13 February 2020/ rent_commercial_property_guide

The Oxford-Cambridge Innovation Arc: What is the potential?

The Universities of Oxford and Cambridge own two of the largest shares of land of any institution, with a combined portfolio worth £3.5 billion and comprising 126,000 acres of land. The strip in between has been identified as one of the UK’s key areas with growth potential for the next few decades.

The ‘Oxford-Cambridge Arc’, as it has been dubbed, connects the two cities to Bicester, Milton Keynes and Bedford, as well as 26 local authorities. The region is not only attractive for workers in the education, engineering and science sectors, but also a popular base for those commuting to London. However, as a result, it’s becoming increasingly difficult for housing to keep up with demand.

What sectors dominate the Oxford-Cambridge arc?

Experts believe there’s great potential for job creation in the Oxford-Cambridge Arc. At the moment, the education sector dominates the region, but engineering, science and technology follow close behind. Among the sectors set to join them in the top spots is health, particularly in Oxford and Bedford on the left-hand side of the arc.

International real estate company Savills has noted the sharp increase in properties used by the science and technology sectors in the arc in recent years. While, in 2016, the proportion of lettings stood at just 8%, 2017 saw this figure surge to 83% – and it hasn’t dropped below 80% since.

This is great news for the local economy, but the lack of housing in the region will be problematic as the influx of workers continues.

How has the Oxford-Cambridge arc demonstrated its potential?

This belt has been singled out as an area of high growth potential for good reason. Its productivity levels are currently 2.6% higher than the UK average. Milton Keynes is particularly notable, with a score nearly 45% higher than the national average outside of London. Thanks to the number of jobs being created in the region, it has been able to outstrip other counties significantly. For instance, Cambridge makes 19 times the number of patents than the annual average in the rest of the UK. And neighbouring town Northampton is only second to London in its number of business start-ups per capita per year.

Areas for improvement

While the figures are impressive, Savills’ property experts think there’s room for improvement. They’ve highlighted four key areas of potential to boost the region’s economy.

1. Connecting Oxbridge

The Oxford-Cambridge arc is bookended by two of the world’s leading universities. The first element of the plan is to use their standing to support the other educational institutions in the region, such as Cranfield and Northampton universities.

2. Creating transport links

Savills points out that travelling from Oxford to Cambridge (or vice versa) by train involves making a stop-off in London and takes around two and a half hours. Not only is this hugely inconvenient for those travelling between the two cities, but it also discourages workers from living in between them in other areas of the arc. By creating a rail link from Oxford to Cambridge, there’s greater potential for local residents to find work in the cities and for those already working there to find housing further out.

While there’s already a railway line running from Oxford to Bicester, Savills suggests we extend it to Milton Keynes. Finding space to lay down rail links from Bedford to Cambridge will be trickier, but this is just one step in a much larger transport plan. When it comes to roads, drivers can use the A428, A421 and M1 to get from Cambridge to Milton Keynes, but things get confusing in the final leg of the journey. 

It’s all about connectivity and being able to travel easily between Oxford and Cambridge has huge implications for the region’s economy.

3. Creating new jobs

Although the Oxford-Cambridge arc is already performing well, experts believe there’s potential to create around a million new jobs in the next 30 years. Of course, this is dependent on improvements to transport links and the construction of more homes.

4. Building more houses

To accommodate one million more workers, the Oxford-Cambridge arc will need to add another million homes to its current housing infrastructure. This will have a major impact on the surrounding environment; to be exact, it would mean sacrificing 3% of the region’s rural space. When this housing plan is over, 12% of the arc will be urban, so developers will need to offset their environmental impact to achieve a net-zero effect.

Housing can’t keep up with job growth

Housing is going to be the Oxford-Cambridge arc’s biggest problem. Currently, over two million people have jobs there, and the number of workers in the region has increased by an annual average of 44,000 for the last five years. Although there are concerns that the increasing average age will slow this growth rate, more infrastructure is still needed to accommodate the growth that has already occurred and is forecasted to continue.

Savills predicts that around 320,000 homes are currently in the pipeline for the Oxford-Cambridge arc, but this still leaves a deficit of 680,000 if we’re to accommodate the rising demand. Building these should take up over 56,000 acres of land.

At the moment, roughly 18,000 new homes are needed in the arc every year, but just four local authorities are meeting demand. While the Vale of White Horse, Cherwell, Aylesbury Vale and Central Bedfordshire can comfortably house their workers, Oxford, Milton Keynes and Northampton cannot. If residential development continues at this pace for the next 30 years, only 630,000 of the million homes will be built; a shortfall of 47%.

Housing demand is pushing property prices up

Multiplying job opportunities in the Oxford-Cambridge arc has contributed to the rise in the region’s house prices as employees compete to live in desirable locations close to their workplace. Oxford and Cambridge have two of the highest house-price-to-earnings ratio after London; as you can see, Cambridge’s properties cost, on average, 12.2 times the residents’ income.

UK cities with the highest house-price-to-earnings ratios

City

Current ratio

20-year average

London

13.1

9.9

Cambridge

12.2

9.8

Oxford

11.9

10.2

Bournemouth

9.7

8.7

Bristol

9.2

7.1

Portsmouth

7.9

6.8

These high ratios are unsurprising, given the rate at which the arc is surpassing its job growth targets. The following table shows six of the highest performing areas for job creation.

Job creation targets compared to the actual jobs growth rate

Local authority

Current annual jobs target

Average annual jobs growth (2010-2017)

Difference between historic jobs growth and current target

Chiltern

64

1,143

+1,684%

South Oxfordshire

333

1,714

+417%

Aylesbury Vale

845

2,857

+238%

Milton Keynes

1,867

5,714

+206%

Cambridge

1,105

3,286

+197%

Bedford

460

1,143

+148%

While the region exceeds its job growth targets significantly, it is failing to reach its housing objectives in many areas. Find the current housing deficit in the same six locations below.

Housing targets compared to the actual housing growth rate

Local authority

The current annual housing target

3-year average annual net additions (2015-2018)

Difference between the current target and 3-year average annual net additions

Chiltern

378

548

+45%

South Oxfordshire

990

737

-26%

Aylesbury Vale

1,370

1,309

-4%

Milton Keynes

1,767

1,303

-26%

Cambridge

700

1,071

+53%

Bedford

970

1,190

+23%

Although Chiltern, Cambridge and Bedford have performed well, surpassing their targets by up to 53%, they haven’t been able to match the extreme job growth rate of the previous table. For example, Chiltern’s housing objective still falls 1,639% behind its employment target, which puts a significant strain on accommodation in the area.

Growth potential in the Oxford-Cambridge Arc

It’s clear there’s significant potential for growth from the recent emergence of new jobs and positive performance in the education, engineering, technology, science and health sectors. But the continuation of this development relies upon the construction of more houses and better transport links to ease competition and reduce commuting times.

For more information about investing in real estate, you can read other Realla blogs below: