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Liverpool: A Cautionary Tale For Commercial Real Estate

The stage is empty: The Beatles broke up decades ago. And yet thanks to the Fab Four — and to its two internationally renowned football clubs, Liverpool FC and Everton — the city of Liverpool is one of the best-known brands in the world.

But economically it counts for very little. Overshadowed by its near-neighbour Manchester, Liverpool has fallen further behind with every decade.

The Fab Four still walk the rainy streets of Liverpool.

Now its troubled city council has been judged so seriously incapable that it has been placed in the hands of government-appointed commissioners. Manchester's former chief executive, Sir Howard Bernstein, is among those appointed to take control. It is the final humiliation in a long list of them.

It is a sad story for Liverpool, but a great lesson for everyone else: Mess up city government and you mess up your city's economy and property market. To put this right involves some big conceptual leaps and potentially beefed-up input from the business and property sectors.

History made Liverpool a great city, but it can't make it an economic success. What must other cities do to avoid Liverpool's current crisis?

First, the scale of the problem in Liverpool. GDP per head in Liverpool (as of March 2021) was £27K and the City of Manchester's is more than £47K. It is an enormous difference for two cities just 30 minutes travel time apart, cities that began the postwar period with the same problem, the collapse of Empire and declining industrial importance.

The Brookings Institute's rankings of UK metropolitan areas places the wider Liverpool City region in fifth place (out of 15) for aggregate size of economy, but 14th (fractionally ahead of Sheffield) for GDP per head.

The divergence of the two cities' office markets is even more stark: Liverpool's office market, defined as geographically broadly as possible, completed 242K SF of lettings in the first half of 2022, up on the same period in 2021.

In the same period Manchester's much more tightly geographically defined office market managed 749K SF, a figure regarded as slightly disappointing.

Liverpool's one major potential city centre office scheme — a £200M, 400K SF venture proposed by Kier/CTP with the backing of the city council called Pall Mall — has been so severely delayed that the planning application is about to expire. The failure of the flagship scheme is a blow but not a surprise: City rents barely reach £20 per SF, a figure that makes in unviable to build without public sector financial support. It is the kind of support the city council is, so far, either unable or unwilling to provide, although an announcement due this week could indicate a radical change of direction.

So what went wrong, economically, strategically and for property? Talk to some of the city's property movers and shakers and a consensus soon emerges.

Nostalgia Does Not Pay

The Liver Bird perched on top of the Liver Building, Liverpool waterfront

Andy Delaney is director and head of the Liverpool office of property regeneration consultants AspinallVerdi. He moved back to Liverpool, a sign of faith in the city’s future, but he isn’t convinced the city has its strategy right.

Delaney points to a property market that suffers from inertia (of the kind seen at Pall Mall), from a lack of ambition and confidence, and a deep reluctance to seek significant employment growth in the office market.

The root cause of all these problems is local political leadership, Delaney said.

“There’s a suspicion of developers, and ignorance, and sometimes you think the city’s marketing effort is more geared to their stand at the Mipim property convention, or hosting the Eurovision Song Contest, than on attracting big investments,” Delaney said.

“This is a massive contrast with Manchester. MIDAS, Manchester’s inward investment agency, was on the phone within minutes when they got word that a client of mine might be thinking of relocating to Liverpool. But Liverpool’s marketing operation just doesn’t target it right. Local politicians always feel they have to be very anti-big business or they won’t get elected.”

Delaney was involved in the early days of the Pall Mall scheme and he said its slow progress dismayed him.

“There’s a surface level car park on Rumford Place, and it’s been empty since it was bombed in the war," he said. "That should be a new office and our peer cities — Newcastle and Sheffield — can manage new office development, but Liverpool hasn’t.”

The complaint — and you hear it often — is that the city’s promotional efforts focus too heavily on hospitality wins (like Eurovision) and not enough on long-term high-quality jobs.

“OK, hosting the Eurovision Song Contest would maybe mean a month of extra hotel business. But it won’t create long-term jobs, and it will not stimulate other sectors of the economy,” Delaney said.

“Our city politicians play for easy wins, and headlines. And then you go along to the investment conferences, and it's always the same few people, and they are still talking about deals done years ago and you think, surely there must be something new to talk about?”

The deal Delaney has in mind is the Royal College of Physicians' decision to open a 75K SF northern hub in the city, revealed in 2016. Despite a handful of small lettings agreed recently, the 200K SF Spine building the Royal College chose for its base is still more than half empty.

A 50K SF relocation and expansion agreed this summer with Playstation’s Firesprite games business helps provide a new talking point. But deals of this size remain rare.

Liverpool's waterfront skyline

Mark Connor is founder and chief executive at Liverpool developer Vermont. “If you want proof that local leadership matters, contrast Liverpool and Manchester. It is stark," Connor told Bisnow.

"Both are led by the Labour Party, but in Manchester they learned very early that they needed to work with central government no matter what colour it was. That was a mature approach. Liverpool spent the time instead arguing with central government, and it continues to this day."

Connor, like Delaney, pointed to the Mipim effect: the concentration of marketing effort on one event or platform.

“I’ve never been to Mipim, I’ve been too busy,” he said. “And if the city spent less time on getting headlines at Mipim, and more on long-term strategy, the time and money might have been better spent. It looks to me like we go from one short-term announcement to another, with no long-term thinking.”

Long-term thinking is marred by conservatism and parochialism, Connor said. He pointed to a focus on football and tourism — both harking back to Liverpool’s glory days — and little political appetite to confront the economic realities of today.

“Over many years Liverpool’s leaders have been reluctant to accept that Manchester is England’s second city, and instead of trading off the back of that, which Liverpool could do because we’re only 30 minutes away, instead of that they just argue about which city is top,” Connor said.

“Tourism and football is all very well but they don’t get the economic job done. Politicians aren’t mature enough to say we can trade off Manchester’s success. Commercially we’re a country mile behind Manchester but that shouldn’t stop us attracting global players as a satellite to Manchester, with all the benefits that brings.”

Connor would also like to see Liverpool’s leaders making a trip to New York. “We should be flying over and asking Frank Gehry to do something on our waterfront. But instead we have a little local design competition. We seem to make this so hard for ourselves, and I don’t know why,” he said.

The Wider Lessons 

The Liverpool waterfront

Are there solutions? Lessons for other cities to learn? From vantage points outside Liverpool two well-placed observers say yes, definitely.

Carl Potter is Avison Young's Birmingham-based managing director. Birmingham City Council has had problems of its own, including a revolving door of chief executives and senior staff, persistent strikes, and government intervention dating from 2014. 

Potter said Birmingham was simply too big to operate effectively as a single-tier local government. He also blamed the cycles of annual council elections for keeping politicians on a headline-grabbing war footing and neglecting long-term strategy. He said this leads to too much attention on the city centre, because it is visible to all voters, and too little provision in local neighbourhoods.

“There are such small periods between elections that decision-making becomes almost paralysed," Potter said. "Stopping annual elections will help the process enormously, it gives you longer to get stuff done. Every year won’t be about grabbing headlines and knee-jerk policy."

Vermont’s Connor isn’t convinced. “I don’t think the frequency of elections changes things dramatically because if you have a very, very strong political influence over everything [as is the case in Liverpool], it will still be there.”

Whether Potter or Connor is right, the government appears to have made a decision: Both Liverpool and Birmingham and a selection of other cities are being required to change all-out once-every-four-years council elections. 

Potter’s second lesson is a dose of realism, and to recognise the movement of history. “Local politicians massively overpromise and overestimate the ability of their cities," he said. "Looking at Liverpool, it has the same problem as other cities in the vicinity of larger rivals. In Liverpool’s case it is Manchester, in the Midlands Birmingham has outgrown Wolverhampton and Coventry, in the East Midlands it is Nottingham growing at the expense of Derby and Leicester.”

A better appreciation of economic geography would help, Potter suggested. In other words: Try not to push water uphill, exactly the point made by Delaney and Connor in Liverpool.

The Clock Is Ticking

The clock on the top of the Liver Building, Liverpool

Nick Montgomery is head of UK real estate investment at Schroders Capital and, as it happens, a big investor in Manchester.

“Local leadership really does matter," he said. "We did some research off the back of thinking about how investment can have a positive social impact, and what was the recipe for a successful city. And good leadership is key. Manchester is an example — it recovered in the 1990s thanks to a very proactive council.” 

But Montgomery says it is not just activity that matters, but what kind of activity. Concentrating on the wrong topics, or economic outputs, does not lead to success.

“Of course there are other factors in play between Liverpool and Manchester, but having a diversified economy is important, and having an economy with sectors that drive growth is also important," he said.

"Liverpool hasn’t had those growth sectors in the same way. The two cities’ economic structures aren’t otherwise very different, but Liverpool doesn’t have the high-growth sectors [that Manchester has]."

Montgomery politely declines to push the thought further and pass judgment on a city economic strategy that seems (to property market observers) to put more emphasis on driving tourism and hospitality jobs (new football stadiums, for instance) than on driving white-collar jobs. But his point is clear all the same.

Montgomery’s answer is to involve business more closely in devising strategy. “This works much better when local leadership isn’t just about politicians but also business, academics and not-for-profit organisations, that whole raft of civic and private stakeholders,” he said. Manchester has done just that. Liverpool still has a job to do.

Liverpool City Council is still digesting the extent of the change that will be required. New structures and rules will be required, City Mayor Joanne Anderson has acknowledged.

Approached by Bisnow, the city council said a statement on a major development would be made on Thursday 15 September. It could signal a significant pivot toward supporting white-collar jobs. The expectation is that the Pall Mall office development will get a boost — a move that would delight the property market.

In the meantime, Anderson has conceded Montgomery’s point about wider civic involvement.

“I welcome the Liverpool Strategic Futures Panel, which will be chaired by the City Region’s Metro Mayor, ensuring that Liverpool’s future remains in Liverpool’s hands,” she said.

“The panel brings together local government experts with national experience who really understand the problems we are facing, and, most importantly, people who live, work in, and understand our city, adding a layer of local transparency to our improvement journey.”

But widening the group of people in the conversation, and changing the structures in which they operate, can only get you so far. What really needs to change is attitude. And whether that will come soon enough, or seriously enough, remains to be seen.