Amid lockdowns, European mayors face a complex array of economic crises

Tirana, Albania’s capital, in the age of coronavirus. Image: Getty.

The city of Tirana marks its 100th anniversary as the capital of Albania this year, but the centennial celebration is starting out on an undeniably difficult note. Still reeling from a magnitude-6.4 earthquake that struck towards the end of 2019, Tirana now must manage its recovery from that disaster amid a pandemic that’s forced all city officials to work from home.

“We cannot pick and choose the emergencies we face, unfortunately,” says Erion Veliaj, mayor of Tirana, a city of roughly one million that accounts for a third of the population of Albania and 40% of the country’s GDP. 

As city leaders, mayors across Europe find themselves at the sharp edge of the coronavirus crisis: directly responsible for the health of their local economies, yet with varying degrees of autonomy and authority. With a global recession looming, Europe’s mayors are deploying what tools they can, but say they’ll need both national and supranational intervention.

Juan Mari Aburto, mayor of the Basque Country city of Bilbao, says that tackling the crisis requires a “multi-level effort”. He stresses the importance of “knowing how to complement macro policies promoted by more distanced organisations such as the European Central Bank, the government of Spain or the Basque government, with micro policies”.

“At this point the City Council is the institution closest to the general public, with the benefits of the urban-level agglomeration economies, and it is able to make use of these strengths,” he says.

As cities everywhere brace for job losses and economic downturn, many European cities are particularly vulnerable due to heavy reliance on tourism as a key source of revenue. Local tourism industries will need immediate support from all levels of government.

“The situation is highly challenging and neither we, nor anyone else, knows how much longer the epidemic is going to last. The industries whose income is correlated with tourism will bear the brunt of the situation,” says Jacek Majchrowski, the mayor of Kraków, a tourism and cultural hub for Poland. Last year the city welcomed 14 million visitors who spent a total of PLN 7.5bn (roughly €1.6bn). Much of that spending went directly to local companies or independent operators working in tourism services, catering, transport, retail and real estate.

“It is very worrying that many local small and medium enterprises are at great risk, as their smooth functioning is, in fact, elementary in maintaining the supply chain in a city like Kraków. We keep re-estimating the losses and realise that, even when the current health crisis subsides, we will have to face its long-term consequences. This is why we are already trying to support the local entrepreneurs and help them survive,” Majchrowski says.


Florence, one of the world’s most successful tourist magnets, is located in northern Italy, a region hit especially hard by Covid-19. “At the moment we face an estimate of a €1bn loss for the city district,” says Dario Nardella, the city's mayor. “All tourism-related businesses have stopped: hotels, restaurants, stores and luxury stores, agencies, museums. They’ve all shut down.”

Nardella has proposed a €1bn national fund for financial aid to tourism-oriented Italian cities. “Moreover, we will need an ambitious plan to simplify bureaucracy in investment attraction, to attract both national and international investors to Florence – a city that has shown already a very strong appeal at global level in the last few years, by developing infrastructure, public transport and touristic facilities,” he says. The pricetag for the latter he puts at €3.5 billion.

“A strategic bailout plan will be necessary from both the central government and the European Union to restart the economy. Without a firm – and united – European strategy based on a united EU policy aiming to a real shared effort to restart the economy, all cities will be facing a dramatic crisis in just a few months. We need a financial plan similar to the one announced by President Trump for the US,” Nardella adds.

Tirana’s mayor Veliaj agrees on the need for concerted action: “There will be a need for global agreements and guidance to address this global challenge. Hence it remains an issue for which the stimulus has to come from multiple international actors.” Albania, he points out, received a welcome spark of good news during this otherwise difficult time in the form of the unanimous agreement of member states to open EU accession negotiations with the country. “This will improve our investment ratings and our investor attractiveness, or at least serve as a stimulus during and after this health crisis,” Veliaj says.

The degree to which cities can count on an influx of private investment is now questionable, as the lifeblood of foreign direct investment (FDI) is at least temporarily cut off. The UN Conference on Trade and Development has warned of a devastating drop in FDI over the next year, with the latest estimates projecting as much as a 40% decline.

At the moment we cannot make any plans to engage international investors and attract foreign direct investment,” says Michalis Pavlides, mayor of Geroskipou in Cyprus.

The coronavirus pandemic comes at a time when Europe has been moving towards stricter controls on inbound FDI, and EU guidance currently urges member states to screen inbound investments. This tightening of the screws on FDI has rankled many parts of Europe, especially less developed countries that need FDI desperately to meet their development goals and spur employment. The crisis has reopened this debate and called into question whether Europe now can afford to restrict the types of investment that might flow in.

“Developing countries face multiple pressures, and there will be a need to re-evaluate our plans to engage international investors and bring in FDI. But so will the rest of the world,” says Veliaj. “The past year we have been working on establishing technical and economic development areas in Tirana as our next step to facilitate large-scale investments in the country. Sensibly, longer-term investments will be less affected than short-term investments in the face of this crisis.”

Although FDI is more urgently needed than ever, investment promotion at this moment in time is a complicated endeavour.

“The real estate and investment event MIPIM in Cannes [planned for March], where we were supposed to present our new offer for the real estate sector, was cancelled,” says Jacek Jaśkowiak, mayor of Poznan, Poland. “Still, we have other communication means left, with the use of new technologies. We stay in touch with the companies already present in Poznan as well as with potential investors and we strive to keep them informed. The city has a number of real properties meant for sale, and perhaps soon, in spite of it all, there will be a good time to invest in them.”

 

The Guggenheim, Bilbao, standing almost empty thanks to coronavirus. Image: Getty.

Bilbao was about to launch its flagship new urban development project, Zorrotzaurre Island, when the crisis hit. But rather than shelve it, the city plans to make an even more intensive effort to attract international investors and developers who could support it. A recalibration of FDI strategy is necessary, though.

“We are taking advantage of this contingency phase, to adapt the life cycle of promoting investments in our city, and understand the correlation between the attributes of our community and the new business needs in the future scenarios the crisis will leave,” Aburto says.

Some leaders strike an optimistic note about their cities’ investment prospects post-crisis. “Our conviction is that, in a couple of months, we will be able to attract more investments to the city than the ones that were being negotiated before this crisis,” says Ricardo Rio, mayor of Portugal’s third largest city, Braga, which had been experiencing an increase in popularity among tourists but also has a well-developed technology cluster.

“The city council and [investment promotion agency] InvestBraga are now addressing our efforts in two dimensions: immediate support to small businesses and entrepreneurs in order to give some consultancy, for free, on how they can take advantage of national or local government measures: credits, fiscal exemptions, labour law; and design of a recovery plan to be implemented as soon as the economy starts to work back again,” says Rio. “We have also been providing help to local businesses to go online and keep their activity working.”


Taking a longer view, some mayors see the crisis as an opportunity to accelerate the modernisation and digitisation of their local economies, albeit painfully.

“The crisis and the need to work from home has become an incentive for companies to further invest in technology and improve their organisational adaptability,” says Tirana’s Veliaj.

While there is an understandable urgency around supporting small businesses and eventually helping them through the painful transition to a post-pandemic world, big businesses cannot be overlooked, either, due to their importance as job creators.

Majchrowski points out that the epidemic is also a major challenge for business services – one of Kraków’s key industries, employing approximately 80,000 workers in the city. “We must remember that operations of the business services sector are closely interconnected with other entities and depend on their smooth functioning. The consequences of the Covid-19 pandemic in one sector will resonate far beyond it, which is why the business services sector companies expect cohesive, long-term programmes instituted primarily by the national authorities,” he says. “Systemic support is essential in ensuring that both small and large enterprises survive, consequently fueling the entire economy.”

Courtney Fingar is FDI editor at New Statesman Media Group.

 
 
 
 

A new wave of remote workers could bring lasting change to pricey rental markets

There’s a wide world of speculation about the long-lasting changes to real estate caused by the coronavirus. (Valery Hache/AFP via Getty Images)

When the coronavirus spread around the world this spring, government-issued stay-at-home orders essentially forced a global social experiment on remote work.

Perhaps not surprisingly, people who are able to work from home generally like doing so. A recent survey from iOmetrics and Global Workplace Analytics on the work-from-home experience found that 68% of the 2,865 responses said they were “very successful working from home”, 76% want to continue working from home at least one day a week, and 16% don’t want to return to the office at all.

It’s not just employees who’ve gained this appreciation for remote work – several companies are acknowledging benefits from it as well. On 11 June, the workplace chat company Slack joined the growing number of companies that will allow employees to work from home even after the pandemic. “Most employees will have the option to work remotely on a permanent basis if they choose,” Slack said in a public statement, “and we will begin to increasingly hire employees who are permanently remote.”

This type of declaration has been echoing through workspaces since Twitter made its announcement on 12 May, particularly in the tech sector. Since then, companies including Coinbase, Square, Shopify, and Upwork have taken the same steps.


Remote work is much more accessible to white and higher-wage workers in tech, finance, and business services sectors, according to the Economic Policy Institute, and the concentration of these jobs in some major cities has contributed to ballooning housing costs in those markets. Much of the workforce that can work remotely is also more able to afford moving than those on lower incomes working in the hospitality or retail sectors. If they choose not to report back to HQ in San Francisco or New York City, for example, that could potentially have an effect on the white-hot rental and real estate markets in those and other cities.

Data from Zumper, an online apartment rental platform, suggests that some of the priciest rental markets in the US have already started to soften. In June, rent prices for San Francisco’s one- and two-bedroom apartments dropped more than 9% compared to one year before, according to the company’s monthly rent report. The figures were similar in nearby Silicon Valley hotspots of San Jose, Mountain View, Palo Alto.

Six of the 10 highest-rent cities in the US posted year-over-year declines, including New York City, Los Angeles, and Seattle. At the same time, rents increased in some cheaper cities that aren’t far from expensive ones: “In our top markets, while Boston and San Francisco rents were on the decline, Providence and Sacramento prices were both up around 5% last month,” Zumper reports.

In San Francisco, some property owners have begun offering a month or more of free rent to attract new tenants, KQED reports, and an April survey from the San Francisco Apartment Association showed 16% of rental housing providers had residents break a lease or unexpectedly give a 30-day notice to vacate.

It’s still too early to say how much of this movement can be attributed to remote work, layoffs or pay cuts, but some who see this time as an opportunity to move are taking it.

Jay Streets, who owns a two-unit house in San Francisco, says he recently had tenants give notice and move to Kentucky this spring.

“He worked for Google, she worked for another tech company,” Streets says. “When Covid happened, they were on vacation in Palm Springs and they didn’t come back.”

The couple kept the lease on their $4,500 two-bedroom apartment until Google announced its employees would be working from home for the rest of the year, at which point they officially moved out. “They couldn’t justify paying rent on an apartment they didn’t need,” Streets says.

When he re-listed the apartment in May for the same price, the requests poured in. “Overwhelmingly, everyone that came to look at it were all in the situation where they were now working from home,” he says. “They were all in one-bedrooms and they all wanted an extra bedroom because they were all working from home.”

In early June, Yessika Patapoff and her husband moved from San Francisco’s Lower Haight neighbourhood to Tiburon, a charming town north of the city. Patapoff is an attorney who’s been unemployed since before Covid-19 hit, and her husband is working from home. She says her husband’s employer has been flexible about working from home, but it is not currently a permanent situation. While they’re paying a similar price for housing, they now have more space, and no plans to move back.

“My husband and I were already growing tired of the city before Covid,” Patapoff says.

Similar stories emerged in the UK, where real estate markets almost completely stopped for 50 days during lockdown, causing a rush of demand when it reopened. “Enquiry activity has been extraordinary,” Damian Gray, head of Knight Frank’s Oxford office told World Property Journal. “I've never been contacted by so many people that want to live outside London."

Several estate agencies in London have reported a rush for properties since the market opened back up, particularly for more spacious properties with outdoor space. However, Mansion Global noted this is likely due to pent up demand from 50 days of almost complete real estate shutdown, so it’s hard to tell whether that trend will continue.

There’s a wide world of speculation about the long-lasting changes to real estate caused by the coronavirus, but many industry experts say there will indeed be change.

In May, The New York Times reported that three of New York City’s largest commercial tenants — Barclays, JP Morgan Chase and Morgan Stanley — have hinted that many of their employees likely won’t be returning to the office at the level they were pre-Covid.

Until workers are able to safely return to offices, it’s impossible to tell exactly how much office space will stay vacant post-pandemic. On one hand, businesses could require more space to account for physical distancing; on the other hand, they could embrace remote working permanently, or find some middle ground that brings fewer people into the office on a daily basis.

“It’s tough to say anything to the office market because most people are not back working in their office yet,” says Robert Knakal, chairman of JLL Capital Markets. “There will be changes in the office market and there will likely be changes in the residential market as well in terms of how buildings are maintained, constructed, [and] designed.”

Those who do return to the office may find a reversal of recent design trends that favoured open, airy layouts with desks clustered tightly together. “The space per employee likely to go up would counterbalance the folks who are no longer coming into the office,” Knakal says.

There has been some discussion of using newly vacant office space for residential needs, and while that’s appealing to housing advocates in cities that sorely need more housing, Bill Rudin, CEO of Rudin Management Company, recently told Spectrum News that the conversion process may be too difficult to be practical.

"I don’t know the amount of buildings out there that could be adapted," he said. "It’s very complicated and expensive.

While there’s been tumult in San Francisco’s rental scene, housing developers appear to still be moving forward with their plans, says Dan Sider, director of executive programs at the SF Planning Department.

“Despite the doom and gloom that we all read about daily, our office continues to see interest from the development community – particularly larger, more established developers – in both moving ahead with existing applications and in submitting new applications for large projects,” he says.

How demand for those projects might change and what it might do to improve affordable housing is still unknown, though “demand will recover,” Sider predicts.

Johanna Flashman is a freelance writer based in Oakland, California.