London after the pandemic: a comparison with US cities
BNP Paribas Real Estate
The client:
BNP Paribas UK is a real estate consultancy with 5,000 employees and operates from 23 countries
The task:
Kent Nordic works with BNP Paribas Real Estate UK on content strategy.
In the piece below, experts from the group’s research team explore findings of a post-pandemic economic hollowing out of city centres as former residents opt to live and work in the suburbs and exurbs. Could the same happen in London?
The role:
Editorial consultancy
Content writing
Read the full publication on the BNP Paribas Real Estate website, or check out a snippet below:
Why central London will dodge the dreaded doughnut
US cities must beware the ‘donut effect’, the Financial Times warned in May.
The article by Rana Foroohar unpacked findings of a post-Covid economic hollowing out of city centres as former residents opted to live and work in the suburbs and exurbs. The evidence for the piece was gathered and published by the academics Arjun Ramani and Nicholas Bloom of the National Bureau of Economic Research, who used commercial and residential rents to suggest that, where households had left city centres during the pandemic, most had moved to the suburbs of the same city. Businesses and real estate demand had in turn shifted away from CBDs to suburban “outer rings” resembling doughnuts, leaving worrying prospects for commercial buildings in large cities.
“Office ccupiers are really resistant to committing to huge floor plates. It just isn’t feasible in the context of hybrid work.”
US cities were the focus of the study, but the underlying causes can be found in London or indeed many other large cities in western economies – namely the rise of hybrid working and the movement of city residents to areas with more space and greenery. Yet, there are few signs that the doughnut is taking hold in London. Ridership of the tube, for example, is down just 13% compared to pre-COVID levels, compared to an average of -35% across the US. Meanwhile, rents in London’s West End hit £140 per square foot during Q4 2022, an increase of 19% compared to the same period a year earlier.
Whether these differences will endure is subject to considerable uncertainty, however London is uniquely positioned to dodge the dreaded doughnut due to a mixture of economics, infrastructure, architecture and green building legislation.
“One of London’s key differentiators from some US cities is the sustainability angle, particularly MEES [Minimum Energy Efficiency Standards] and the increasing real need for corporations to be in a best-in-class energy efficient building,” says Charlie Tattersall, associate director, capital markets research. “For many of these companies, if they want to get finance, if they want to take on new institutional clients, they have to show robustly how they are reducing their emissions from both their operations and their buildings.”
The UK’s Minimum Energy Efficiency Standards, which are currently moving through a series of debates in parliament, will render any commercial property with an EPC rating lower than B unlettable by 2030. The US does have comparable legislation in some states and tax benefits are on offer for building owners to get green certified, though it’s a patchwork that varies heavily by location. “The pressure on occupiers to occupy more sustainable buildings is also more intense in Europe, where the European Commission has led the world in regulating and legislating the world of ESG. The direction of travel in the US, where ESG remains a politically contentious issue, is less clear cut” Tattersall says.
The drive for sustainable buildings isn’t the only way occupier requirements have shifted. Companies are generally rationalising their office space, with some opting for a smaller amount of higher quality, flexible space, often in prime buildings. Character-rich buildings with smaller floorplates in amenity-rich locations are in vogue.
That’s where London’s West End really comes to the fore, says Mhairi Thomson, associate director, office research. The average floor plate in the West End, which is popular with hedge funds and companies in the creative industries, stands at 6,807 square feet. That compares to 29,299 sq ft in New York City.