In the old parlour game Grandma’s Footsteps, participants try to creep up on “grandma” to tap her (gently) on the shoulder without being noticed. Whoever succeeds becomes grandma and the game starts again. In the latest London Property Alliance survey of global cities, there is a distinct sense that London, the grandmother of world cities, is going to have to start watching her back a little bit more carefully from now on.
Compiled with our friends at think tank Centre for London, our quarterly reports assess London and a careful selection of other world cities across a range of measures, from economic growth to broadband speeds. These include New York and Hong Kong, with which London has quite a lot in common, as well as slightly more modestly-sized rivals in the form of Paris and Berlin.
The report finds that all the cities it looks at – and indeed their countries – are facing challenges. Soaring inflation in 2022 plus a subdued business environment dominated the economic prospects of many. This is likely to continue well into 2023. As our survey notes, Organisation for Economic Co-operation and Development estimates of growth are on a downward trend across the board into early 2024. Energy costs – despite some signs of easing – the war in Ukraine and the hiking of interest rates will dominate advanced economies for the near to medium term.
At a city level these factors are having an impact too. But they are often compounded by chronic labour shortages, the implications of hybrid working practices on city centres, and a range of quality of life factors such as crime, housing affordability and public transport recovery having a negative effect on people’s daily lives.
A year on from Covid restrictions being lifted in many places, we are now starting to see greater divergence in our selected cities’ performances. Office vacancy rates in New York City (Manhattan) are nearly nine times those of central Paris. Public transport (rail) demand is a full 21 percentage points lower in NYC compared to the French capital. Air passenger demand is largely recovered in airports serving New York City whereas Berlin is at perhaps 60 per cent of its 2019 level. And while employment recovery is robust in Paris, in Hong Kong and New York it remains significantly below their respective 2019 benchmark levels.
By many measures London continues to do reasonably well. It has experienced the most foreign direct investment (FDI) projects, the biggest uptick in office rents (West End prime) and above average performance in relation to employment, job and office vacancy rates, aviation demand and public transport usage.
But there are also some serious warning signs. On economic growth, although London will most likely outperform the rest of the UK, both city and country are likely to lag our major competitors. Growth may well be negative. British inflation is destined to be the second highest. And on measures where London is still ahead of other cities her position is not as stellar as it was, with levels of overseas investment and new homes delivered being good examples.
Paris is edging ahead. Our survey shows that the City of Light recorded the strongest increase in demand for workers and the highest level of growth in employment. It is the best performer on office vacancy rates and has seen the strongest recovery in its public transport numbers. There is evidence that Paris is emerging as a winner out of Brexit. Even though its scale of financial and business services remains well below London’s it is gaining, and that trend looks set to continue unless London and the UK secure better access to the single market. With the the Olympics coming in 2024, Parisians’ tails are up.
Better policies to allow London to grow, compete and prosper in major markets are essential. Vigilance by UK and London politicians and policy-makers is imperative. If they are not careful, London’s ancient rival might come ever closer to tapping grandma on the proverbial shoulder and taking over the growth game.
Alexander Jan is chief economic adviser, London Property Alliance. This article is a slightly edited version of one originally published on the Alliance’s website. Follow Alex Jan on Twitter.
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