London is commonly perceived as an ‘investment magnet’ not just by the UK but also by global standards. While this is true to a certain extent, it masks the devil in the detail, which is that this idea does not always hold.

In this supplement, we look specifically at London’s investment performance – how it compares to that of other UK regions and global cities, as well as how it performs when it comes to gross fixed capital formation (GFCF) and foreign direct investment (FDI). While our capital is often considered the “Jewel in the Crown” when it comes to investment, there are both interesting and salient observations to note as we look towards the future.

Gross fixed capital formation (GFCF) (2000-2019)

GFCF is a component of investment, and the Office for National Statistics (ONS) provides experimental data on regional GFCF in the UK for the years 2000-2019. Figure A1 shows London’s real GFCF and its annual growth rate, compared to that for the UK. It is worth noting that at the start of this century, London’s GFCF represented around 16% of the UK total. That share increased to a century-high of 23% in 2013, 2014, and 2015 before dropping to nearly 20% in 2019. Curiously, while London has been playing an increasingly significant role in the country’s overall fixed capital formation buildup, the city’s annual growth in GFCF has in fact been less impressive than the national growth since 2016. In fact, the UK’s performance has been better than London’s during much of the 2010s. However, looking at the whole period since 2000, London’s real GFCF nearly doubled – hence growing much faster than the UK’s and explaining the growth in its national share over the past two decades. This would suggest that growth during the noughties was responsible for that trend.

Figure A1: Real GFCF levels and growth in London and the UK

Gross fixed capital formation per capita in London and the UK

London’s strong performance in GFCF becomes more evident when comparing the city’s real GFCF per capita to that of the UK (Figure A2).

Figure A2: Real GFCF per capita in London and the UK

Throughout this century, London has had more investment per capita than the UK, but the difference grew significantly since the 2008 financial crisis. By 2019, real GFCF per Londoner was about 50% higher than that per Briton.

Gross fixed capital formation by sector

Business services

Real GFCF trends exhibit noticeable differences by sector. For example, London-registered business services firms have been responsible for the largest investment since 2005 (in 2019, this investment represented nearly 25% of total real GFCF invested in the business services sector (Figure A3)). Nevertheless, from 2000 to 2019, growth of real GFCF in this sector was lower in London than it was for all England regions except the Northern regions and the West Midlands (Figure A4).

Figure A3: Real GFCF in business services by nation or English region

Figure A4: Growth in real GFCF in business services by UK nation or English region

Financial and Insurance Activities

With regards to the “financial and insurance activities” sector, GFCF by London-registered firms represented a third of total GFCF by UK-registered firms over the past two decades (Figure A5). This may not be surprising given London’s eminent position in this sector, but when looking at growth in real GFCF from 2000 to 2019 (Table A1), London experienced the third-fastest growth rate across the UK (with Wales and the Northeast of England experiencing faster growth).

Figure A5: Real GFCF in the financial and insurance sector by UK nation or English region

Curiously, regional performance differs by decade: from 2010 to 2019, financial and insurance businesses in London grew their GFCF by more (percentage-wise) than any other region except the Northeast. However, from 2000 to 2009, real GFCF by London-based businesses dropped by a bigger percentage than most other regions (Table A1).

Table A1: Percentage change in real GFCF in the financial and insurance sector by UK nation or English region

Construction, real estate activities and new dwellings

When it comes to the ‘construction and real estate activities’ sector, London’s record over the past two decades is unimpressive compared to other regions (Figure A6). While investment did grow during the 2010s (by 34% between 2010 and 2019), that growth rate still lagged all other UK regions except the West Midlands (Table A2); this becomes pertinent when accounting for the lack of housing supply and affordability issues impacting London, the East and Southeast of England.

Figure A6: Real GFCF in the construction and real estate sector by UK nation or English region

Table A2: Percentage change in real GFCF in the construction and real estate sector by UK nation or English region

Information, communication and technology (ICT)

With regards to the information, communication and technology (ICT) sector (Figure A7), we notice, rather remarkably, that between 2000 and 2009, real GFCF growth was negative across all UK regions including London (Table A3). This changed during the 2010s, when all regions experienced impressive real GFCF growth in that sector. Nevertheless, London’s growth rate during the 2010s was lower than all regions except the East and the Southwest.

Figure A7: Real GFCF in the ICT sector by UK nation or English region

Table A3: Percentage change in real GFCF in the ICT sector by UK nation or English region

Local government investment

Looking at real local government investment in London and other UK regions, we see that while London has experienced 271% growth in GFCF over the two decades (Figure A8), this is still below the growth rates experienced by local governments in the East (306%) and Southeast (348%). Interestingly, growth in investment by local governments in London diminished between 2010 and 2019, while it grew in other areas such as the East, Southeast, and Southwest. However, between 2000 and 2009, London’s local governments grew their GFCF more in real terms than all UK regions.

Figure A8: Growth in real local government GFCF by UK nation or English region by decade

Per-capita trends reveal a similar picture (Figure A9). Until the 2008 Financial Crisis, per-capita real GFCF by local government in London was comparable to that in other England regions. Since the Crisis, however, per-capita real GFCF per Londoner exceeded that of all other regions, with only the Southeast coming close.

Figure A9: Real GFCF per capita by local government by English region

GFCF by London region

The ONS provides a breakdown of real GFCF by different parts of London from 2000 to 2019 (Figure A10).

Figure A10: Real GFCF by London International Territorial Level 2 (ITL2) region

The discrepancy between Inner and Outer London boroughs is manifest and has been a feature of GFCF investment in London since 2000. However, this difference grew considerably since the 2008 Financial Crisis, with Inner Boroughs in West London being the main beneficiaries. For example, in 2007, GFCF in Inner London was 30% higher than that in Outer London. By 2019, the difference was 73% (having reached a high of 95% in 2011). In general, Outer boroughs in the East and South have and continue to accumulate less GFCF than other parts of London, especially Inner boroughs in the West.

GFCF in London vs European metropolitan areas

Eurostat provides data on GFCF for NUTS2 European regions, which while not translating precisely to London in terms of geography, political structure and economic size, still provide some indication of how Greater London compares relative to similar metropolitan areas in Europe. Looking at total and per-capita real GFCF investment across key regions of Europe from 2014 to 2019 (years for which Eurostat data is available), one can see that London’s per-capita real GFCF growth lagged that of many European metropolitan areas (Figures A11 & A12).

Figure A11: Growth in real GFCF in select European metropolitan areas (2014-19)

Figure A12: Growth in per capita real GFCF in select European metropolitan areas (2014-19)

What this shows is that when it comes to ‘gross fixed capital formation’ (which is one component of investment), London has lagged many comparable European metropolitan areas in recent years.

Foreign Direct Investment (FDI) in London

FDI is the investment source where London continues to shine relative to other UK regions and global cities (Figure A13). Despite the many challenges that London faced in recent years, the city remains the UK’s and the world’s leading destination for FDI. Since 2017, 40% of the UK’s FDI was destined to London; the UK’s 2^nd leading destination for FDI, Manchester, received only 3% by comparison. Over that same period, London received 3% of the world’s FDI- the highest share amongst global cities.

Figure A13: FDI projects by select city destination (2017-23)

That said, if we look at the change in FDI projects for these 10 leading destinations between 2017 and 2022 (the last year for which full data on projects is available), London has seen a reduction in the percentage of annual FDI projects over that period, while other cities such as Dubai and Berlin have seen substantial increases (Figure A14). Whether such cities could challenge London’s current lead remains to be seen, but it does point to a more competitive foreign investment scene that is set to continue into the foreseeable future.

Figure A14: Change in FDI projects by select city destination (2017-22)

Concluding thoughts

In the UK, London is commonly considered the country’s ‘investment magnet’. That impression also seems to hold globally. What the data reveals is that this is true to a certain extent, but the picture is mixed depending on what type of investment we look at, what level of geography we are scrutinising, and what time frame we are examining.

If we look strictly at FDI, then London remains the world’s leading destination – a testament to the city’s allure, economic resilience, and strong reputation. However, trends in FDI projects by year show that other cities such as Dubai are starting to catch up, which should give policymakers (both nationally and regionally) food for thought if London is to retain its eminence in the future.

When it comes to gross fixed capital formation (GFCF), then it is true that London generates more GFCF investment per-capita than other regions, and the city continues to grow its share of the UK’s total GFCF. Nevertheless, there are sectors (e.g., construction and business services) where London’s real GFCF growth has been modest compared to other regions. Moreover, real GFCF accumulation varies considerably within London (with Inner Boroughs considerably outperforming their Outer Borough counterparts), and the city’s record from the mid-to-late 2010s vis-à-vis European metropolitan areas is generally underwhelming.