City Centre Recovery Task Force: report

Chapter 2: Scotland's city centres: the context

Introduction

City centres play a key role in Scotland's economic and social geography. They host high productivity firms, attract skilled labour, provide employment and mobility opportunities, and connect Scotland to global systems, acting as transport, tourism, and export hubs, and locations for large-scale conferences, events, and festivals. At the same time, for many they are places to live and also serve a crucial social function as places for culture, leisure, consumption, and wider social activities.

This chapter explores the economic and social functions of Scotland's seven cities – Glasgow, Edinburgh, Aberdeen, Dundee, Stirling, Perth and Inverness - and particularly their urban centres, as well as how these differ across Scottish cities, and considers how city centres have been impacted by the Covid-19 pandemic.

There is no consistent definition of city centres used across Scotland. Data at the city-centre level is scarce and inconsistent; indeed, the need to create and share better data is one of the recommendations we discuss in greater detail later in this report. For this reason, we use a deliberately loose definition of city centres as intra-urban historic and/or economic hubs, and we use a mix of data sources, most at the local authority level, for the seven cities in the Scottish Cities Alliance. The analysis moves between city-centre specific points and city-wide remarks as the data and wider evidence allows. The two are interlinked, and city centres as broadly understood are a key part of the wider role of the cities as economic centres.

The socioeconomic role of cities and city centres

A changing economic context

The second half of the 20th century saw a decline in Scotland's city centre populations, as a result of policy incentives, availability of housing credit and rise in living standards. This "hollowing out" affected cities across the industrial world, though differentially, and was exacerbated by the global relocation of key industry sectors.

Around the 1990s city centres in larger cities started making a comeback, as businesses (and indeed parts of the public sector), rooted in an increasingly service- and knowledge-based economy, sought to reap the rewards of agglomeration, through the ability to share infrastructure, to draw upon a deep pool of skilled labour and to benefit from knowledge spillovers. This has led to primary benefits centered around sustainable employment, high wages and job quality and secondary benefits including access to employment for low-skilled workers facilitated by public transport, environment and public realm benefits and a resurgence in city centre retail.^[fn] Cities and city centres are the powerhouse of Scotland's economy: as in other countries around the globe, they have been the main driver of growth in recent decades.

Increases in remote working and internet shopping had been gathering pace up to 2020, but these have clearly been catalysed by the restrictions and voluntary behavior changes in response to the Covid-19 pandemic, which has consequently delivered a huge economic shock to city centres. Jobs such as professional occupations and managers, directors and senior officials have been more easily able to adapt to home working while those working in hospitality, bricks-and-mortar retail, arts/entertainment and recreation have been less able to continue working and have been much more likely to be furloughed.^[fn] The likely growth in "hybrid" working for office workers may have long-term effects on city centre usage and spend patterns.

Socio-economic role of Scottish cities and city centres today:

Today, the seven cities of the Scottish Cities Alliance (SCA) are key economic areas within Scotland. Cities, and particularly city centres, perform regional and/or national functions as hubs of different activities – interactive, interconnected focal points for our experience of cities and all they have to offer.

These closely connected functions are:

• economic/business hubs
• human capital hubs
• international hubs
• consumption hubs
• cultural hubs

Economic Hubs

The seven cities are of key economic value to Scotland. Two thirds of Scotland's economic activity takes place in the city boundaries or surrounding areas. City centres are attractive places for businesses to settle because of their position as regional, and sometimes international, hubs and the benefits from proximity to human capital and networks.

The size of local economies, particularly of the larger cities, offers opportunities for clustering of businesses and agglomeration benefits. This can lead to efficiency gains through more intensive use of infrastructure, increased competition, and knowledge spillovers (e.g. through movement of staff between firms).

The benefits of this are most acute in some industries/sectors. Particularly, those that perform knowledge-intensive activities and have limited land/space needs – like finance, information and communication, and scientific and professional services. The Centre for Cities estimates 41% of knowledge intensive business services jobs in the UK are based in or around city centres.^[fn]

Human Capital Hubs

Links to universities and colleges mean city centres also act as knowledge hubs. Connections to further and higher education institutions and the highly skilled labour they provide attract knowledge-intensive activities such as research and development (R&D).

Almost two-thirds of private sector R&D expenditure takes place in the local authorities containing Scotland's cities, overwhelmingly spent in the City of Edinburgh.^[fn]

Finally, colleges and universities themselves demand highly-skilled labour and are producers of scientific research and technological and practical expertise. All this makes city centres hubs for investment and innovation.

International Hubs

Supported by their size and transport links, cities act as a point of entrance for international firms, and are also attractive to domestic firms looking to internationalise.

However, not all cities have the same strategic international economic importance. Only Edinburgh, Glasgow, and Aberdeen are significant exporters. In 2017, 37% of Scotland's international export value came from the seven local authorities which contain cities; however, 31% came from our three largest cities: Edinburgh, Glasgow and Aberdeen.^[fn]

These three cities also rank in the top 10 UK cities for inward investment projects, and attracted 23, 22, and 15 projects respectively in 2019.^[fn] Other Scottish cities play an international role in supporting particular sectors such as the food and drink or gaming sectors.

Another facet of cities' international dimension is attracting tourism. Again, aided by transport links, but also cultural and historical assets discussed below, Scotland's main city centres attract and host a large share of Scotland's international tourism. Here also there are significant inequalities. Around two thirds of international visitors to Scotland in 2019 visited Edinburgh (Lothians), while almost 25% visited (Greater) Glasgow.^[fn]

Consumption Hubs

High streets are a key part of the economy of urban centres. They offer retail, hospitality, restaurants and leisure, sectors which tend to be labour-intensive and support local jobs. The high streets in Scotland's city centres also attract expenditure from beyond the local area, thus playing a regional role as consumption hubs. Data from Centre for Cities estimates 67% of spend in Edinburgh's city centre came from outside the city before the pandemic; this was 57% for Glasgow, 53% for Dundee, and 48% for Aberdeen.^[fn]

Cultural Hubs

City centres also host a large share of Scotland's cultural assets in the form of museums and galleries, theatres, and music venues. The seven local authorities that contain SCA cities offer over 60% of all employment in the creative, cultural and entertainment sectors in Scotland.^[fn]

Cultural institutions, such as museums, also play a key role as anchor institutions in the communities where they are based.^[fn] The V&A Museum in Dundee, for example, has been designated Scotland's Centre for Design as part of the waterfront city centre regeneration of the city. While employment in the cultural sector can often be insecure, these institutions provide secure employment, and crowd in economic activity by bringing customers to local cafes and restaurants, and so work in support of city centres' role as consumption hubs. They often also offer a number of benefits for the local communities, like accessible and affordable leisure and meeting spaces, thus contributing to the quality of life in cities.

Impact of Covid-19 on city centres

Covid-19 has significantly impacted city centres' economies due to their reliance on mobility and social proximity. Offices, restaurants and cafes, museums, retail, theatres, all closed during the lockdown periods and have since been affected by continued physical distancing and behavioural change. This has meant that since March 2020, our city centres have experienced significant changes which have impacted their ability to perform the functions presented earlier.

The pandemic has driven a move from the office to home working. ONS data estimates that almost 47% of people in employment had done some work at home by April 2020.^[fn] Though the percentage working from home has since fluctuated as restrictions have changed, the new baseline may well involve more hybrid and homeworking. The pandemic shock also led to increased inequalities between those working in sectors that could easily adapt to working from home, those essential workers that continued performing their roles despite increased health risks, and those working in sectors deemed non-essential, that had to stop working altogether.

The move from the office has also altered city centre economic networks, impacting local businesses, such as restaurants and bars catering to office workers and commuters – which has been compounded by the wider changes to consumption patterns.

Spend

Determining spend on a city centre level continues to be challenging due to data availability. However, we have a reasonably high degree of confidence that our larger Scottish city centres followed the trend of average UK cities: that is, offline city centre spending dropping sharply during periods of lockdown but rebounding as restrictions eased.^[fn]

The aggregate change in consumer expenditure has been geographically asymmetrical. Anecdotal evidence suggests the three bigger cities saw a greater decrease in spend due to their reliance on external demand – from the surrounding areas, business travel, and tourism. On the other hand, business feedback suggests that the smaller cities (and towns and suburbs) may have seen smaller declines or even an upturn in demand as people spend more money in their local areas.

Footfall

City centre footfall saw a sharp drop at the beginning of the pandemic, and through the subsequent infection and restriction waves. The impact from these and subsequent recovery is captured by the Centre for Cities' high street recovery tracker.

The tracker shows city centre footfall fell 70-90% below the pre-lockdown baseline during the 2020 and 2021 restrictions, with the largest cities (Glasgow and Edinburgh) being hardest hit. Since summer 2021, there has been a progressive recovery and in early 2022 overall activity is roughly back to pre-pandemic levels across the four Scottish cities for which data is available: Aberdeen, Dundee, Edinburgh and Glasgow.

However, the recovery picture is more nuanced when we look across different types of activity. Centre for Cities data suggest weekend activity has seen the strongest recovery. But weekday daytime and nighttime footfall remains below pre-lockdown levels in Glasgow and Edinburgh. This suggests that as of March 2022, Scotland's two largest cities had seen only limited return of workers and might hint towards the longer term impacts of hybrid working.

Future outlook

The future for cities as economic, human capital and international hubs is changing; future sectoral composition could change if some companies reduce city centre presence and decentralise. There is further uncertainty surrounding the future for sectors that are concentrated in particular cities, such as the oil and gas sector in Aberdeen. Major events may have the potential to regenerate enthusiasm for and within cities, and can contribute to raising an international profile.

With this said, the agglomeration effect of city centres is expected to continue to provide benefits to businesses, sectors and people. We have seen new businesses choose to locate in our city centres over the pandemic, and new offices and other workspaces being built. We also note that as we are moving to living with Covid-19, our culture and leisure venues are again attracting people, especially to larger events such as live concerts.

The future of Scottish cities as consumption hubs is uncertain and without recovery efforts could continue to be impacted by the decline in city centre activity as a result of the pandemic. This is in addition to a pre-Covid decline in the share of spend which takes place in Scottish city high streets as people spend more online. The role of cities as cultural hubs is likely to continue to be important, due to the concentration of cultural assets in city centres, although the entertainment and tourism sectors have been heavily impacted by the pandemic. Social inequalities in cities are likely to continue to be significant, with living costs rising and inequality that is likely to widen in the short, medium and long term without appropriate intervention; something that the Scottish Government's ten-year National Strategy for Economic Transformation sets out to address.

We do not yet fully understand the longer term implications of Covid, but we do know that the role of city centres is changing regardless it is clear that some intervention will be needed to support city centres as vibrant, innovative, inclusive and sustainable places and that any response will have to be flexible and adaptive to the different future scenarios we might face.