The Edinburgh Festival Fringe draws millions of tourists to the city but is just one of its many celebrations that were cancelled due to the Covid-19 pandemic. (Photo by Jeff J Mitchell/Getty Images)

When people think of Edinburgh, the capital of Scotland, then Princes Street, the Fringe Festival and the iconic castle on the hill are often the go-to images. These huge tourist draws – although currently wounded by Covid – are not going anywhere.

Furthermore, Jenners is closing its landmark site in Princes Street after 183 years, resulting in the loss of 200 jobs. It’s clear that Edinburgh is having to rethink its economy in 2021, and this involves innovating and disrupting sectors such as life sciences, financial services and real estate.

Can Edinburgh’s arts scene survive Covid?

Edinburgh entered the new year without the traditional mass beltings out of Auld Lang Syne or any of the other Covid-culled Hogmanay celebrations. The three-day event usually attracts approximately 180,000 tourists from more than 80 countries.

In 2019, the Edinburgh Winter festival saw more than 2.6 million visitors come to the city. According to a report from Underbelly, Edinburgh lost out on revenues of approximately £150m ($204.9m) in 2020 due to the enforced cancellation of its winter festivals. This came on top of the overall damage done across 2020 to Edinburgh’s tourism and hospitality sector.

Culture is in the DNA of Edinburgh in a way that it isn’t really in very many other places in the world – it is part of everyone’s day-to-day life. Adam McVey, Edinburgh City Council

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Adam McVey, the city council leader for Edinburgh, says of this economic blow: “You can’t underestimate how much of a hit this will be to the [tourism] industry and that ecosystem. Business tourism is threatened and reliant on visitor tourism – it all exists in a very complex, interdependent ecosystem.”

He goes on to highlight Edinburgh’s strength as a tourist destination: “We are a festivals and events city and we have the biggest arts festival in the world. The second biggest is a third of our size.”

The mammoth Fringe Festival began in 1947, when eight theatre groups performed at the Edinburgh International Festival without a formal invitation to do so. The Fringe has welcomed comedians, thespians, dancers, drag queens, improv groups, mystics, street performers and everything in-between to the city every August since.

This provides Edinburgh with an image and energy that other locations are keen to emulate. “Nobody comes close to the level of participation in the arts culture like Edinburgh,” says McVey. “We had a Chinese city come to Edinburgh to try and learn from what we were doing, and the premier asked me: ‘How do you get this?’. I said that you need to embrace the chaos.

“Culture is in the DNA of Edinburgh in a way that it isn’t really in very many other places in the world – it is part of everyone’s day-to-day life.”

Despite the blow to tourism from the Covid-19 pandemic, Kate Campbell, a city councillor and housing, homelessness and fair work convener, highlights that Edinburgh’s economy is resilient. “There is strength in Edinburgh’s economy and diversity, and I think that stands us in good stead,” she says.

The jury is still out on whether a 2021 Fringe will go ahead. In the meantime, Edinburgh will have to look to its other sectors for economic growth.

Transforming Edinburgh’s economy

The regeneration of Edinburgh’s St James Quarter project located at the heart of its city centre has an estimated value of more than £1bn. It includes 85 shops – with its John Lewis store receiving a £24m refurbishment as part of the regeneration – a cinema, hotels and a luxury apartment complex. The project is expected to create up to 3,000 permanent jobs.

The Granton Waterfront is another big project for the city with £1.3bn invested. The main objective is to transform 50 hectares (ha) of brownfield land – and a further 300ha of green space – into a new, sustainable coastal community.

The project will include the building of 3,500 new homes, with 35% of them being in the ‘affordable’ bracket, alongside a new primary school, medical centre and business park. This will be supported by a new tram link into the city centre.

Again, however, the Covid lockdowns look set to stymie developments in Edinburgh, as there will be delays in these projects being utilised to their full potential by both residents and tourists.

How will Brexit impact Edinburgh?

A more positive sign for Edinburgh’s recovery came from the Good Growth for Cities 2020 Report by PwC. The Scottish capital topped the ranking as the least-impacted UK city by Covid-19 in terms of 2020 gross value added (GVA) growth.

However, Covid-19 isn’t the only major event impacting upon Edinburgh’s economy. As of 2021, the UK is no longer part of the EU, so how will Brexit affect the city?

McVey highlights Edinburgh’s diverse sectors such as financial services and technology services as being among its advantages in the aftermath of Brexit. “Edinburgh is, in a sense, shielded from [the impacts of Brexit] in terms of the industries that are most impacted across Scotland,” he says. “We haven’t got a huge number of direct exports, although the interconnection of it all is absolutely huge.”

The New Statesman’s Brexit Vulnerability Index ranked Edinburgh as one of the least vulnerable cities in the UK, in 345th position out of 379. McVey agrees with this consensus: “Edinburgh will prove to be resilient and strong and there certainly hasn’t been any shirking away from investment following Brexit.”

Campbell adds: “Edinburgh very much sees itself as a European capital city. That is evident from the diversity of our economy to our approach. We value not just EU investors but the EU citizens in both Edinburgh and Scotland. We very much value the contribution they make.”

A financial services strength

When looking at GVA growth across 2000 and 2018 in Edinburgh, financial services has rocketed above other sectors in terms of growth. The sector employs approximately 37,000 people in the city, with a further 4,500 working in accounting, auditing and tax.

The industry is also bolstered by specialist recruitment firms Core-Asset Consulting and Meraki Talent, both of which work specifically in the finance and fintech space. Furthermore, Edinburgh ranked 13th worldwide and fourth in Europe in the Global Financial Services Index published in September 2020.

In terms of GVA growth, human health and social work activities have overtaken professional, scientific and technical activities, but both sectors have seen substantial growth. While education and real estate follow in fourth and fifth place, both are still seen as having a key role to play in unlocking Edinburgh’s investment potential.

Smarter than the average city

Education has long been a part of Edinburgh’s DNA, hosting as it does Scotland’s largest and oldest educational institution, the University of Edinburgh, which was founded in 1582. Alongside this, the city is also home to Napier University, Heriot-Watt University, Queen Margaret University and Scotland Rural College.

This multitude of universities gives investors access to a number of R&D projects, a well-educated workforce and a number of spin-outs. In fact, Edinburgh University has an office by the name of ‘Edinburgh Innovations’ that is designed to nurture spin-outs and facilitate interested investors.

David Ridd, the business development, communications and marketing manager of Edinburgh BioQuarter (more on which later), says of the city’s success: “It has fostered a number of recent spin-outs within healthcare innovation that have been funded by some big venture capital investors.”

McVey outlines the impact of this economically: “We have a huge amount being done by universities and a huge amount of money going into those centres of innovation. I think both markets and the government understand that is where the future [of Edinburgh’s economy] is.”

Edinburgh in general is an intelligent city with its education rates being higher than both the Scottish and British average, as shown in the chart above. Furthermore, its percentage of population with no qualifications is below that of the rest of Scotland, with a difference of 3.9%.

Edinburgh’s quest for innovation

With such high levels of education, it perhaps follows that Edinburgh has seen ‘smart’ sectors such as fintech and life sciences blossom. A good example of this being utilised is Edinburgh BioQuarter, a partnership between Edinburgh City Council, NHS Lothian, Scottish Enterprise and the University of Edinburgh, which has seen £500m invested in new facilities with a further £1bn planned for future development.

Ridd expands on what the BioQuarter does. “It is essentially a science park and research campus,” he explains. “It delivers numerous outputs including incubating new companies and providing innovation support. The site itself delivers through the NHS hospitals also, so it is really a site completely focused on delivering, solving and tackling global health challenges.”

The BioQuarter currently hosts approximately 8,000 employees, with a large proportion working in the hospitals in patient-facing roles. Approximately 3,000 workers are focused on research, including various medicine and sciences students.

Ridd adds: “All of these things work together and interlock, which leads to this experimental, translational science. At the heart of it, it is about creating new products for patients and researching new treatments and technologies to advance global healthcare.”

Impressively, the hub is home to Europe’s largest concentration of stem cell scientists, and Ridd highlights that the BioQuarter is open to investment. “BioQuarter will formally launch an Official Journal of the EU procurement process in the first quarter of 2021 for a private sector partner to develop its £1bn [gross development value] Health Innovation District,” he says. “At the end of 2020, we had a bidders day that attracted interest from companies around the world.”

Alongside life sciences, Edinburgh is also keen to grasp opportunities in data and data centres. Campbell explains: “We want to make Edinburgh the data capital of the world. Edinburgh’s School of Informatics is one of the largest informatics departments in Europe. Then we have CodeBase, which is one of the largest incubators in the UK, so there are huge opportunities here.”

Furthermore, Rockstar North – which is part of the videogaming giant, Rockstar games – is also based in Edinburgh. Making it abundantly clear that the city is embracing technology and innovation through a plethora of disciplines.

Edinburgh’s equality goals

One area in Edinburgh where there is room for improvement is the gender wage gap. Edinburgh residents’ weekly average earnings sit well above the Scottish and UK averages, but when it comes to equality, male full-time male workers out-earn their female counterparts. Edinburgh has a gender wage gap of approximately 15.2%, whereas Scotland’s overall gap is significantly smaller, at approximately 9.5%.

For Edinburgh City Council, tackling inequality and sustainability issues is high on the list of priorities. Campbell says: “Even before the pandemic, we had an economic strategy that was focused on good growth, on tackling inequality, on well-being, and also on sustainability.”

McVey adds that the Edinburgh Poverty Commission, an independent group working alongside the council to alleviate poverty in the city, is throwing its full weight behind this. Of the council’s role, McVey says: “There are hundreds of millions of pounds of projects being taken on by the council. These are in transport, infrastructure, electronics, pensions, etc.”

Ridd stresses the importance of poverty reduction to the BioQuarter too. “[The BioQuarter] sits in-between some of the most deprived areas of both Edinburgh and Scotland,” he says. “This project wants to support these communities and see really inclusive growth.

“As the BioQuarter continues to develop into this place of innovation, we want that to be open to the local communities. There is a real key focus on this around educational programmes and job opportunities.”

Tackling the housing problem

Edinburgh has a rapidly growing population – the number of people living in the city rose by 13% between mid-2009 and mid-2019, with a further projected increase of 6.6% expected in the decade up to mid-2028. Immigration from both overseas and other parts of the UK is cited to be the biggest expected driver of this, according to the National Records of Scotland.

As its population continues to grow, access to affordable housing in Edinburgh has become a key priority.

Edinburgh sits above the UK house price average by 4.7%, although Campbell says the council has plans to address this. “Edinburgh is still an unaffordable city,” she confirms. “We have a commitment for 20,000 affordable homes and that is really important. We are working with investors to ensure we are getting the right type of housing in Edinburgh.”

She highlights the important role that sustainability will play in this: “We are looking at innovation in terms of sustainable housing. That is an area we want to influence and work with the private sector to help to support. Obviously, if we are going for innovative housing it has to be good for people, the environment, fuel bills, etc. That will make housing more attractive.”

We value not just EU investors but the EU citizens in both Edinburgh and Scotland. Kate Campbell, Edinburgh City Council

The council has an ambitious plan behind its 20,000 affordable homes objective. The 30-year housing strategy aims to not only deliver carbon-neutral homes but to also improve existing neighbourhoods in terms of energy efficiency. According to a report from Edinburgh City Council, £310m has already been invested, with a further £390m between 2021 and 2030.

Edinburgh’s diverse investment offerings

Edinburgh is a known attractive FDI location in the UK, ranking fourth in EY’s 2020 Attractiveness Report, with projects rising by 10% between 2018 and 2019.

McVey says that whether it is life sciences, real estate, data, financial services or education, “whatever you are coming to invest and do, you will find the people here that you need to operate your business, you will find the expertise and the innovation here to drive things at the frontier. You will find a return on your investment because our economy is strong and growing. Finally, you will find a city that is an absolute joy to spend time in when you come and inevitably oversee your investment. There is no downside to Scotland’s capital city and it is only going to get better.”

For more of Investment Monitor’s coverage of the UK’s cities, read through our Future of British Cities series: