London economy set to outperform global rivals by 2030

Central London’s economic output is forecast to outperform New York, Paris, Berlin and Hong Kong by 2030, according to the latest report from the London Property Alliance. London’s economic output is expected to grow at 1.75% per annum by 2030, followed by Hong Kong at 1.4% and Paris at 1.3%. However, the Global Cities Survey, which includes data from consultancy Oxford Economics, still forecasts negative growth for London, along with Berlin, in 2023 owing to the numerous headwinds expected this year. The shortage in high-quality office space is also a potential downside risk, the report says. As a result, Paris will outperform London this year, while Hong Kong is forecast to record a dramatic 4.7% increase in economic growth by 2025 as it finally opens up from pandemic restrictions. Other key findings Prime office rental growth rates have declined in all major global cities, with London’s West End still reporting the strongest performance. Its rate of growth declined by 5 percentage points to 9%, but remains 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 has risen by around 25% year-on-year. With almost 3m sq ft of leasing deals currently under offer, London is expected to experience an 11m sq ft shortfall of new grade-A office space between now and 2026. This is based on around 30% of the 15.5m sq ft of space currently under construction already being prelet and the average annual take-up of new and refurbished space standing at around 5.6m sq ft. Across the Atlantic, Manhattan’s office vacancy has remained the highest at a staggering 22%. There have been no significant changes in vacancy rates for central London (8%). Meanwhile, Hong Kong’s office vacancy levels have increased to a record 14%, having risen from 10% at the start of 2022, and its rental growth is in negative territory (-3.7%). This might in part be due to a lagged effect of the widely reported business exodus of 2021 and 2022. Labour market constraints remain Demand for workers is above pre-pandemic levels, but 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 with 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 London Underground passenger numbers showed the strongest figures for subway ridership in 2022 amongst global cities. Figures fell back from 85% to 81% of pre-pandemic levels in Q1 2023, probably owing to recent industrial action. Despite this, no other city (for which data is available) 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. On a more positive note, New York did record the strongest recovery in global airline passenger numbers of all cities. Airport traffic volumes are currently 96% of pre-pandemic levels, despite huge winter snow storms. Alexander Jan, chief economic adviser to the London Property Alliance, said: “We are optimistic 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 it is 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.” Mark Britton, director of city economics at Oxford Economics, added: “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.” To send feedback, e-mail julia.cahill@eg.co.uk or tweet @EGJuliaC or @EGPropertyNews Photo © London From The Rooftops/Bav Media/Shutterstock