludes: “To stay ahead of the competition, London must take heed of what investors tell us influences their decision-making to locate. Skills, infrastructure, housing and real estate are major focus points, with investors particularly noting an urgent need to resolve the issue about London airport capacity.

“London is starting from a position of enormous strength, but cannot afford to rest on its laurels. The city must build on its solid base and increase its efforts to improve its FDI offer to sustain and grow its national and global leadership position.”

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