Global Report

More people, less space. This issue, we take a look at how cities and the people who live in them are adapting to the challenges of urbanisation.

Towering ambitions

There’s a major construction boom taking place in the UK. But who's building what and where?

Cranes

Belfast’s wealth was built on shipbuilding and linen. Now tourism is a major driver of the economy

Construction activity is routinely used as a barometer to evaluate the economic health of a city. Using data from the 2017 Deloitte Real Estate Regional Crane Surveys, we’ve identified four construction hotspots around the UK: Manchester, Birmingham, Leeds and Belfast.

The report found strong demand for hotel and student property development in the centre of Belfast. There was also a high increase in the construction of student accommodation in Birmingham, with a surge in residential projects in general.

Leeds saw the highest level of office space completions since 2006 while Manchester witnessed an unprecedented number of residential units under construction, with four over 25 storeys high.

Belfast

The city benefited from a marked increase in the construction of student and hotel accommodation in 2017. For 2018, the outlook is even more positive with the number of new student rooms expected to increase from 563 to 2,008. This upsurge is directly linked to the approved expansion of the Ulster University Belfast campus. Belfast’s tourist industry will also be boosted by 1,000 new hotel rooms by 2018.

Belfast's tourist industry will be boosted by 1,000 new hotel rooms

Birmingham

The city centre continues to expand, in no small part due to the ambitious HS2 project which is sparking regeneration and providing an economic boost to Birmingham. Last year saw a record number of cranes on the city skyline. There was a 50% increase in new office space under construction in 2017 and in the residential sector, the Deloitte report indicates that 2,300 units will be delivered over the next three years.

Leeds

While the number of construction starts has almost halved since the city’s highpoint in 2007 (31), the 16 new developments in 2016 still comfortably beat the national average (12). New construction activity in 2016 was led by the office sector with the highest level of office space completed in Leeds since 2006. Growth in the residential sector remained slow but hotel construction activity surged – up 72% on 2015.

Manchester

Like Birmingham, commitment to HS2 is providing impetus for the future prosperity and growth of Manchester. As a place to live and work, the city continues to be highly attractive. In 2017, the number of new starts was up by 40% against a previous high in 2007. An unprecedented 6,963 residential units were under construction and, significantly, the building pipeline in this sector extends to 2020. The buoyant Manchester office rental market has supported the building and delivery of the highest volume of new offices since 2008.

The new urban artisans

Traditional occupations such as baking, brewing and butchery are tempting Millennials away from office jobs.

Barista

For Generation X, barristas have equal status with barristers in the employment stakes

A growing number of educated young people are shunning professional careers or the knowledge economy to work in jobs that were once the cornerstones of an industrial city: brewing, coffee roasting, bartending and distilling.

The revival is largely due to a growing resistance to mass-produced food and drink, and a shift towards quality, madeon-the-premises produce. Customers are willing to pay more for goods that they feel offer a better experience and demonstrate true artistry on the part of the supplier. Traditionally, occupations such as bartending and butchery were low-status and badly paid. But what if you are buying a craft cocktail at a trendy bar with its spirits produced on the premises by artisan distillers? Most of those people you deal with have a share in the business and the profits are theirs, not a big brewery’s. They are able to charge top-end prices too.

In his book Masters of Craft, Richard Ocejo refers to customers buying these craft products and services as “cultural omnivores”. Replacing the connoisseurs, or ‘snobs’, of the past, they are as well paid but make fewer class distinctions. They are just as likely to be drawn to craft beer and spirits as traditionally elitist products such as opera and fine wine. Cultural omnivores demand quality but they are prepared to make a trip to a micro-dairy for a Latin American-style mozzarella.

Buzz phrase:

Urban heat island

Ever wondered why cities seem so unbearably hot in the summer? The reason is that road surfaces, pavements and buildings all contribute to keeping urbanised environments 3-4°C hotter than rural or suburban areas1.

But rather than swelter in silence, many cities are looking at innovative ways to cool their perspiring citizens. To counter what is referred to as the “urban heat island”, cities are planting more trees to increase the level of shade. While this may cool some pavements effectively, it is not always practical in narrower areas and does nothing to alleviate the baking roads. A more porous surface that allows water to penetrate and grass to grow through could reduce heat levels in low-traffic areas.

Using lighter coloured materials for pavements and buildings, thereby reflecting radiation from the sun, can have a hugely positive impact too. Roofs and walls covered in vegetation can lower the temperature of buildings. In mid-summer, green roofs can help bring down the temperature to ambient levels, whereas a conventional roof can be up to 50°C higher2.

Green envelopes can also be applied to the exterior of established buildings, lowering temperatures and making these structures more aesthetically appealing at the same time. A roof garden can literally provide a chill factor.

  1. thoughts.arup.com, September 2016
  2. thoughts.arup.com, September 2016

Age of uncertainty

The well-known saying, “May you live in interesting times” is allegedly an ancient curse, which was coined in China. But it continues to resonate down the years

Globe

MP Sir Austen Chamberlain, who had held the post of foreign secretary, is thought to have popularised the saying in a speech in 1936 with reference to the possibility of World War Two. Another politician, Robert F Kennedy of the US political dynasty, took up the baton 30 years later in his famous “Ripple of Hope” speech about apartheid in South Africa, where he added: “Like it or not, we live in interesting times.”

The theme, and its political connection, continues. In today’s global economy there seems to have been no shortage of interesting times – many created by politicians.

An interesting choice of president

And the politician who has arguably generated the most interest in recent times is the President of the United States, Donald Trump. Since he came to power, investors have watched and waited to see how his legislative agenda might evolve. So, how is he doing? The answer is that the jury is still out. There have been concerns about whether he will be able to push through his proposed infrastructure reforms and he has undoubtedly met with some challenges. Political gridlock was anticipated, but perhaps not quite to the extent we are seeing. On the other hand, some progress is being made, for instance with regard to business regulation and developing relationships with other countries.

In addition to policy uncertainties, the path of business investment and labour productivity in the US, and the impact they have on inflation and monetary policy, remain key. Is business investment growth likely to pick up and broaden? Will core inflation accelerate? What are the chances of Congress passing meaningful structural reforms? These are some of the main questions facing investors in the second half of the year. The US economy, in the meantime, continues to thrive.

“Worry is the interest paid by those who borrow trouble”

Turning next to the UK, the above comment (attributed to another politician, former US President George Washington) is one that Prime Minister Theresa May might do well to reflect on. Following the seismic political event that was the EU referendum, Mrs May triggered Article 50 to set the Brexit process in motion in March this year – which she swiftly followed with the announcement of a ‘snap’ general election in June. This was aimed at strengthening her hand in Brexit negotiations, but backfired, resulting in a hung parliament. This increased the uncertainty ushered in by the vote to leave the EU – uncertainty which is widely expected to linger into 2018, as negotiations take their course. Three key issues need to be agreed upon before the new UK/EU relationship can take shape: the size of the UK’s bill for cancelling EU membership; the rights of EU citizens living in the UK, as well as UK citizens living in the EU; and the border between EU member Ireland and Northern Ireland. These are unlikely to be settled quickly.

Interest-rate rising times?

Another significant knock-on effect of the political upheaval has been a drop in the value of the pound. Many FTSE-listed companies obtain their earnings from overseas, so the weakness (or strength) of sterling is very important to them: the FTSE 100 has been hitting record highs.

So, what’s next for the UK? The battle to understand the economic outlook continues. In the wake of the Brexit vote, consumers propped up the economy. The rumoured ‘Armageddon’ never appeared. However, rising inflation is now beginning to put the brakes on spending. Economic growth slowed in the first quarter of this year, and second-quarter figures indicate more of the same. Could this be a blip, or something more meaningful, is the question.

Never a dull moment

Across the Channel, politics has dominated and continue to influence the economic outlook too. The rise of populism, which looked unstoppable, faltered in the Netherlands in last December’s elections. Dutch voters decided against populist leader Geert Wilders, who was tipped to take power.

A decisive victory for Emmanuel Macron’s En Marche! Party in the French elections earlier this year was another blow for populism. And there’s more political news to come, with Italy going to the polls in 2018. This means that market volatility is likely to continue.

However, the Eurozone economy is recovering steadily: the first half of the year got off to a flying start, and the election of President Macron reassured overseas investors. But another source of uncertainty is lurking. The European Central Bank has warned that its current quantitative easing programme, instigated to stimulate growth, should come to an end next year. This is likely to lead to higher borrowing costs for European governments and businesses as the source of demand for European bonds fades away.

We said it first...

The US, the UK and Europe all seem reasonably prosperous at the moment, but what about the Asia Pacific region, and specifically China, the world’s second-largest economy? The good news is that the first quarter of this year saw higher-than-expected Chinese economic growth, which has rebounded significantly, and signs that trade is picking up across a range of emerging market economies. However, just as the most pertinent questions facing the global economic outlook in the US and the UK centre on policy, China is having a similar experience. In China’s case it’s the forthcoming Party congress, this autumn, which is held every five years. The spotlight that was on the US as President Trump came to Power and initiated the development of his campaign promises will now swing round to China, which will be the focus for the remainder of 2017. The country is poised for both internal and external changes, with the congress reshuffling China’s leadership team. Whatever guidance on policy direction emerges will shape the outlook for emerging markets generally.

So, all in all, the ‘mood music’ playing in the background of the global economy has become more upbeat over the last year. However, political risk has not quite faded away and we continue to live in interesting (if uncertain) times. But would we have it any other way?

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