MAGAZINE The superpowers of tomorrow

The superpowers of tomorrow will not be nations, but the world’s great cities, says Adora Svitak, a youth empowerment advocate whose debate on demographics will be one of the headline events at this year’s Mipim. According to Millennial champion Svitak, ‘the 21st century is dominated by the city, rather than by the US or China, Brazil or India’, with enormous consequences for the real estate industry. Her session on 13 March will tackle what it means to live in cities now and in the future, while addressing how their rise is shifting the balance of global power.

This urban message runs like a rich seam through this year’s Mipim conference and events programme, where city exhibitors will come under greater scrutiny than ever, as real estate developers and investors ask local and regional authorities how they can best work together.

New dimension
‘From demography and sovereignty to connectivity and sustainability, cities are taking on a new dimension at Mipim,’ says Ronan Vaspart, director of Mipim. ‘The key to successful property development is finding the right balance between international investment strategies and local opportunities. Mipim 2018 will provide welcome input to help understand the issues of urban growth and outline the future of property in an urbanising world.’

Cities have become economic and population centres with global reach, sometimes surpassing the nation to which they belong. They generate more than two-thirds of global GDP, and a city such as London has a GDP equivalent to that of the entire Netherlands, the world’s 17th largest economy, while New York has a GDP comparable to that of Canada and Beijing to Sweden.

Rising life expectancy
According to the United Nations, the world population should reach 8.6 billion by 2030 and 9.8 billion in 2050. By 2050, 66% of the world’s population will be urban-based, with a rising life expectancy. Over the next 15 years, 60% of the population will be classified as middle class with higher incomes but also higher expectations, while 91% of the growth in world consumption will come from city-dwellers.

The major challenges for property professionals, both public and private, will be how to cope with this growth in city populations and offer housing, offices and leisure for all, while meeting the new expectations of these people in terms of services, mobility, infrastructure and sustainability.
Planning the cities of tomorrow is about the four Ps,’ says Rosemary Feenan, JLL’s international director of city research. ‘They include property – the right buildings; platforms – so the right city models; – people – because smart is about serving citizens, aiding happiness and health; and finally performance, using smart elements to improve efficiency and cost effectiveness.’

5 FUTURE-PROOF CITIES: URBAN CASE STUDIES
From Stockholm to Singapore and Helsinki to Seoul, great cities are defined not by scale but by their ambition to serve their communities. We showcase five world cities which are defining the future through public transport, open data, intelligence devices, centralised innovation and smart buildings.

DIJON
Country: France
Current population: 151,212
Famous for: Mustard
Smart solution: Open Data

The quaint French city of Dijon may not look as futuristic as Paris, but has just launched the biggest ever public Open Data project in the country to manage public facilities. A consortium formed by Bouygues Energies & Services (a subsidiary of Bouygues Construction), Citelum (a subsidiary of EDF Group), along with Suez and Capgemini, have been awarded the contract deliver and manage, over a 12-year period, a connected control centre for public facilities across the 24 municipalities making up the metropolitan area. In a deal worth around €105 mln, the project includes the design, building, operation, and maintenance of public facilities from a centrally controlled point.

Operational from 2018, the project will make technical equipment (including traffic lights, street lightning, CCTV, street and road maintenance) more efficient, optimised and pooled. This will be the first time that a centralised and connected tool for the management of public facilities has ever been set up in France.
Thanks to digital data generated by the connected public facilities, the Dijon metropolitan area hopes to develop a unique smart city initiative, offering its residents new public services and open urban governance based on Open Data.

The project’s goals include a 65% energy saving on public lighting and call-out times for public areas, as well as the 99% availability of IT systems. Meanwhile, the savings to the public purse generated by the scheme will finance the creation of new services for Dijon as a smart city.

HELSINKI
Country: Finland
Current population: 616,690
Famous for: Quality of life
Smart solution: Public transport

While Helsinki has topped several quality of life charts in recent years, the city’s commitment to innovation continues unabated. Its greater metropolitan region, Helsinki-Uusimaa, aims to be carbon neutral by the year 2035, as agreed by its regional assembly in December.

Helsinki is also three years into a 10-year plan to make car ownership unnecessary through ‘mobility on demand’ systems, making pioneering steps with driverless public transport. Unlike most of the rest of the world, Finnish law does not require vehicles on public roads to have a driver. This has allowed public authorities to develop and test driverless robobuses, with the Sohjoa driverless minibus currently transforming transport in the Helsinki Smart Region. The electric driverless minibuses have been tested on public roads and with passengers since autumn 2016 in Helsinki, Espoo and Tampere. These cost and energy-efficient vehicles can carry up to nine people, and operate alongside normal traffic and commuters.

‘The robobuses offer a more flexible alternative to public transport when, for example, going home from the train station. The idea is to make public transport a more interesting option to taking the private car,’ explains Harri Santamala, the Sohjoa project manager from Helsinki Metropolian University of Applied Sciences. ‘The robobus can run up to 40 km per hour but travels at an average speed of 11 km per hour. Its slow pace is a matter of security and also a challenge for other motor vehicles in traffic. Also, other commuters and vehicles on public roads are not predictable. However, the pilot phase of the project aims to look at the challenges and solve them with a practical approach that can be applied on Finnish roads and elsewhere,’ adds Santamala.

‘Smart mobility is really the headline issue in creating cities of the future, because how we move around cities is really going to determine their success and comfort,’ notes Rosemary Feenan, JLL’s international director of city research.

The Helsinki-Uusimaa region emerged as the best mid-sized European region for foreign investments in a recent survey by the Financial Times which compared the potential of regions with a population of 1,5-4 million. The survey, European Cities and Regions of the Future 2018/19, cited its financial potential, human potential and lifestyle as factors in its favour. 

SEOUL
Country: South Korea
Current population: 9.86 million
Famous for: Smartphones
Smart solution: Smart devices

In 2013, the mayor of Seoul, Park Won-Soon, created the Seoul Innovation Bureau, the first of its kind in Asia. Encouraging citizen participation, the bureau seeks ideas and insights from members of the public as a basis for city policies. This has since evolved into the Sharing City initiative, where individuals are encouraged to share resources such as accommodation, books, parking spaces and even clothes with their fellow residents.

While South Korea as a whole has become synonymous with rapid technological innovation, particularly in the development of online and mobile technologies, it is the use of smart devices in the public realm which is being prioritised at a civic level.  

The Bureau currently involves residents in many aspects of decision-making, such as budget decisions. For example, 250 residents were selected at random recently to decide how €20 mln of the city’s €700 mln budget should be spent. It has also developed an online portal to encourage citizens to contribute ideas, knowledge and insight. According to Park, the country’s technological growth as a whole has ‘made it easier for the city to engage with citizens and companies, and to create the platforms for resources to be shared’.

On a national level, Korea’s Land & Housing Corporation – the government’s primary land developer and affordable housing provider - is equipping its developments and housing with smart-city elements. These range from IOT-enabled fridges to smart televisions, as well as entrance halls, elevators and front doors that use recognition software to open hands-free, or operate on verbal commands. Larger developments are successfully centralising waste management and renewable energy generation across hundreds of thousands of homes.

SINGAPORE          
Country: Singapore
Current population: 5.607 million
Famous for: Finance
Smart solution: Innovation hub

Business-friendly Singapore has gained a reputation as an all-round smart city in recent years, picking up full points for its high-quality public transport and innovation-friendly environment. It was top of Berlin-based Nestpick’s list of best cities for start-ups last year, and came second in the EasyPark 2017 Smart Cities Index thanks to its thriving business ecosystem, urban planning successes, quality of internet and clean energy efforts. Meanwhile, a joint study from Cornell University, Insead and the World Intellectual Property Organization named Singapore the seventh most innovative country in the world in 2017.

While many experts suggest that Asia could become the world's leading region for smart city development, Singapore in particular is a tantalising mix of the right workforce – skilled and multi-lingual – as well as representing a progressive political environment with a strong focus on a sound intellectual property (IP) rights regime, underpinned by transparency.

In 2014, Singapore launched a landmark smart nation programme through which it is collating unprecedented amounts of data about all aspects of city life. This data will be analysed for its potential use in disease outbreak preparedness or disaster management, as well as more day-to-day quality of life and safety initiatives.

Marina One, shortlisted for the best innovative green building at this year’s Mipim Awards, is a high-density, mixed-use building complex in the heart of Singapore’s new Marina Bay financial district which supports Singapore’s ambition to become a ‘City in a Garden’. Designed to appear as a plant-covered mountain rising into the Singapore skyline, the four-tower scheme includes lush planting, green sky terraces and tree-covered public spaces on the rooftops to integrate soft landscape into the fabric of the building.

STOCKHOLM
Country: Sweden
Current population: 943,370
Famous for: Skype
Smart solution: Smart buildings

It’s not surprising that a city with more billion-dollar tech companies per capita than any other metropolis apart from Silicon Valley is a European leader for innovation and tech-friendly buildings. Dynamic demographics also mean that the Swedish capital is currently riding a construction wave.

Stockholm is growing faster than the rest of Europe, according to its city planning department, and its investment potential through 2030 is estimated to stand at €95 bn in terms of housing, infrastructure and innovation. With around 340,000 new dwellings planned, residential investments alone are expected to exceed €53 bn in the coming years.

The Stockholm region aspires to be one of the world’s leading areas for life sciences by 2025. A brand-new neighbourhood, Hagastaden, is being built on the border between Stockholm and Solna. It will include leading research and specialised medical care facilities, with a focus on life sciences for the future.

A city which is made of islands – and lies adjacent to the Stockholm archipelago, comprising nearly 30,000 islands, islets and rocks – is also both challenged and defined by the water which surrounds it. Key projects on display at this year’s Mipim include Pirhuset, presented by the Stockholm Business Region, an exciting new scheme transforming the city’s old harbour district. Pirhuset will represent a new sustainable urban waterfront, extending the historic city. Developed by Bonnier Fastigheter in cooperation with the Stockholm city planning department, the office scheme will be a new landmark and signature building for the city, partly constructed on a new pier and providing a public plaza facing the water.

At a national level, Sweden was ranked the best country for business in 2017 by Forbes and the second most innovative country in the Bloomberg Innovation Index, which ranks the world’s most pioneering economies.

MAGNET FOR TALENT
Cities which are rich in resources, young and fast-growing, economically vibrant or at low risk of natural disasters are the ones to watch for the next decade, according to recent research from adviser Savills. The ability of cities to attract people and talent pools will be a key indicator of income security in the next 10 years, the firm says in its new flagship publication ‘Impacts: the future of global real estate’.

‘The next 10 years will be about security of income in a low interest rate world, with investors increasingly shifting their focus towards rental markets in world cities,’ says Yolande Barnes, head of Savills World Research. ‘Risk needs to be measured differently, as security and scale of income becomes the major driver.’

The focus on quality of income is a permanent shift in Europe, where investment funds must pay pensions to ageing populations in a low inflation, low interest rate era. Whether investors are looking for capital growth or stable income streams, the behaviour of rental markets is key, Barnes claims: ‘Rents don’t lie: they are a function of two market fundamentals: occupier demand and supply conditions. In many global investment markets, there is very little scope for further yield compression, so capital growth can only come with rental growth.’

The winning cities are therefore fast-growing economic powerhouses and centres of innovation that are magnets for the young and talented. Savills’ analysis of prospects for rental growth across different sectors has identified some of the cities that are poised to provide security of income and potential rental growth over the next decade.

The cities where the Gen Z (15-34 year-olds) to Gen X (50-69 year-olds) ratio is forecast to be highest in the next decade are Shenzhen, Jakarta, Auckland and Austin on a global level. In Europe, the winning cities are set to be Edinburgh, which by 2027 will be the UK’s most youthful city, and Oslo, set to be the most vibrant city in the Nordics.

Millennials have a distinct preference for city living, Savills says: cities are important because many young people now choose where to live before they even look for a job. The winning cities are therefore coming under extreme pressure because supply cannot match demand.

One example is Cambridge, in the UK, a centre of learning just chosen by pharmaceuticals giant Astra Zeneca as its global headquarters, where staff are struggling to find suitable housing. Cambridge is one of Savills’ top five dynamic cities in Europe, along with London, Paris, Amsterdam and Berlin. Dynamic cities are chosen for their performance across six key categories – investment, innovation, inspiration, inclusion, interconnection and infrastructure. ‘Rental growth prospects do not necessarily indicate a ‘buy’ status, particularly if the price is too high, or if an injection of new supply could tip a sector into oversupply and a rental double-dip,’ said Barnes. ‘To correctly understand real estate risk, it’s imperative that investors understand markets at a city, and even at a neighbourhood level, and how that applies to each individual real estate sector.’

New ways of measuring city success
A new report from JLL challenges traditional approaches to evaluating city competitiveness by updating the criteria used in urban analysis. World Cities: Mapping the Pathways to Success, looks beyond the standard metrics of city performance to recognise similarities among the world’s cities. The new classification of 10 global city groups, each with their own common paths, challenges and imperatives, draws on a wide range of indicators to develop a focused global map of city dynamics (Image 1).

Among the new city types, Innovators with world-class capabilities in science and technology have seen investment volumes grow by 50% since 2006. In particular, Berlin emerged as a hotspot for cross-border investment, ranking as one of the top global destinations for cross-border capital. Meanwhile, Lifestyle cities like Vancouver, which saw investment volumes rise by 168% in 2017, will continue to attract global investment capital.

‘Increasingly, groups of cities share characteristics, aspirations and priorities in terms of the specialisms that they nurture, the talent and businesses that they attract, and the style and quantity of real estate required,’ says Jeremy Kelly, director in global research at JLL. ‘With this in mind, it makes sense to assess a city's real estate market dynamics through the lens of these city groups, to complement more traditional approaches to evaluating the impact of city competitiveness on real estate.’

The 10 new city types
The Big Seven are the elite set of cities that account for around a quarter of all capital invested in commercial real estate globally, and have the unique power to be default locations for cross-border investors and corporates.

Contenders have seen the fastest growth in real estate investment in the past decade and among the strongest office rental growth since 2000.

Underpinned by a strong entrepreneurial spirit and research capabilities, Innovators such as Berlin, Boston and Seattle are important cities in high-value economies. They attract among the greatest volume of real estate investment relative to their size.

Lifestyle cities characterized by high quality of life and public services have seen among the most robust growth in office rental values since 2000.

Influencers typically have some of the most stable real estate markets because they are strategically located for transnational decision-making, cultural functions or trade.

Large cities in emerging economies, Megahubs, are junctions for internationalisation of national economies and capable centres of business and retail but fail to punch above their weight as investment destinations.

Enterprisers are home to some of the world's most dynamic real estate markets. These emerging economies possess rapidly evolving innovation systems and increasingly are home to their own successful, home-grown multinational corporates.

Powerhouses are transitioning from low-value industrial economies to a higher position in the value chain. Benefiting from strong national government support, they are shifting towards more advanced industries.

Hybrids are typically mid-sized cities competing in specialised markets (e.g. commodities, business process outsourcing). They have made good progress improving real estate transparency, and have seen a transformation in the quality of their commercial real estate.

National Growth Engines can be found in stable, developed national economies. They benefit from access to large domestic markets. Durable over the medium term, they are among top real estate investment destinations.