Is London – the engine of the UK – on the brink of economic collapse? – The Property Chronicle
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Is London – the engine of the UK – on the brink of economic collapse?

Investor's Notebook

THE IMPACT of the coronavirus crisis on London is becoming clear to see. Yesterday the Evening Standard laid bare the scale of the economic devastation to the British capital.  Let’s take the headline numbers: “50,000 West End jobs at risk. 88% of people are uncomfortable using public transport. 96% drop in foreign bookings to the UK for July. Eleven London branches of Pret shut down.”

As far back as May, Transport for London (TfL) had  to secure an emergency bailout of £1.6bn to keep services running; according to the BBC, “a second bailout looks inevitable”. TfL figures show the Tube has been carrying only 20% of normal passenger numbers  and buses around 37%, with commuters still wary of exposing themselves to the risk of infection. 

Also, according to the BBC, “restaurants, hotels and bars have quarterly rents and it’s feared few have the means to cough up. The new “one metre plus” rule has given them  a fighting chance of survival but many businesses are living hand-to-mouth.” Much of this won’t change until workers come back. 

As the Standard reports, occupancy rates in West End, City and Docklands offices are running at 5-10%. In Canary Wharf only 7,000 of the 120,000 who usually work there are back. Given the social distancing need too, are businesses and commuters going to flock back to London’s overpriced rail network and congestion-charged roads just to buy a sandwich at a coffee shop? 

Alexander Jan, chairman of the Bee Midtown business body representing traders in areas such as Holborn, said: “I wouldn’t be surprised if it’s still only 10 to 15 per cent [of workers coming back] this side of Christmas.” In terms of commercial property, Doug McWilliams, deputy chairman of the Centre for Economics and Business Research, said he expected prices to fall by up to 30%. “Bearing in mind the fact almost no one is paying rent at the moment that is a huge hit,” he said. 

In London’s case, the collapse in office workers – combined with a fall in tourist numbers – is devastating. The Centre for Cities has analysed how many people could potentially work from home. According to chief  executive Andrew Carter “in London about 40% of the workplace could work from home”. This is a mixed blessing. On the one hand – for those of us who have enjoyed the benefits of flexi-working and believe it  leads to more productivity – what we are seeing is the acceleration of an inevitable trend. On the other hand, the speed with which it is happening – considering the configuration of London’s economy – will be devastating in the short-to-medium term for many service businesses that supply commuters, with little  leadership from City Hall (or much of Government at all).

Simon French, chief economist at brokers Panmure Gordon, said it could take five years for London’s economy to fully return to pre-pandemic levels. As the Standard reported,  data from the Office for National Statistics illustrated that Londoners have been more likely to work from home than people from other regions, at 57.2%. Around “one million fewer commuters than usual are crossing into central London to work each day”, according to the Standard, while a lot of “businesses dependent on office worker and tourist spending are warning that they have never known a downturn of the severity of the current slump”.

Evidence suggests consumers are also still not returning despite lockdown easing, partly because of the virus but for many there will be financial worries too. The New West End Company said footfall in the West End and Mayfair is down 74% since all retail reopened. For the year to date, footfall is down 56%. According to the Standard: “Some tourist hotspots are even emptier, with numbers passing in and out of Piccadilly Circus Underground at only eight per cent of normal levels” while “VisitBritain predicts that foreign visits to the UK — of which London accounts for about half —  will be down 59 per cent to 16.8 million this year with spending 63 per cent lower at £10.6 billion.” 

London has major airports and a huge tourism economy, which are being crushed. (Of course, areas outside London with major airports – such as Luton, just to the north of the capital – are also facing devastation.) Simon Thomas, of the Hippodrome Casino, perhaps spoke for many when he  said: “The Mayor’s punitive new late night and weekend congestion charge is indicative of a disregard for jobs, business and tourism, on top of a campaign to stop people using public transport.”

The capital is crucial to the British economy. The London metropolitan area produces around one-third of Britain’s GDP. This is a much greater contribution than New York City makes to American GDP (about 8%), although it is comparable to the Tokyo metropolitan area’s contribution to the Japanese economy. If Britain – like Germany or South Korea – had a larger manufacturing base making products the world needs perhaps it would be better placed to weather this storm. There  is an immediate need to protect London and other big cities, even if we must eventually reassess their role in the economy. 

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