The pandemic could affect the way we view the world’s great cities.
Metropolises such as New York, Toronto, London and Tokyo have historically enjoyed higher productivity levels and higher GDP growth and have an outsized impact on their country’s economy because of the concentration of highly-skilled individuals working for some of the country’s largest corporations.
These flagship cities have thrived on developing clusters (Wall Street, Bay Street) with their swanky downtowns serving as great connection points for networking, entertainment and high-end living.
But the density of their populations also makes them a breeding ground for the coronavirus. To add to their woes, these cities also happen to be home to people who have some of the greatest mobility and the financial wherewithal to locate elsewhere.
“Cities such as New York and London, whose economies are founded on inward migration of the more highly qualified, could find their economic dynamism go into reverse if the migration flows do the same,” Richard Holt, head of Global Cities research at Oxford Economics, said in a note this week.
In addition, the success of remote working during the pandemic has poked holes in the argument that we all need to be packed in 30-storey buildings in a crowded downtown and sit less than two metres away from each other to succeed as a productive team or as a company. The ‘super cluster’ marketing hype (probably drummed by municipalities) of companies in the same sector located close to each other, as popularized by Silicon Valley, is also wearing thin.
In fact, even Silicon Valley has moved on, with tech companies that earlier felt they had to be domiciled in San Francisco and San Jose, moving to other parts of the U.S. without losing their efficiency, productivity and profitability, the report notes.
“Similarly, there is some limited evidence of young highly qualified adults moving away from London to smaller cities,” Holt wrote. “Sometimes it is employers who lead the shift. HSBC moving its UK headquarters from London to Birmingham is an example.”
A report by real estate survey Redfin shows that New York City, Los Angeles and San Francisco were the top three American cities where residents were considering migrating elsewhere during the pandemic.
Indeed, New York was listed as the metropolitan area with the largest net outflow in the second quarter, according to Redfin data.
Rising home prices could also emerge as a major reason for net migration from the world’s largest cities. Despite the pandemic, the most prized real estate across Toronto, London and other global economic hubs continue to see stable pricing or has even seen a surge in value. That’s at odds with families looking for larger homes to counter the impact of the coronavirus.
“A lot of people are nervous about the pandemic and feel their apartment walls closing in on them,” said San Francisco Redfin agent Dylan Masella, in a report in August. “I’m working with one couple that was renting a small apartment and they were both working from the kitchen table. The combination of needing more space and low rates pushed them toward buying, and they just closed on their first house.”
Oxford Economics’s thoughtful report, which weighs the pros and cons of moving away from large cities, notes that it’s possible that many companies would look to move to second-tier cities — although it may have the unintended effect of simply creating new breeding grounds for the virus to thrive in.
Holt does not believe we have reached a turning point yet for the world’s largest cities, but it’s a trend worth watching.
In fact, the large metros’ current challenges could even compel them to create health care issues and social inclusion a more prominent part of their development strategies.
“And real estate investors may see this as an important part of reducing their risks, mirroring the decisions being made at the personal level by individuals. So,we may see a race to the top, where citizens’ welfare is concerned, that is reinforced by the decisions of individuals, employers, and investors alike,” Holt said.