Press Release: London economy set to outperform global peers by 2030

14 Mar 2023
  • Key economic indicators point to stronger recovery for London compared to other global cities, but the UK capital needs more high-quality offices to support future growth
  • Economic growth in both London and Hong Kong is forecast to outstrip Paris despite an expected Olympics boost following the 2024 games
  • Prime office rental growth rates have declined in all major global cities, with London’s West End still reporting the strongest performance

The London Property Alliance (“LPA”), which represents the UK capital’s leading real estate developers and investors, has published its latest Global Cities Survey. The report, which includes data by Oxford Economics consultancy, forecasts that central London’s economic output will outperform its key global peers, including New York, Paris, Berlin and Hong Kong by 2030; following the wider global recovery expected by the end of 2024.  London’s economic output is expected to grow at 1.75% per annum by 2030, followed by Hong Kong (1.4%) and Paris (1.3%).

In the short-term Paris is predicted to outperform London in 2023, while Hong Kong is forecast to record a 4.7% increase in economic growth by 2025 – the strongest performance among global cities – as it finally opens from pandemic restrictions.

While London performed better than its key global competitor cities in terms of economic output in 2022, it is predicted to experience negative growth along with Berlin in 2023 due the numerous headwinds expected this year. A shortage in high quality office space, due to a constrained development pipeline and hindrances to comprehensive retrofit projects for older, vacant buildings, is also a potential downside risk.

London’s West End continues to outperform other global office markets

Prime office rental growth has slowed across all global cities, with Hong Kong in negative territory
(-3.7%). The latest data also shows that London’s West End – the top office market performer globally – saw its rate of growth decline by 5 percentage points to 9%. However, the district is still ahead of Berlin (8%), Paris (3%) and New York (3%), reflecting a more robust occupier market and lack of vacant best-in-class office stock.

Knight Frank data shows that central London office take up is up c.25 percent year-on-year. With almost 3 million sq ft of leasing deals currently under offer, London is expected to experience an
11 million sq ft shortfall of new, grade A office space between now and 2026. This is based on around 30% of the c.15.5 million sq ft of space currently under construction already being pre-let and the average annual take up of new and refurbished space currently c.5.6 million sq ft.

Across the Atlantic, Manhattan’s office vacancy has remained the highest at a staggering 22%; there have been no significant changes in rates for either central London or Berlin. London’s vacancy rates remain steady at 8%, largely unchanged year-on-year. Meanwhile, Hong Kong’s office vacancy levels have increased to a record 14%, having risen from 10% at the start of 2022. This might in part be due to a lagged effect of the widely reported business exodus of 2021 and 2022.

Labour market constraints remain

Although demand for workers is above pre-pandemic levels, London’s rate of growth in job vacancies is now the lowest out of its global peer group, sitting at just 12.2% above 2019. This compares to a remarkable 44% in Paris, 30% in Berlin and 25% in New York. The UK capital’s unemployment rate increased marginally to 5% but is faring better than Berlin (8.7%). Meanwhile, New York’s high rate of joblessness at the start of the pandemic (17.6%) continues to fall steadily (5.8%).

London leads on public transport usage but airport passenger numbers flatline

While London Underground passenger numbers showed the strongest figures for subway ridership in 2022 amongst global cities, figures have fallen back from 85% to 81% of pre-pandemic levels in Q1 2023. This is most likely a consequence of recent industrial action. But no other city (for which we have data) has outperformed London so far in Q1 2023; New York’s subway demand remains subdued at 71% of pre-Covid ridership; the lowest of the cities surveyed.

However, the US financial centre New York, has recorded the strongest recovery in global airline passenger numbers of all cities, with airport traffic volumes currently 96% of pre-pandemic levels – and that came despite huge winter snow storms.

Alexander Jan, Chief Economic Advisor to London Property Alliance, commented: “We are optimistic that that the period of high inflation seen in the UK will have washed through by the end of 2024 and that interest rate hikes will start to come to an end. The fundamentals of London are clearly still attractive to business and its promising to see the capital regain top spot for economic growth despite recent headwinds and growing competition from Paris. Perhaps the biggest surprise in the forecast is Hong Kong’s predicted bounce back; a reminder that it is too soon to write off this economic powerhouse.”

 Charles Begley, Chief Executive, London Property Alliance, commented: “It’s more important than ever that the capital remains a competitive environment to secure investment and talent. Root and branch reform of business rates, investment in TfL and wider infrastructure, including HS2, would be a good start but above all, we need a plan to create a green, sustainable and high growth UK economy that cements London’s success and levels up of the poorest parts of the UK. A strong London is a strong UK.”  

 Mark Britton, Director of City Economics at Oxford Economics, said:Paris consumers have been more shielded from current macroeconomic conditions through generous government support and its economy will experience a further boost over the next couple of years due to the Olympics. Nevertheless, London’s strong fundamentals and global stature mean that the city will eventually regain its favoured position.”

 Spring Budget 2033

London Property Alliance calls for supportive measures in the upcoming Spring Budget to help catalyse future growth and boost London’s competitive position globally. This includes:

  1. Transport funding: The recent funding settlement for Transport for London (to March 2024) whilst welcome, will leave a substantial weakness in the transport body’s financial ability to ensure sufficient capital renewals expenditure, to the tune of some £500m per annum. We ask for a long term, stable capital (and revenue) funding package to support continued investment by TfL in its existing public transport and road infrastructure.
  2.  Fiscal devolution: Further fiscal devolution to the Greater London Authority and the boroughs would enable London government to have the financial capacity and incentive structures to deliver infrastructure and secure long term economic growth.
  3. Regional connectivity: Support for London’s existing infrastructure should be complemented with a clear plan for network growth and improved regional city connectivity. Examples include extensions to the Elizabeth line and the Tube network, such as the Bakerloo line. Work on Crossrail 2 should be remobilised.
  4. Business rates: Urgent progress in the review of the business rates system and ask for clear recommendations to make the system fit-for purpose as well as fair and responsive to a 21st century digital economy. Read more here.
  5. VAT on retrofit: Given the unique challenges faced by central London owners and occupiers we call on the Government again, to exempt VAT for retrofit projects in order to accelerate the transition to NZC and to rapidly increase the energy efficiency of both commercial and domestic buildings. Read more here.

Read more:

Read: Report: Global Cities Survey (March 2023 MIPIM edition)

Read: Representation: Key asks for the 2023 Spring Budget