The UK’s falling into a technical recession highlights the need to return the economy to long term growth. Building on its post-pandemic recovery, London can help deliver higher living standards for the whole of the country.
Over the last few years, the capital has continued to perform well compared to global rivals. Its post-Covid jobs recovery has been second only to that of Paris. And forecasts by consultancy Oxford Economics indicate it will out-perform mighty New York between now and 2025, matching Parisian levels of growth even as the French capital basks in the publicity from hosting the Olympics later this year.
Given Brexit, Russia’s invasion of Ukraine, an energy and cost of living crisis, very high inflation and the Middle East conflict, London’s resilience is all the more remarkable. Perhaps the most positive story relates to foreign direct investment (FDI). The London Property Alliance’s latest Global Cities Survey, produced in partnership with think tank Centre for London, shows that the capital was top of the pile for FDI compared to its principal rivals New York, Paris, Berlin and Hong Kong.
That may come as a surprise to some readers. Well documented challenges around a lack of new listings on the London Stock Exchange and anaemic economic growth over the last decade or so have rightly filled column space. But, more positively, in the third quarter (Q3) of last year London was the beneficiary of £1.3 billion worth of overseas investor projects in the form of 103 transactions – up 16 per cent on Q4 2022.
These included corporate relocations, investment into UK companies and real estate deals. Over the same period, Paris saw a big reduction of 75 per cent. Berlin also saw a decrease of nearly half to just 24 projects. New York and Hong Kong registered more modest falls.
In the world of commercial real estate there are indications that London is riding out the worst effects on demand of working from home. Rents for the best office space in the West End and City continue to out-perform Paris, Hong Kong, Berlin and the heart of New York. Central London’s office vacancy rate is around eight per cent, that compares remarkably well with Manhattan, where empty offices represent a staggering 22 per cent of total stock.
This difference is reflected in public transport demand in the two cities: London Underground is carrying around 85 per cent of its 2019 passenger levels, which is a full 13 percentage points more than New York’s subway system. Meanwhile our aviation sector has put in solid performance, with the London airport system handling 97 per cent of 2019 passenger levels in the third quarter of 2023, second only to New York.
And on the labour front, despite a softening of the jobs market signalled by a big drop in on-line vacancies, London’s unemployment rate is currently hovering around 5.3 per cent. Apart from Hong Kong, this compares favourably with all the other cities monitored by LPA.
For sure, London and the UK economy are not yet out of the woods. With ongoing conflicts and a record number of elections taking place in 2024, the global political picture looks highly uncertain. Investor appetite for risk is being affected by a (comparatively) high interest rate environment. Further non-tariff restrictions on trade with the EU have recently kicked in.
At home, the planning system is struggling to provide the capacity for housing growth, with local and national politics proving a major stumbling block. Household incomes – particularly for the least well off in our society – and our public finances are in distress.
But overall London’s ability to keep going and cope with change should be seen as testament to the tenacity and adaptability of its population. We can but imagine how much more successful and prosperous the city could be if national politicians gave us greater local control over our own metropolitan destiny.
Alexander Jan is the London Property Alliance’s chief economic adviser. Follow him on X/Twitter. Support OnLondon.co.uk and its writers for £5 a month or £50 a year and get things for your money too. Details HERE.