- Investment in improving public realm, connectivity and built environment critical to ensuring that the UK capital maintains leading global position versus closest peer
- New York has the fundamentals to bounce back, with the US capital ahead on air passenger numbers, job vacancy growth, average salaries, overall GDP and its superior financial sector performance
Research from London Property Alliance (“LPA”) shows that New York is currently trailing behind London across various key economic indicators, including employment, commercial real estate performance and public transport usage.
The lacklustre return to office working and weekday city footfall in the US financial centre continues to pose big questions to landlords and authorities. This includes where hybrid working patterns will settle, if they haven’t already, and what the long-term impact on real estate and the wider downtown economy will be. LPA observes that New York’s commercial property sector is experiencing ‘perfect storm’ of weaker aggregate demand, rising interest rates, mid-tier bank instability (with a large proportion exposed to the real estate sector) and an excess of nonprime quality.
Manhattan’s office vacancy rate of 22.4% has continued steadily trending upwards over the past three years, having doubled from 11% at the beginning of 2020. In comparison, central London’s 7.5% office vacancy rate has only edged up marginally by 1.5% in the same period, with occupiers transitioning towards better quality workspaces in prime locations. Availability is far more constrained in the West End (4.4%), pointing to the need for additional best-in-class office-led developments that attract businesses and talent. London’s latest prime office rental growth data, 10.6% in the West End and 6.9% in the City of London, also outstrips Manhattan’s Midtown district (1.4%).
Office trends reflect a wider picture about footfall in both cities, particularly on weekdays. The latest data shows that public transport usage is 84% of pre-Covid levels on the London underground, compared to 70% on the New York subway. This is despite train and tube strikes over the course of the year and despite the encouraging comparison, London needs to review ticketing policies to encourage commuters, particularly on Mondays and Fridays, and prevent future disruption.
London’s unemployment level (5.1%) is also marginally ahead of New York (5.6%), as is employment rates as a percentage of pre-Covid levels, with the UK capital currently sitting at 101.7% versus the Big Apple’s 100.5%. A contributing factor to this is London’s position nationally and in the context of continental Europe. London is, by some distance, Europe’s biggest technology hub, while the New York city region has, for years, been second to the San Francisco Bay Area.
The longer-term outlook, however, is more uncertain, with LPA forecasting a period of lower economic growth for London, where job vacancies are 7.5% down on pre-pandemic levels, compared to 10.3% higher in New York. The UK is also suffering from a higher level of build-cost inflation with a CPIH rate of 6.3%, almost double that of the US (3.2%).
New York currently leads London on air travel as well, with passenger numbers 99% compared to 2019 levels, versus 93% in London. The most recent summer in the UK was significantly affected by the war in Ukraine, wildfires and air travel disruption. London’s recovery in air traffic has recently flatlined, as air traffic control delays caused EasyJet (amongst others) to cancel nearly 2,000 summer flights, mainly from London airports.
Charles Begley, Chief Executive of London Property Alliance, said: “Our data shows that London has proved surprisingly resilient and has a real edge over New York City in transport infrastructure delivery, design and sustainability innovation. Sadly, the debacle over HS2 has dented our international standing and a lack of planning certainty and decision-making at national and local level risks undermining investor confidence going forward. London certainly cannot afford to be complacent, and we need political leadership to get behind the capital and help it drive national social and economic prosperity.”
Alexander Jan, Chief Economic Advisor to London Property Alliance, commented: “Although London’s infrastructure, built environment and regional market position has seen it perform with greater resilience, we cannot write off New York’s ability to bounce back. The city’s $1 trillion economy is approximately 40% bigger than London’s, underpinned by higher salaries and the superior size of its financial services industry. In fact, as evidenced in the current earnings season, it is growing considerably more quickly than London’s listed financial sector. Approximately three times more people live within a short distance to the centre of New York compared to London’s Central Activities Zone, which, when combined with the remarkable wealth it generates, highlights the strength of the city’s fundamentals.”
The research is a part of London Property Alliance’s Global Cities Survey, undertaken by Centre for London, which analyses the performance of London, New York, Hong Kong, Paris and Berlin across 19 different economic indicators.