London regains top position in LaSalle’s E-REGI Index with a Soft Brexit scenario is now more likely
London has regained its position as the leading region for real estate occupier demand in Europe, according to the eighteenth edition of LaSalle’s European Regional Growth Index (E-REGI).
The UK capital has narrowly edged above Paris at the top of the Index, eighteen months before the UK is due to leave the European Union. This is because a softer, longer Brexit appears more likely than a hard Brexit since the snap general election last June. This had led to a modest upward revision of UK economic forecasts. The UK economy has also proved more resilient than when the 2016 edition of E-REGI was published a year ago, in the aftermath of the Brexit vote. While London is now ahead of Paris - the French capital overtook its UK equivalent last year - the two cities are neck and neck in terms of strength of future occupier demand.
UK cities also benefit this year from higher Human Capital scores, in particular London, Manchester and Birmingham. These improvements are driven by improving university rankings, an increase in venture capital investments and - in the case of Manchester and Birmingham - a higher number of patents filed. All UK cities now outperform the European average in terms of Human Capital, with London, Bristol, Edinburgh and Manchester performing particularly strongly. The capacity of these cities to develop skills and attract talent, to foster creativity and concentrate investment in research & development are valuable structural strengths that will help them absorb economic shocks.
Other highlights of the LaSalle E-REGI index are:
- Paris comes a close second this year, after topping the index last year, and continues to lead in Europe in terms of Human Capital. Political uncertainty has reduced significantly in France with the election of Emmanuel Macron as President, and the new government benefitting from a large majority.
- Stockholm remains in 3rd position in Europe; driven by strong Human Capital scores, Nordic cities dominate the top of the ranking with Oslo in 8th position, Copenhagen-Malmö 10th and Helsinki 16th.
- Istanbul reaches 4th position despite the increasing political upheaval damaging the country’s Business Environment score. Its position reflects the size and exceptional growth potential of the city.
- Dublin climbs two positions to the 5th place to reach its highest score since 2001, followed by Luxembourg in 6th position
- As in previous editions of the index, German cities perform very strongly but are reaching a plateau, with Munich dropping 3 places to 7th position. This is due to Germany’s economy hitting capacity constraints in relation to the scarcity of labour across all sectors of the economy.
Mahdi Mokrane, LaSalle Investment Management’s European Head of Research & Strategy said: “LaSalle’s E-REGI index has a proven 18-year track record of guiding investors to those cities offering the best occupier prospects. E-REGI’s long history has helped us identify clear clusters of cities that tend to offer common real estate behaviours. Combined with careful analysis of supply and pricing dynamics this in turn enables us to design superior risk-adjusted strategies for our clients.”
This year, the Index categorises the list of cities covered into four distinct groups; these are as follows:
- The Consistent cities have had the most stable positions in the E-REGI rankings over the years. Consistently strong-scoring cities are attractive investment markets throughout the economic and real estate cycles. London, Paris, Stockholm and Munich are the leading cities in this group. Most German, French, UK, Dutch and Nordic cities are included in this category.
- The Affluent, which include Luxembourg, Oslo, Zürich, and Geneva also support long term strategies like The Consistent, but are more difficult to transact in due to their smaller size and strong investor base.
- The Movers are cities that have seen the top and the bottom of the ranking. Two types of Movers have been identified. The Cyclical Movers are volatile markets; they have gone low in the ranking during downturns but have demonstrated an ability to recover quickly. These include Dublin, Madrid, Barcelona and Milan. By contrast, the Structural Movers are cities that have seen their scores improve steadily over the years. Structural Movers include Berlin, Bristol, Manchester and Rotterdam.
- The Aspiring are cities benefiting from a strong economic growth outlook, but the lack of transparency remains an issue in many of these markets. All Central and Eastern European cities are part of this category, notably Warsaw and Prague.