London is in a ‘precarious’ position, with flat growth projections and the possibility that social problems will create a population drain from the capital and a government keen to be seen as balancing the economy elsewhere. But it is also in a period of relative stability politically, is in a new, less boom-and-bust property cycle paradigm and is in relatively good health against other world cities like Paris, New York, Hong Kong and Sydney.
It also, said keynote speaker Tony Travers, has the considerable advantages of scale, productivity, internationalism, open access, a highly educated and motivated workforce as well as the rule of law, relatively little corruption, and English as its language.
This was ‘State of the Market 2020’, the annual look at the prospects for the capital and beyond held at NLA.
Travers showed that growth in the UK is projected at 1.1% for 2020 from 1.3% last year, but London is growing at 22%, twice the rate of the UK average, with a growing gap between the capital and the rest of the country. Population growth has remained ‘robust’, such that its population is on course to be 10 million by 2030, growing at some 85,000 per year. There is also, Travers said, an ‘increasing interest’ in London and the UK property market for reasons including a return to stable majority government for five years, the removal of the ‘risk’ of a Corbyn-led Labour government, devaluation of Sterling, and now a sense that Brexit can ‘somehow’ be delivered, as well as the relative instability of other competitor cities. ‘London’s vast economy appears to be relatively robust and resilient’, he said. ‘At its simplest, the number of elements of uncertainty may have diminished’.
‘There is the risk that governments act on the misconception that all Londoners are rich.' Professor Tony Travers, LSE
However, has London’s success become a problem?’ Travers asked. Public policy may be about to change with the budget and spending review meaning London facing reduced levels of investment as resources are moved to the Midlands and North. ‘There is the risk that governments act on the misconception that all Londoners are rich’, said Travers. London is seen as having been ‘privileged’ and Travers sees no evidence of Crossrail 2 going ahead, and little of the Bakerloo Line Extension. He expects to see Britain’s ‘unusual set of property taxes, unusually operated’ acted on, with moves from the Chancellor on stamp duty in a way that ‘isn’t necessarily going to be pro-London’.
The capital is unusual in terms of how small (29%) the public sector and how ‘absolutely massive’ the private sector, are compared to the rest of the country – one of the biggest agglomerations in the world in economic activity. If it was ‘left alone’ with its own resources, could London reinvest in its own infrastructure to further increase the scale of its own economy?
For economist Vicky Pryce, the difference between London and the regions has widened, and the government will have to do ‘a huge amount’ to reverse that. And with manufacturing exports suffering, there are ‘very bad business confidence indicators’ after an initial spurt in the previous quarter to September. Along with confidence, orders and cash flow are down, said Pryce. ‘The situation in London is pretty precarious’, she said. And with big issues like Heathrow and HS2 to grapple with, Pryce said she could not see ‘huge clarity’ coming from the mayoral elections in May.
‘Very bad business confidence indicators’ after an initial spurt in the previous quarter to September. Vicky Pryce, Economist
Cushman & Wakefield chairman, UK & Ireland, Digby Flower said there is ‘a new model in the cycle of the London market’, a ‘profoundly different one than the three previous ‘boom-and-bust’ cycles. Today there is a ‘much more even balance between supply and demand’ and the conditions set for rental growth, with REITS being more risk-averse, capital coming into the development market and ‘big occupiers being forced to commit earlier to get what they want’. But Brexit has not been quite the calamity it was feared to be in terms of a loss of European headquarters based in London. ‘We have not seen the flight from London as a product of the current situation’. Indeed, half a dozen major US law firms are looking at expanding their presence in London, he added as the centre of their European operations.
‘We have not seen the flight from London as a product of the current [political] situation’ Digby Flower, Cushman & Wakefield
The overall forecast is ‘broadly flat’ for this year, said CPA economics director Noble Francis, but with 3.4% growth expected across infrastructure, 5.1% in industrial, and within that, ‘double-digit’ growth in warehouses, offset by a fall in factories. Buy-to-rent housing has shown ‘considerable growth’, but commercial has fallen significantly in output by 4.2%, particularly in office towers and retail. With their high upfront investment, factories and prime residential apartment have also continued to decline. The EU withdrawal deal’s implementation period to December provides ‘short-term certainty’, but major business investments will fall, and a key area of concern, said Francis, is over labour issues in construction. A big spike in the age demographic is between the ages of 50-65 years old, meaning that 500,000 workers are projected to be lost over the next 10-15 years, with wage inflation (double-digit in some instances) another worry. ‘Who is actually going to be doing this work’, he asked. Post-Grenfell, there will be a need to build quality and prove it, too, said Francis. Building homes to net-zero standards is also problematic, given that the major housebuilders go for the easy and cheap option, Francis added.
And yet, said Arup chief economist Alexander Jan, the general view is that we will probably do okay in London, but not as well as the past, and may even partly ‘benefit a bit from the fact that things are not great elsewhere’, pointing to New York, Paris, Hong Kong and Sydney. After 1968 the Paris economy made up a shortfall attributed to the riots by the first three months of 1969, he added.
But the government remains an obstacle to infrastructure spending, said Jan. ‘The Treasury doesn’t really want to build anything’, he said. And given the Northern Line Extension experiment and Crossrail’s funding, London has become ‘very public sector-light’, said Jan. ‘How much of London do we want to turn into Nine Elms or Canary Wharf in order to be able to pay for our own infrastructure’, Jan asked. It would take 10 Nine Elms to pay for Crossrail 2, he calculated.
‘The Treasury doesn’t really want to build anything’, and given the Northern Line Extension experiment and Crossrail’s funding, London has become ‘very public sector-light’, Alexander Jan, Arup
Issues discussed from the floor included offsite, sustainability and net-zero frameworks, with Flower saying that the standard approach is now to reuse existing building frames and structures and that perhaps the tall buildings now being built like 22 Bishopsgate will be more sustainable in the long term, with 100-year life spans. Certainly, London is one of the more sustainable cities in the world in terms of its overall energy intensity in order to produce growth, said Jan.
Ultimately, though, 2020 will be an interesting year in terms of how the new, freer government tries to shape public policy in the UK and regulate the way the industry works to better deliver environmental benefits, said Travers. The government is clearly concerned by the environment, but, as recent events have proved with FlyBe, a little more concerned about ‘flying from Exeter to Manchester’. And, as Australia’s fires have proved, action tends to be slow unless pushed by a major crisis. ‘Emergencies generate political activity’, said Travers. ‘I’m afraid slow-moving disasters, less so’.