Europe’s cities have suffered mixed fortunes during the recession, and only four are predicted to make it onto a list of world “megacities” by 2050, says Chris Brown
European cities have faced a double whammy in recent years. Already coming to terms with a connected world where emerging nations in other continents can easily snatch jobs, they then faced the aftermath of the financial crisis, looking on as those other nations grow.
So, will 2013 be the year growth returns to Europe? In some ways, that is academic for municipal authorities, which need to make their regions attractive places to live and work. Longer-term plans need to override short-term issues, such as budgetary constraints, in a highly competitive world.
City authorities must set the stage, often working on infrastructure to show they are ready for business. High-speed trains, better commuter connectivity and good air connections are still considered vital assets for a city. But the challenge comes in finding the money when austerity is driving budgetary considerations, and in persuading private investors to commit.
Airports are a key consideration, particularly to ensure connectivity with emerging trading partners in Asia and South America. While London always seems embroiled in arguments about the right way forward, its European rivals, including Paris, Amsterdam and Frankfurt, are adding runways and airport capacity to welcome new airlines from China and the Middle East.
European cities worst hit by the fallout from the financial crisis include Athens, Dublin, Madrid and Barcelona. There, those with a more opportunistic eye are now searching the markets for bargains, with some feeling that the worst of the crisis is over.
“An increasing presence of opportunistic equity funds from North America in Europe could lead to a rising number of cross-border investments in peripheral European markets this year,” says Lydia Brissy, European research director at Savills.
The Irish capital, Dublin, took a big hit from the financial crisis, but Ireland was one of the first nations to take action. “Ireland is now entering the fifth year of its austerity cycle and measures introduced are starting to have an impact,” says Marie Hunt, director of research at CBRE in Dublin. “Ireland is experiencing growth, with net job gains achieved in the last number of years.”
Ireland remains the most indebted country in Europe, which severely limits its scope for government spending. Among Dublin’s growth markets is its tourism sector. Last year, hoteliers saw rooms rates improve and occupancy reach 80%, with profitability up 48% over the last three years.
Meanwhile, in Spain investment activity totalled €2.1bn in 2012, dominated by three major deals. Savills says those buying into Madrid or Barcelona already know the market well: “Many of those that have engaged in the Spanish market in 2012 are well aware of the area they are working in, because they already have several Spanish properties in their portfolios.”
Looking further ahead, research by Jones Lang LaSalle suggests Europe will have just four winning cities.
In its analysis to 2050, David Green-Morgan, JLL’s global capital markets research director, predicts that London, Paris, Moscow and Istanbul will be Europe’s four representatives in a list of megacities, while 15 Chinese cities will be on the list.
In effect, those four are two survivors and two emerging cities.
But that is not to say other European cities will not have their attractions. “German growth is spread across five cities, and that is dissipating growth,” says Green-Morgan.
City survivors need to demonstrate they are pro-business, offering attractions such as a skilled workforce, good transport infrastructure and a good environment to locate into.
Some start with obvious advantages, such as London and Paris. “In part, it’s their history in being able to adapt, but also how dominant they are in their national economies,” says Green-Morgan.
And both the British and French capitals have proved their resilience, he adds. “We’ve seen it in London and Paris since the financial crisis – they’ve come back faster.”
Business occupiers started signing for office space in those cities, followed by international investors returning to put capital into commercial building stock. So the story is really one of two city survivors, and two new pretenders emerging, says Green-Morgan.
London and Paris both see rail infrastructure as a key factor. In Paris, the €20.5bn Grand Paris project should deliver 200km of new railway lines by 2025, and aims to link the suburbs to each other as well as the city centre, complementing the existing metro network. Although the timing, engineering and funding of the project is under review, the consensus is that it will proceed largely as planned.
A recent research note by JP Morgan suggested the project would have a positive impact on property values well ahead of completion, delivering a 6% boost to property values and adding €1.7bn to values in the French capital.
London, meanwhile, is experiencing the upheaval of the Crossrail project, which is tunnelling a new east-west rail connection beneath the capital.
Separate from the existing Underground, the line will allow suburban trains to stop directly beneath key city locations.
The 21km of new tunnels will open in 2018 (see below).
Istanbul is attractive on several fronts, not least because its location lends itself to being both a logistics hub and a great place for corporate meetings. The latter fact is not lost on the international hotel brands, which are jostling to gain traction in the city.
“It is a very exciting market,” says InterContinental’s chief development officer, Europe, Robert Shepherd. “Istanbul is a great location for European conferences, so we do see that corporate demand. What we like about Turkey is the investment in infrastructure.”
UK councils focus on infrastructure
With the recession forcing local authorities in the UK to switch off street lights and close libraries in a bid to balance the books, it can be easy to miss the bigger picture of keeping focused on programmes that help maintain the attractiveness of cities.
London is the only UK city Jones Lang LaSalle predicts will become a “megacity” by 2050 (see main article). The capital continues to thrive despite tough economic times. Its demonstrable history of resilience, and pure scale, means it always attracts international attention.
And it is not standing still, with billions being invested in Crossrail, the east-west rail link under construction beneath the city that is due to be completed in 2018. To the south-west, an extension to the Underground’s Northern Line is planned, which would give greater access to the Battersea/Nine Elms regeneration area.
Further north, Birmingham is also investing in infrastructure. While welcoming the proposed HS2 high-speed rail link, currently being discussed by the government, Birmingham is in the middle of a makeover of its central New Street station which is due to be completed in 2015. The council used its compulsory purchase powers to ensure the project got started.
Birmingham city council has also committed £75m to extend the city’s metro system with a new service through the city centre, linking existing stations and handling an expected 3.5m passengers a year. The extension is scheduled to open in 2015.
Meanwhile, Edinburgh’s tram system stands as a stark reminder of the challenges of delivering major infrastructure projects. The scheme, currently partially constructed, has suffered acrimony, delays and spiralling costs.
