Many major cities around the world—especially in North America and Europe—have been hit disproportionately hard by Covid-19 compared with their national economies. The charts below show how employment in Amsterdam, London, New York and San Francisco has underperformed relative to national averages.
Employment in four major global cities relative to national averages. Q4 2019 = 100
When the pandemic first struck, it was not immediately obvious this would be the case. Cities are typically home to large numbers of office-based jobs, most of which can be done anywhere with an internet connection and space for a desk. But cities are also hubs for entertainment, hospitality and culture, sectors serving both residents and visitors. For these sectors, a combination of lockdowns and travel restrictions generally meant complete closure. The same was initially true for many retailers, and for other activities such as gyms and sporting events. High-frequency data indicates that big cities suffered particularly hard in this regard: Footfall fell much more than elsewhere. As a result, for big cities relative to national norms, the impact of the closures on overall employment has outweighed the benefits of working from home (WFH) for office workers.
The OECD has highlighted the particular challenge that Covid-19 has posed for the cultural sector in large cities. Take New York and London: Broadway and West End theatres closed their doors in 2020, along with museums and restaurants. Tourists disappeared and office workers stayed away. International visits fell 75% in London in 2020 and our colleagues at Tourism Economics calculate that New York fared worse.
For many businesses such as retailers and sandwich bars in city centres, the success of working from home has ironically been a big part of the problem. As a result, as lockdowns and travel restrictions have eased, demand in city centres has not fully rebounded. Across Europe, while our Normality Tracker shows some evidence of a return to normal, London and Paris remain the weakest European cities in terms of various measures including whether people are leaving their homes to go to work or shop, as measured by mobile phone tracking data. The UK sandwich bar chain Pret a Manger has responded by opening branches in small cities and towns, where revenues have been rising.
But what of the future? We expect a significant return to the office for most people, with consequent boosts to major city economies. Responses to a recent survey of UK firms suggests that WFH won’t persist at anything like current levels, with younger workers showing the greatest appetite for a return to the office. A previous blog post highlighted how smaller living spaces make remote working less appealing; young urbanites typically live in small apartments and house shares. For them, the office has greater appeal than for older colleagues with more space. That, combined with the draw of nightlife and reopened cultural amenities, plus the career and learning advantages of being in the office, means that the world’s great cities are unlikely to lose their allure.
Meanwhile, tourists and business visitors will be drawn back—although perhaps more slowly than office workers. Tourism Economics forecasts a recovery in visits to pre-pandemic levels for all the cities in the charts by 2025, while Oxford Economics’ forecasts show a recovery in total employment for these cities (back to 2019 levels) by 2022. We are therefore optimistic about the medium-term prospects for these and other major global cities.
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