Pandemic drives polarisation in European cities’ performance as London tops LaSalle’s European Cities Growth Index

London ranks as Europe’s leading city for projected real-estate occupier demand for the fifth year running in the latest annual edition of the newly named European Cities Growth Index (“ECGI”), published by LaSalle Investment Management, the global real estate investment manager. Post-pandemic Paris, however, has closed the gap with its main rival since the 2020 edition, thanks to persistently strong human capital in Paris combined with softening prospects in service sector employment in London.

Top-performing European cities, London and Paris included, showed strength and resilience during the recent downturn triggered by the pandemic, displaying stable scores on average. Other top-performing cities such as Stockholm (fourth), Luxembourg (fifth) and Munich (sixth) recorded scores close to their 2019 pre-pandemic equivalents. The recovery in Spanish cities such as Madrid (rising to third place in the rankings), Barcelona (seventh) and Seville (fourteenth) exceeded most cities in Europe.

By contrast, the lower-ranking cities are getting weaker on a relative basis. 49 of the 93 European cities tracked by LaSalle in the ECGI recorded a year-on-year decline in score in 2021 – the highest number of decreases since 2009. As a result, the polarisation between the best- and worst-performing cities is getting wider.

Brian Klinksiek, Head of European Research and Global Portfolio Strategies at LaSalle, said: “This latest edition of the ECGI underlines the resilience of the London and Paris city markets, which has seen these ‘Big Two’ dominate the rankings since their launch in 2000. This is a highly challenging macroeconomic environment, with the largest number of cities seeing a downgrade in their growth prospects since the global financial crisis. Despite this, and the impact of a harder Brexit deal than previously anticipated, both London and Paris remain distinguished by their high-calibre workforces, strong GDP and employment growth prospects and comparatively low levels of business risk.”

“While the pandemic upturned many longstanding assumptions about the function of different real estate property types, we remain convinced that the growth metrics tracked in the ECGI will continue to provide a valuable tool in identifying real estate markets with room for outperformance, allowing investors to optimise portfolio construction when considered alongside supply-side information and relative pricing. It’s exciting this year to see multiple Spanish cities emerging as potentially attractive investment destinations on account of their strong recovery from the pandemic.”

Uwe Rempis, Managing Director at LaSalle KVG, added: “This flagship piece of market research has been a crucial input into our investment process for decades. The theme of a widening polarisation between the best and worst performers post-pandemic is something that we are also seeing on the ground across regions, micro-locations and individual assets. Our focus will therefore remain on building portfolios with exposure to Europe’s most resilient city markets.”

The European Cities Growth Index has been renamed from the European Regional Economic Growth Index (“E-REGI”), the name under which LaSalle has previously published this annual research since 2000. The index identifies the European regions and cities with the best combination of growth prospects (in terms of GDP, service employment and human capital), current wealth and business environment. Together these can serve as a proxy for occupier demand and a framework for real estate portfolio construction. LaSalle continually refines its methodology and this year incorporated transparency around areas such as investment performance, regulatory landscape and sustainability into its assessment criteria.