London and Paris head cities index – climate to blight Rome

London, followed by Paris, leads European cities in terms of projected demand from occupiers, according to LaSalle Investment Management.

The firm, which has just published the latest edition of the European Cities Growth Index, stated that the large metropolitan areas of London and Paris and their ability to adapt to changing macroeconomic conditions, drive unparalleled growth compared to those of other European cities. They generate over 30% of the economic output in their respective countries and are forecast to account for one sixth of European growth in the next decade.

Furthermore, Paris has overtaken London as the top destination for attracting venture capital funding for the first time since LaSalle began tracking this in 2006, particularly to technology sector. 

“Despite current economic conditions, strong growth is likely to persist in several European cities in the longer-term,” said Petra Blazkova, LaSalle’s head of research and strategy, core and core-plus capital, Europe.” The strength of markets like London and Paris is underwritten by their shared structural attributes, with the latter noted for its rising status as a startup investment hub.

“It’s important to recognise the robust performance of the Nordic cities in our ranking, particularly driven by innovation in high-growth industries alongside growing populations. We must also acknowledge the role of climate change in determining potential occupier demand across Europe, as this year’s ECGI registers a notable impact of extreme heat on cities closer to the Mediterranean and those dominated by traditional industry.”

The Nordic region also demonstrated strong growth prospects with exporters in industries like life sciences, wind power infrastructure and industrial tech driving productivity gains and economic growth prospects.

This is reflected in the performance of the region’s cities in the ECGI, with Stockholm in third position. Copenhagen joined the top five and Helsinki the top 20.

Sweden and Denmark have seen a rise of 27% in gross value-added products and a concurrent 36% drop in greenhouse gas emissions since 2010.

German cities also performed strongly in the index despite slow population growth as a result of demographics.

Munich is Germany’s top city for projected real-estate occupier demand this year while Berlin reached its highest score ever on the index owing to improved job growth and increased diversity of economic output. Stuttgart remains reliant on the automotive industry.

The ECGI is based on weighted data sets, with 45% of each cities’ score based on economic growth data, while 35% is drawn from human capital factors, such as how skilled the workforce is. A 20% weighting is allocated to data on business risk as well as extreme heat days.

Using data from Copernicus Climate Change Service which tracks worsening weather conditions over the next 50 years Rome is the city most affected but other Italian cities such as Palermo and Florence are significantly affected.

Their ‘brain gain’ have helped Prague and Warsaw achieve status as up-and-coming cities in the index. More expats have returned and high-skilled workers have remained.

“Our research highlights the need for investors to take into account a variety of economic, environmental and social factors when considering commitments during these current global macroeconomic headwinds,” said Philip La Pierre, head of Europe, LaSalle. “With weak short-term growth dominating Europe today, identifying geographies that are able to generate long-term growth is even more important for real estate investors.”