Repurposed retail crucial to post-crisis city revival
High streets have been hit hard across Europe, but there is an opportunity to shape the cities of the future, reports Nicol Dynes.
Europe-wide lockdowns have accelerated the long-term erosion of the high street, particularly in the UK, leading to mass closures of stores. In London’s flagship Oxford Street, 50% of the shops have gone, from big department stores to small sandwich shops, and the situation is worse in Britain’s regional cities and smaller towns.
“The problem for many cities is that they won’t look the same when people return to them because so many shops have closed down,” says Daniel Harris, managing director, head of European investments, at Cain International. “It will be a terrible shock, but it will create innovation.
“Everyone has been focusing on the future of the office, but they are missing the point. Retail rather than offices will determine the success of cities in future, that is the biggest challenge. Rebuilding the high street will be the story of the next 10 years.”
The pandemic has brought an opportunity to innovate and shape the cities of the future. City centres will have to be more mixed-use, more experience-led and more inclusive if they want to attract people.
“We’ve been given an opportunity by changes in the retail sector across Europe,” says Oliver Kummerfeldt, European real estate analyst at Schroders. “A chance to innovate and transform those spaces into residential, medical centres, student housing, labs and more. There are huge opportunities in helping cities manage the transition.”
‘Quasi-gateway cities will emerge as people decide what is best for them depending on transport infrastructure and flexibility.’
Nils Hübener, Corestate Capital Group
There are practical challenges to be overcome, however, especially for landlords and for city authorities. “Reviving city centres is a challenge, but also a huge opportunity,” says Nils Hübener, CIO of Corestate Capital Group. “It is also a political question: in Germany, for example, it’s a requirement to include affordable housing in city centre schemes, to create a sustainable urban fabric.”
Creating and curating spaces, fostering inclusivity, providing leisure, culture and entertainment, community hubs, gardens and green spaces will make cities more attractive and more resilient. “People still want to live in a city. But they want to live in a more appealing city,” says Harris.
Different ways to live
The past year has challenged old habits and assumptions and shown there are different ways to work and live. “People have realised they have the power of choice. They can choose where they work and where they live, they are questioning whether they need to be in the centre of Frankfurt or London and this will have an impact on the relative attractiveness of cities,” says Hübener.
Cities that have more green spaces and open public spaces and that are closer to nature are likely to be more successful in future. “Cities will recover quickly from the pandemic because we’re social animals,” says Harris. “But we’re already seeing changes. Miami has seen an upsurge in people moving there from dense cities like New York because they want a better quality of life.”
Other factors will come into play, says Kummerfeldt: “City governance, public transport will come into question as well as quality of life.”
‘Retail rather than offices will determine the success of cities in future, that is the biggest challenge. Rebuilding the high street will be the story of the next 10 years.’
Daniel Harris, Cain International
Already last year the GDP of some cities in the Nordics, Germany and Switzerland barely fell, showing their resilience despite the crisis.
“The philosophy of winning cities is still very valid,” says Kummerfeldt. “The secret is identifying the ones that will deliver sustainable growth, attract talent and be liveable, and they might not necessarily be the cities we think of now. New winners will emerge.”
Limited choice in Europe
The US is different because there are so many cities to choose from, but in Europe the choice is more limited. Polycentric countries such as Germany will fare better, says Harris: “Lyon will never rival Paris and Manchester or Birmingham will never rival London, but some German cities will emerge as winners, as well as Barcelona, that has an advantage over Madrid.”
There could indeed be multiple winners as people exercise their power of choice. “I can see different concepts co-existing and thriving,” says Hübener. “Quasi-gateway cities will emerge as people decide what is best for them depending on transport infrastructure and flexibility. If you only have to go to your office in La Défense twice a week then you can choose to live in Lyon or in the suburbs.”
The younger generations will be key to the post-pandemic revival of Europe’s cities and they are the keenest to resume normal life and get back to city centres. “My advice now would be buy up and reposition in city centres,” says Harris. “City centres and offices have been oversold. People who’ve held their nerve will outperform, because the market will recover quickly.”
Sustainable, smart cities will thrive again in Europe
Cities have emptied during the pandemic, but they will regain their dominant place soon. “Cities are the dominant way of living in Europe and they will continue to thrive in future, provided they become sustainable and smart,” says Mark Holz, group head of research at Corestate Capital Group.
In 1900 28% of the European population lived in cities, but in 2020 that percentage had ballooned to 77% because large urban centres have proved they are efficient and economically successful, promote commerce and innovation, arts and culture, as well as knowledge and communication.
Cities’ economic relevance is huge and they outclass their respective countries in productivity and growth. To give the two most notable examples, Paris accounts for 18.3% of the French population but 31.2% of its economic output, while the inhabitants of London are 13.5% of the UK total but the capital’s share of national GDP is 23.9%. “Given their economic dominance, cities naturally attract investors’ attention and account for most investment activity,” adds Holz.
Transaction volumes
Paris accounts for a huge 78% of French transaction volumes, London for 53% of UK activity, Amsterdam and Rotterdam combined represent 53% of the Dutch total and in Germany the top four cities (Berlin, Frankfurt, Munich and Hamburg) account for 56% of transactions.
“There are three main reasons for this. Investors find the products they seek, property values are higher and cities are also very liquid and international,” explains Holz. “Big city transactions tend to be done by institutions and cross-border players, while secondary cities attract more local and private investors.”
Tier 1 cities outperform over the long term, but they are volatile and tend to be more cyclical, so timing is crucial.
The winning cities of the future will be smart, sustainable, integrated, mixed and dense, says Holz. “They will be green, run by public transport, with mixed-use neighbourhoods and clusters that will make them more efficient economically but also more attractive for residents.”
Good examples are Vienna, a leading smart city; Copenhagen, which will be carbon neutral by 2025; and Paris and Barcelona, aiming to become 15-minute cities where everything is within reach.
