Can the impact and premium of the agglomerated knowledge economy of a CBD really be replicated in the disaggregated city?
Follow the money. While we can all imagine better ways to understand what’s going on in our towns and cities, you won’t go far wrong if you know what’s going on in the economy and particularly what’s going on with rents.
The numbers can sometimes speak more eloquently than the words. So, for example, commercial rents in London’s famous Canary Wharf business district before 9/11 were about 60 per cent of those in the traditional financial centre, the square mile of the City of London and seemed on target to match them in due course.
After the planes hit the Twin Towers rents in Canary Wharf plummeted and I believe have never quite recovered the trajectory they were on. At the same time, rents in the area of the London rail station Kings Cross, which were below Canary Wharf levels before the advent of the International Terminal for the Channel Tunnel Rail Link and the consequent regeneration of the area, now match and in some places exceed City of London levels.
Covid’s impact on rents also speaks to us of changed realities, though for how long it’s not clear. As one would have expected in the context of a decline in national GDP and acute uncertainty over when or even whether “business as usual” will return, there has been some downward pressure on commercial and residential rents, in London, Sydney and indeed in most global cities, certainly outside southeast Asia.
However, the big news is not the national averages. It’s the local variations. City centre locations have suffered in most places but perhaps the outer areas less so. For example, the inner areas of the UK’s “second city”, Birmingham, have seen price drops in commercial rents of 3.5 per cent while areas on the outskirts rose over 5 per cent in the past 12 months.
We have seen a similar trends in Australia where Sydney’s CBD rents have dropped by about 10 per cent at the top end, though my sources in the industry think it’s closer to 15 per cent for stock that is difficult to make “Covid-safe”– maybe more.
At the same time, some previously less valued commercial stock further into the suburbs has seen prices stabilise or rise. There has been a flight of capital and value from inner city areas though again, we don’t know how long this will last after a vaccine and after we all tire of the drudgery of home-working. And even those tenants who are staying are renegotiating leases downwards or seeking more space for their rent.
The UK property-finding site, Zoopla tells us that London has seen the biggest drop of all UK cities – an overall decline of over 8 per cent in commercial rents, with inner areas clearly exceeding this. And of course the double whammy for London – though the decline in tourism, hospitality and foreign students add a few more whammies to that – is the decline in rents for flats.
People are either leaving the city or looking for bigger accommodation in which to do homeworking or have a garden to walk around. London residential rents overall are 10 per cent down – with inner city pockets exceeding this – while, again, we see some counter trends outside London and indeed outside major city centres.
Interestingly sale prices for suburban homes in London have held up in 2020 and indeed have gone up in the last few months while flat prices went “south”. This is an international Covid related trend by the way – as we see the same in Australia.
Certainly, in Sydney, inner city flats and small homes have seen prices slide while prices boom for larger homes further out – a bubble that puts the aspirations of all Australian governments to extend home ownership further out of reach (though I have never believed they know how to achieve this policy aim given other government policies stoke up home-prices).
In the UK, there does seem to be a kind of Covid and market-driven levelling up going on , beyond what a Johnson government planned or has control over.
Trends may reverse or at least moderate as Covid is controlled. But in the interim London has lost some population, momentum and value while it appears some regions – not necessarily their metropolitan centres – have been gaining.
A kind of levelling -up between the centre and periphery may be under way.
We shall see where this lands. I would say this: I understand and support the critique that we need to rebalance growth and indeed wealth more equitably across the UK: indeed I was involved in the early City Region policies in the UK which led to the City Deals , whose whole premise is the need to reignite the regional engines of prosperity.
I spent much of my career in the UK before coming to Australia working to ensure relatively disadvantaged East London got its day in the sun but also that what are now called Red Wall areas – those post-industrial declining areas that voted Tory for the first time in the last election – got the public and private investment and strategy focus they needed to flourish so once again they would be net financial contributors to UK coffers.
So, I welcome some of the positive consequences for them of the shifts I am describing, as I do also for some signs that Covid in Australia may bring some population growth to regional centres.
However, there are several ways to level-up or reduce the gap in performance between areas.
They can all grow but the previously under-performing areas now grow faster and thus make some ground on those ahead. Those ahead in the race can stall or even trip up, enabling laggards to catch up through no new skills or capacities of their own.
Which of these is happening in the UK or Australia is perhaps too soon to tell but we should be worried if it’s the latter.
Further, and to move on from metaphors to the nitty gritty of this moment, we may be about to find out whether the relationship between for example London and the regions is actually the zero-sum game many Red Wall patriots and London-haters may believe; a game in which London grew at the expense of the regions.
What if we discover that actually it’s a win-win relationship in which London’s wealth and success contributes to regional prosperity; that indeed as London First – a sister organisation of the Committee for Sydney – used to put it, London is the Goose that Laid the Golden Eggs for us all?
I put it this way in my discussions in Sydney where our version of this is that some seem to think that the crisis of the Sydney CBD is somehow an economic opportunity for its outer suburbs. I ask: can you actually have a vibrant “sub” without a vibrant successful “urb” – successful “spokes” without a successful “hub”?
Can the impact and premium of the agglomerated knowledge economy of a CBD really be replicated in the disaggregated city that suburban boosters seem to be seeking? If the Covid prompted attack on inner city/CBD rents and values continues, whether in Sydney in relation to its suburbs or London in relation to the regions, we are going to have that question answered in real time.
Tim Williams is chair of Open Cities, strategic advisor to Arup Australasia, board member NSW Circular and NSW Architects Registration Board