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Urbanisation

The role of innovation in city competitiveness

Innovation, amid today’s constant technological advances, is seen as a defining ingredient for a city’s success.

Jeremy Kelly, Director, Global Research Programmes, JLL
16 July 2018

Innovation, amid today’s constant technological advances, is seen as a defining ingredient for a city’s success.

From cities classified by commercial breakthroughs by multinational companies to ones where new ideas are persistently created by startups and entrepreneurs, the idea of an “innovative city” can cover a broad range of different styles, sectors and outcomes.

To help understand the global system of cities in this context, JLL’s Cities Research Center has constructed a ‘typology’ of World Cities, identifying 10 broad city ‘types’. Cities within the same group possess a shared ‘DNA’ and their real estate markets share a number of distinct characteristics, opportunities and challenges.

The “Big Seven” global cities - including New York, Tokyo and London - are at the core of this system. Possessing strong all-around offers in the modern economy - and attracting one quarter of all capital invested in commercial real estate globally - these cities are traditionally associated with strong innovation credentials. However, mid-sized cities and cities in emerging markets are building their reputation as sites of innovation and, at the same time, as hubs of corporate activity and destinations of real estate investment. These two groups have been nicknamed the “Innovators” and the “Enterprisers”.

1) The Innovators

Recent global trends show that a group of mid-sized cities, mainly in Europe and the U.S., have become specialists in the knowledge and high-tech sectors. We call these cities the ‘Innovators’. They are gaining a distinct edge over their peers, as the economy shifts towards a more technological and research-oriented focus. As part of this, ‘Innovators’ are attracting interest from internationally mobile talent and businesses.

However, while these cities share characteristics, that’s not to say that they have all taken the same innovation pathway. Universities, corporations, the public sector and entrepreneurs all drive innovation in different ways, but each innovation pathway shares a critical mass of knowledge and expertise.

Examples of ‘Innovators’ include:

  • Austin provides a mix of cost, culture, talent and business environment benefits that has led to the city becoming one of the key technology hubs in the U.S. Major presences, such as the University of Texas and Texas State University, underpin the city’s strong talent pipeline which, along with business-friendly policies, have attracted the likes of Dell, IBM, Amazon and Facebook. It has, as a consequence, gained the nickname “Silicon Hills”, emerging as a leading metropolitan area for start-up activity in recent years. Austin is among the top 30 cities globally in terms of real estate investment relative to economic size.
  • Berlin has become a magnet for cosmopolitan, international talent, attracted by its low housing costs, vibrant cultural scene and appealing lifestyle. Berlin has also emerged as a hotbed for cross-border investment for both venture capital and real estate investors, as Berlin increasingly competes with the likes of London and Paris for international interest.
  • Boston has built its reputation as one of the world’s leading higher education hubs, home to two of the world’s top three universities (MIT and Harvard). This exceptional talent pipeline and research strength means that Boston has emerged as a leader in a number of scientific fields, notably biotechnology and the life sciences. This interest has cemented Boston’s position as one of the top fifteen real estate investment destinations globally.
  • Stockholm has become known as Europe’s ‘unicorn factory’, thanks to its track record of producing $1 billion-plus companies, including streaming service Spotify and games developer King Games. Only Silicon Valley can outperform the Swedish capital in terms of unicorns per capita. The city has an exceptional digital, transport and public service infrastructure and has emerged as one of Europe’s leading investment destinations with more than US$10 billion invested over the past three years.

Investors have recognised the long-term ingredients of success that many of the ‘Innovators’ possess. Of the 10 city types, they have the second highest level of investment intensity (direct commercial real estate investment as a percentage of GDP), behind only the ‘Big Seven’, which include the world’s most popular real estate investment destinations.

 2) The Enterprisers

Innovation isn’t just about established cities in developed economies. Increasingly, cities in emerging economies are becoming key hubs in global networks of innovation. Referred to as ‘Enterprisers’, these cities are known for their ability to create globally competitive start-up ecosystems and their highly dynamic real estate markets that are attracting growing international corporate and investor interest. 

  • Shenzhen has developed into a leading technology and finance centre within China, with massive ambitions to grow into a globally competitive innovation hub. Chinese internet giant Tencent is based in the city, alongside the huge hardware firms of Huawei and ZTE as well as a number of major start-ups. The city sees the third highest number of patent applications of any city in the world, and as China’s capabilities grow, Shenzhen is likely to be at the heart of this.
  • Bangalore established itself as a popular destination for IT-related outsourcing, with successful home-grown companies such as Wipro and Infosys. Now, start-ups, such as e-commerce platform Flipkart and InMobi, have emerged from the city’s entrepreneurial talent pool. Multinational companies - Google, for example - are shifting their emphasis from the city’s outsourcing functions to its R&D capabilities.  As a result, Bangalore has become one of the world’s office leasing hotspots.

The ‘Innovators’ and ‘Enterprisers’ both reflect the importance of innovation and technology-related strengths in city success. They demonstrate the fundamental interconnectedness between innovation capacity and real estate market dynamics - the ‘Innovators’ have been able to punch well above their weight in attracting cross-border real estate investment, while the ‘Enterprisers’ are gaining momentum and cementing their position in global innovation networks, outperforming their regional peers in terms of corporate activity.

While we cannot be sure how well these cities will respond to new, disruptive technologies in the future, they have the essential ingredients and are well placed to continue their pathways to success.

 

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