By Matt Burdett, 17 March 2019.
On this page, we look at the factors affecting the pattern of urban economic activities (retail, commercial, industrial), including physical factors, land values, proximity to a central business district (CBD) and planning.
- Admiralty shopping centre, Hong Kong. We often think of the modern city as dominated by such economic activity, but in fact they take up very little space compared to other economic activities in urban areas. Source: By the author.
What are economic activities?
Economic activities can be mean anything that makes money. Across the whole economy, we usually separate it into primary, secondary, tertiary and quaternary:
- Primary: retrieving raw materials from the environment including, fishing, forestry, mining and farming.
- Secondary: manufacturing and processing these materials into products that can be used. This includes the transport and storage of materials.
- Tertiary: the provision of services to customers. This includes shops, entertainment and intellectual services such as legal and financial.
- Quaternary: innovation, research and development of new products and services.
In the urban economy, there is usually no primary industry. Therefore, for this page, economic activity is split into retail, commercial and industrial.
- Retail: the sale of individual products to individual customers. This most commonly takes place in the city centre, or ‘Central Business District’, but can occur anywhere in the city and increasingly online
- Commercial: the provision of services to the general public and businesses, usually taking place in offices. It includes legal services, banking, logistics and technology support (e.g. website design). Note: this is a narrow definition of commercial activity for the purposes of this page only. Most sources include retail as a part of commercial activity.
- Industrial: the manufacturing, processing, transport and storage of goods.
For detailed information about where these activities are found in urban areas, check the page on this site ‘Urban land use patterns’. The rest of this page focuses on the reasons why economic activity is found in different parts of urban areas.
Factors affecting the location of urban economic activity
The following factors are never used in isolation by businesses to decide where to locate. Location is always a compromise between these different issues. This is why all urban areas are different!
Physical factors include (among others):
- Terrain: whether the land is hilly or flat
- Water supplies
- Proximity to coastlines and rivers
- Physical hazards e.g. flooding, landslides
In general, the requirements for each type of economic activity are as follows:
- Industry: most industrial processes require a large area of land. They also require the land to be relatively flat, so that production lines can operate easily.
- Retail: Retail usually requires relatively little land in the CBD, but the land needs to be stable and non-hazardous. Increasingly, out-of-town shopping centres require large areas of land for both the shops and the car parks. They also require the land to be flat so that building is cheaper.
- Commercial: As retail.
Bid rent refers to the price of land. The more the land is desirable, the more competition there is. More competition means businesses have to bid more money to beat the others.
Retail makes more money per square meter of land than the other land uses; therefore they can pay more rent, and can afford to beat the competition for the land in the CBD, which is attractive because it is the easiest to access for customers from across the urban area.
Bid rent is usually shown using a diagram like the one below.
- Bid rent. Source: SyntaxError55, 2008.
All economic activities will attempt to find the best location for the lowest price. Therefore:
- Industries are generally located towards the edge of the city where land prices are low (and road transport links are better and less congested). Historically industries would locate near to (but not in) the CBD; however, modern industrial requirements such as large land area and good transport links have meant that most industry is now located on the edge of cities.
- Retail requires the least space, so it is less focused on the price of the land and will locate towards the CBD where the most customers are found. However, as more customers have cars, retail businesses may take advantage of the cheaper land values on the edge of town
- Commercial activity is usually found where land values are relatively low per square metre compared to the places used by retail, but as they make enough profit they can still locate in the CBD. However they often locate on the upper floors of buildings rather than the expensive ground floors.
Interestingly, some very high profit commercial activities, such as finance, will choose to locate in the most expensive area of the city. This is partly for prestige: having the top floors of a skyscraper is impressive, and is worth it despite the cost of the rent.
Proximity to a central business district (CBD)
Most retail and commercial businesses will want to be as close to the CBD as possible, because it is accessible for customers and clients. For more detail, see the pages ‘Features of the Central Business District’ and ‘Economic activity in the Central Business District’ on this site.
Urban planning is usually led by government authorities, and supported by business groups and local civil society action groups. There are three main points of urban planning that affect economic activities:
- Urban redevelopment: parts of the urban area (usually in or near the CBD) receive investment from the government to be redesigned and/or rebuilt. It can involve anything from minor changes such as blocking off streets to traffic to create pedestrian zones, or the complete rebuilding of a part of the city. For example, in Manchester in the UK, a whole part of the city was rebuilt following a terrorist bomb in the 1990s. The rebuilt area included an entertainment district and new public spaces for events.
- Expansion planning: in almost all urban areas, permission is needed to construct new buildings, especially on the land at the city edge. When the land is officially protected from development it is known as ‘greenbelt’. The request to develop on the greenbelt can come from an individual business or the authorities can instigate the project. For example, the Cambridge Science Park was developed on the northern edge of Cambridge in the UK as a part of a deliberate attempt by the government to attract hi-tech industry to the city.
- General infrastructure development: when there is a new highway, railway line, port or other development, it is almost always planned with the aim of ensuring that it is useful to industrial, commercial and retail activities. Once the new infrastructure is in place, it can attract new economic activities to the area.
There are many other factors that affect the distribution of economic activity, including:
- Transport links
- Competition from other businesses
- Proximity to other parts of the supply chain (especially for industry)
- Proximity to potential employees
- Cumulative causation: when one business is successful in an area, it can create the conditions for other businesses to move in and succeed too.
SyntaxError55, 2008. Bid rent. https://commons.wikimedia.org/wiki/File:Bid_rent1.svg Accessed 11 March 2019.
Urban economic activities: Learning activities
- Create a table like the one below, and summarise the main information on this page.
Proximity to CBD
On a map of your nearest city, identify areas that are dominated by different economic activities. Annotate the map to explain possible reasons why they have located there.
© Matthew Burdett, 2019. All rights reserved.
All secondary material on this site is clearly referenced and may be subject to copyright restrictions by the original authors. All original material on this page is subject to copyright.