finance

London leavers’ return vital to recovery after Covid exodus


In January, one study struck fear into London’s landlords and business owners. Research published by the government-funded Economic Statistics Centre of Excellence (ESCoE) estimated that 700,000 people had left the capital as a result of coronavirus.

That figure remains the starkest guess to date of the impact of the pandemic on London’s population, estimated at 8.9m by the Office for National Statistics in 2018. Until last year, its relentless increase — up from 6.7m in 1990 — had shaped the city as we know it. 

But a population reversal, if sustained, could cause London’s house prices to fall, change the composition of the city’s workforce markedly and permanently reconstitute the capital. Such fears are likely to persist until a central question of the pandemic is answered: will the exodus be reversed once restrictions are lifted?

Conclusive data on what has happened to London’s population since January is not available. However, there are hints in the economy and the housing market about what may happen next.

A near-deserted underground station during lockdown in January
Embankment underground station almost deserted during lockdown in January © Pietro Recchia/Getty Images

“What we’re seeing in the labour market very much confirms the idea that a lot of people have left and haven’t come back yet, and that a lot of people who were on furlough have not been in the country during this period,” says Jonathan Portes, professor of economics and public policy at King’s College in London, and one of the authors of the ESCoE paper.

As sectors that were shuttered by coronavirus restrictions begin to reopen, shortages of skilled workers are becoming apparent in restaurants and on building sites. Already, the lack of staff is having a serious effect on employers, and changing the cost of doing business.

A prominent restaurateur, who owns a chain of eateries in London, says staffing costs have increased 15 per cent due to Brexit and the pandemic. The former has raised barriers to migrants from the EU, while the latter has prompted many to return to their home countries.

The extra cost, with revenues down about 50 per cent due to coronavirus, are likely to put some restaurants out of business, he predicts.

Hospitality has been hit hard by the loss of overseas workers during the pandemic
Hospitality has been hit hard by the loss of overseas workers during the pandemic © Dan Kitwood/Getty Images

In the construction sector, the shortage of staff has been one reason behind rising costs, alongside supply chain disruption caused by the pandemic, Brexit and the six-day long blockage of the Suez Canal in March. According to one developer, the cost of laying a brick has more than doubled in the past year.

As Covid-19 restrictions loosen, and the economy shows signs of revival, Portes says “the big question” is whether the workers will return. With labour statistics lagging the reality on the ground, indications as to whether a population revival is under way will come first from other sources.

One of the earliest indications that London was haemorrhaging workers last year came from the rental market, where falling prices flashed warning signals about population decline.

If London regains its magnetism, residential rents should start to rise again. According to Richard Donnell, research director at property portal Zoopla, that is happening — at least in pockets of the London market.

“London’s rental market has hit rock bottom and is starting to rebound quite quickly,” he says. Data from Zoopla show a small rise in average rents across the capital between January and April, though prices remain about 10 per cent down on the same period a year earlier.

Donnell puts the modest rebound down to the return of some young professionals to city centres but, while coronavirus restrictions remain, any recovery will be partial. 

“The decline in rents will only be offset once we have international travel and migration for work — the timing of which remains unclear and looks like some time in 2022,” he says.

But while the absence of hundreds of thousands of foreign-born workers has changed the complexion of the inner London rental market and shrunk the employment pool for bars and restaurants, more remote working for domestic, white-collar workers — which ministers have signalled they are open to — could affect everything from the desirability of neighbourhoods to the placement of public transport.

“Cities have been used to sucking in millions of commuters in the morning and disgorging them in the evenings,” notes Yolande Barnes, a professor at University College London’s Bartlett Real Estate Institute.

“When that pattern changes, you might find the infrastructure is in the wrong place. Until we know how that question is resolved, it’s much harder to know where real estate is going to go,” she says.

These fraying attachments to the office are becoming evident in the housing market. Zoopla data show rising demand for larger houses in outer London boroughs or beyond the capital in towns such as Guildford, Swindon and Brighton, while appetite for flats close to the city centre has fallen fast. 

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“People have put their money where their mouth is in property and gone further afield — demand has changed because of Covid,” says Barnes. More enduring changes to patterns of work would crystallise that shift, freeing employees from their ties to the office, she adds. 

Even if office life returns — and with it the employees that lend city centres their vitality during the working week — “there’s a significant adjustment that we have to go through”, says Portes.

“There will be fewer shops and restaurants in central London. It’s not going to become a ghost town, but there will be a painful adjustment for many businesses,” he says.



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