London Property Alliance Chief Economist Alexander Jan discusses the latest Global Cities Survey and London’s position in relation to Paris.
In the old parlour game Grandma’s Footsteps, participants try to creep up on “grandma” to tap her (gently) on the shoulder. Whoever succeeds becomes grandma and the game starts again. In our latest London Property Alliance (LPA) 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 some with which she has quite a lot in common – New York and Hong Kong – as well as slightly more modestly sized rivals in the form of Paris and Berlin.
The report finds that all our cities (and indeed their countries) are facing challenges. Soaring inflation in 2022 plus a subdued business environment dominated many of their economic prospects. This is likely to continue for many of them well into 2023. As our survey notes, OECD estimates of growth are on a downward trend across the board into early 2024. Despite some signs of easing, energy costs, 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 impact of hybrid working practices on city centres and a range of quality of life factors such as crime, housing affordability and public transport recovery impacting people’s daily lives in a negative way.
A year on from Covid restrictions being lifted in many cities, we are now starting to see greater divergence in our selected cities’ performance. 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 Paris. Air passenger demand is largely recovered in airports serving New York City whereas Berlin is perhaps at 60% of its 2019 level. And whilst employment recovery is robust in Paris, both Hong Kong and New York remain significantly below their 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, whilst London will most likely outperform the UK, both city and country are likely to lag our major competitors. Growth will may well be negative. British inflation is destined to be second highest. And on measures where London is still ahead of other cities, her position is not as stellar as it was; 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 for 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, without better access to the single market for London and the UK, that trend looks set to continue. And with the advent of the Olympics in 2024, Parisians’ tails are up.
If London is not careful, its ancient rival might come ever closer to tapping her on the proverbial shoulder and threaten to take over the growth game. Vigilance by UK and London politicians and policy makers is imperative. And better policies to allow London to grow, compete and prosper in her major markets is essential for success. The French will know, that at any time, grandma can turn around suddenly and if she sees anyone moving, they must return to the start.