Global Cities Survey (March 2023 MIPIM edition)

Since Q4 2022, inflation has begun to fall across the board, with the steepest declines seen in the USA and Hong Kong. Hong Kong continues to show the lowest inflation rates of any of our countries, at only 2% in November 2022. OECD forecasts suggest that the UK, France, Germany, and the USA will all have returned to 2-3% inflation ranges by the end of 2024.

According to Oxford Economics’ Cities and Regions forecasts, after posting the best results of the sample in 2022, (Inner) London is predicted to experience negative growth in output (albeit marginally) along with Berlin in 2023. As it finally comes out of lock down, Hong Kong is forecast to record a 1.4% increase in growth – the strongest performance among our cities. But this will make up for less than half of the 3.1% decline in output seen 2022, which no other city experienced.

By 2025 those predicting the demise of Hong Kong as an economic power look set to be proven wrong as the Special Administrative Region surges ahead of the pack with a growth rate of 4.7%. Inner London at a very respectable 3% is second. By 2030 Inner London is projected to the best performer growing at 1.75%, followed closely by Hong Kong. The post Olympics glow of Paris is perhaps fading with the city recording growth of just 1.34%.

The rate of increase in prime office rents has slowed across all cities included in our analysis apart from Manhattan (where it has jumped from 1.74% to 3.2%). Despite improvement, Hong Kong remains in negative growth territory (-3.7%). Whilst in Q3 2022, London’s West End experienced high rent growth, in Q4 2022, the rate of growth declined sharply by 5.2 percentage points.

Rents in the City of London continued to soften, now showing 3.6% growth year-on year.  But this was still ahead of Paris and New York’s Midtown.

In Q4 2022, Manhattan office vacancy has remained the highest out of our cities at 22.2%. Falling valuations – some of which are dramatic – are now a reality. There have been no significant changes in office vacancy rates in either Central London or Berlin, but London’s vacancy rates remain historically high at 8.2%. This masks a significant variation between the West End and City (4% and 10.3% respectively, Q4 2022 (data not shown in the chart). Meanwhile Hong Kong has seen a slight increase in office vacancy levels, which now stand at a record 14.7%, having risen from 10.9% at the start of 2022. This might in part be explained by a lagged effect of the widely reported business exodus of 2021 and 2022.

In Q4 2022, the London Underground showed the strongest figures for subway ridership in of any of our cities, just surpassing Hong Kong. So far in Q1 2023, London’s ridership figures have fallen back to 81% of pre-pandemic levels – most likely a consequence of recent industrial action (including on the wider network that feeds into the Tube).  New York’s subway remains at 71% of pre-Covid ridership is the lowest of any city in our sample. No other city has yet, to our knowledge, outperformed London so far in Q1 2023 (the lack of Paris data means the French capital’s performance remains to be seen, having shown the strongest recovery of any of our cities at the start of 2022. Hong Kong’s strong recovery in late 2022 may well be reflected in new data when released.)

New York which has recorded the strongest recovery in passengers of our city sample, has seen a softening in its numbers relative to 2019. December 2022 data showed it recording 96% of pre-pandemic levels compared to 103% in November. Paris, which recorded strong growth during 2022, ended the year at 94% of 2019 passenger figures. London’s recovery appeared to have flatline at 84% of pre-pandemic levels, during the last quarter of 2022.

Whilst Berlin’s recovery in air traffic continues to lag behind European neighbours, Hong Kong’s decision to lift harsh COVID restrictions on travel has resulted in a sharp uplift in passengers, with figures rising from 8% to 28% of pre-pandemic levels between August and December 2022.

The unemployment rate since pre-pandemic has remained stable across London, Berlin, New York and Hong Kong in Q4 2022, although the UK capital has seen a small increase since Q3 2022. Berlin’s unemployment rate remains remarkably high at 8.7%, a continuation of a pre-pandemic trend, whilst New York’s spectacularly high rate of joblessness at the start of the pandemic (17.6%) continues to fall steadily (5.8%). Q4 2022 unemployment and employment data have not yet been released for Paris/Ile de France.

Neither New York nor Hong Kong are back to their pre-pandemic levels of employment. However, in general, 2022 employment levels across our cities have remained stable. London remains above pre-pandemic levels but has begun to decline albeit modestly, with Q4 2022 showing 101.4% of 2019 worker numbers. Paris has not yet released data for Q4 2022, so it is unclear whether it will maintain its lead over our other cities. Hong Kong’s employment rate in comparison to 2019 has increased slightly in Q4 2022. But the region’s reopening may see a regrowth in employment numbers in the year ahead.

Although demand for workers is above pre-pandemic levels in all five of our cities, the rate of growth in job vacancies in London is now the lowest of any city in the sample – at just 12.2% above 2019 levels.

Demand continues to build in Paris, which is seeing the highest comparative levels. New York’s labour market appears to be weakening. Hong Kong’s economic recovery has seen its vacancies nearly return to their peak of just under 14% above pre-pandemic levels, last seen in late 2020.