But It Has A Great Personality: JLL Looks At Alternatives To City Growth
Multiple personalities are not always a bad thing. In the case of urban metros, embracing certain personalities can often distinguish moderate cities from the global leaders.
JLL explores this claim in a new report that suggests city rankings have been evaluating the world’s top urban metros in the wrong way. Rather than in a top-down hierarchy, cities should be clustered and examined through 10 distinct personality types.
“You need to look at opportunities in a somewhat different way,” JLL Director of Global Research Jeremy Kelly said. “Think of the fluidity of these groups. Cities can morph from one category to another. We even have areas with two, three or even four of the categories.”
JLL’s “World Cities: Mapping The Pathways To Success” report breaks down the world’s largest metropolitan areas into four categories and six sub-categories.
While Established World Cities are the most global and competitive with their deep pockets, talent and business, New World Cities are their tech-savvy little siblings. Several cities within this group are poised to rise into the more established category, often in more developed countries. Emerging World Cities are political or business centers in emerging markets that are rapidly growing as gateway cities for their respective region or nation. There are also the divergent cities that simply do not fit any of the three categories and are viewed as Hybrids & Growth Engines.
Kelly said the categories are not set in stone, and cities can reposition depending on their recent performance. Cities are changing, both positively and negatively, due to factors like government, infrastructure and business transparency.
“The trick to identifying which cities are likely to progress is often about understanding the nuance of their governance and the ability of the city government to effectively manage and absorb growth going forward,” Kelly said. “We’re increasingly spending our energy looking at how a city is run and getting underneath the skin of metropolitan governance.”
There are some who question how fluid the report actually is. With successful global cities like Boston, Berlin and Frankfurt so close to the cusp of the Established World Cities category, UMass Donahue Institute Senior Research Manager Branner Stewart wonders what it would take to give those cities a final nudge forward.
"The question is, what is it that makes it so it’s not quite into the contender category, and what would it take to more firmly enter into a higher tier of global cities?” he said.
ESTABLISHED WORLD CITIES
The Big 7
The Big 7 cities account for nearly 25% of all commercial real estate capital investment worldwide. Their liquidity, global reach and general prestige keep them as the go-to destinations for international corporations and investments. Despite their lofty status, the report cautions these cities are not without their problems. Affordability issues and geopolitical concerns could lead some investors, businesses and talent to head to the Contenders or Innovators.
The Big 7: London, New York, Paris, Hong Kong, Tokyo, Singapore and Seoul
There are 10 cities percolating just shy of the threshold into the Big 7. This cluster of cities has seen the fastest growth in real estate investment this cycle. They are also known for attracting global companies, capital and talent. New World City graduates like San Francisco and Sydney face housing and infrastructure challenges before they matriculate to the next level. Growing cities from emerging economies, like Shanghai and Beijing, will need to address environmental and market transparency concerns to continue to advance.
Amsterdam is of particular interest to Kelly, as he noted it had regressed from being a global leader and is regaining some of its worldwide connectivity.
The Contenders: San Francisco, Amsterdam, Toronto, Sydney, Madrid, Los Angeles, Chicago, Beijing, Shanghai and Washington, D.C.
New World Cities
This cluster of innovative New World Cities is sometimes seen as punching above their weight. They attract global interest, excel in one or more science and technology sectors and house a business environment that suits their innovation. While increasingly attracting foreign investment, they also have a mature network of local companies specializing in newer technology. These cities may excel in innovation, but they have not quite matched the Established World Cities sector in terms of quality of life and cosmopolitan vibe.
The Innovators are cities that attract the greatest volume of real estate investment relative to their size. Boston tops the list of these cities as a real estate destination and, along with Berlin and Melbourne, is seen as most likely to graduate to the Contenders, according to Kelly.
“Boston’s stature has been on the rise for a while now, and that’s emblematic that the city has been recognized as a world-class global city,” Stewart said. “Berlin is returning to the place where it should have been. [Pre-World War II], Berlin had been in a lofty global position.”
The Innovators: Austin, Berlin, Boston, Denver, Dublin, Milan, Munich, San Diego, Seattle, Silicon Valley, Stockholm and Tel Aviv
Some cities have turned quality of life into their best asset, and they are known as the Lifestyle cities. Medium density and an impeccable level of public space and services has fostered growth in their higher education, science, creative and tourism sectors. These cities house a stable government and attract those in the environmental, design and medical fields.
Stewart said there might be Innovators that may have been misplaced and actually belong in the Lifestyle category.
“They put Austin and San Diego into the Innovator category, but both of those cities are so high on lifestyle, and considering how malleable this is, you could argue they could be in different places,” he said.
The Lifestyles: Auckland, Brisbane, Copenhagen, Hamburg, Helsinki, Melbourne, Oslo, Vancouver and Zurich
These New World Cities are the center of attention in a variety of fields, including diplomacy, security, media and higher education. The Influencers have some of the most stable real estate markets, showing the lowest office-market volatility since 2000 of any of the 10 groups of cities.
Their global reach typically stems from housing an international institution, like the United Nations in Geneva, or heavy tourism. These cities can find themselves at a crossroads when deciding whether to diversify beyond whatever institution built their respective reputation, like Frankfurt’s economy centered around finance.
The Influencers: Barcelona, Brussels, Frankfurt, Geneva, Kyoto, Miami and Vienna
Emerging World Cities
The Enterprisers are often service-centric employment hubs that are draws for workers from a wide surrounding catchment area. The cluster, which includes cities like Bangalore, India, and Shenzhen, China, is known for having dynamic real estate markets. Engineering, financial and retail companies all call these cities home, and the regions typically have less income inequality and reduced poverty than some of the other categories. Enterprisers are also the group within the emerging world cities arc most likely to ascend to new world cities.
“They are moving up the value chain very rapidly and changing their spots rapidly,” Kelly said. “It’s a group worth watching over the medium term.”
The Enterprisers: Bangalore, India; Guangzhou, China; Ho Chi Minh City, Vietnam; Kuala Lumpur, Malaysia; Shenzhen, China; and Taipei
Former manufacturing hubs are seeing their old industry leave in the quest for cheaper labor, and it is getting backfilled by high-capital and design-focused jobs. These cities receive support from their governments to be more competitive with other cities and fuel the transition from a lower-value economy to one that is more advanced. The Powerhouses have seen the strongest office rental growth of the Emerging World Cities.
The Powerhouses: Chengdu, Chongqing, Hangzhou, Nanjing, Suzhou, Tianjin, Wuhan and Xi’an (all in China)
This grouping of enormous cities is recognized for its rapid evolution in the last 10 years. The cities are becoming viable hubs for finance, real estate and corporate headquarters. They are becoming the gateway cities of their respective nations, but income inequality remains an Achilles' heel. Rising incomes, building the middle class and improving the quality of life will be instrumental in keeping the Megahubs competitive with the rest of the world, per the report.
While these cities have a high level of corporate demand, they have the lowest level of real estate investment intensity of all 10 categories, something the report states can be fixed with better transparency. Poor leadership can also hinder their future growth.
“Certainly we find some cities are failing to keep up with the pace of change,” Kelly said. “They’re growing like top seed but struggling to maintain the infrastructure to reflect the changing growth in those particular cities. Often that has to do with really lousy governments.”
The Megahubs: Bangkok, Delhi, Istanbul, Jakarta, Johannesburg, Manila, Mexico City, Moscow, Mumbai and Sao Paulo
Hybrids & Growth Engines
The Hybrids see, and possess, both sides of the circle. These midsize cities typically have advanced infrastructure and a superior quality of life in comparison to peer cities within their respective nations or regions, but their labor pool can sometimes resemble those of Emerging World Cities. Prague appears to be on track to make the jump into New World City.
“Prague is close to moving into the Lifestyle or Innovator category, and, in fact, one could almost argue Prague is in the Lifestyle category already,” Kelly said. “At this stage, it doesn’t have the level of real estate transparency.”
The Hybrids: Abu Dhabi, Bucharest, Budapest, Cape Town, Doha, Dubai, Prague, Santiago and Warsaw
National Growth Engines
National Growth Engines fall outside the New and Emerging World Cities arcs. They are found in developed countries and usually see consistent demand without many competitors. The industries within these cities are usually fueled by a wealthy, stable population. Strong employment in these markets gives little motivation to attract foreign talent. Affordability in smaller versions of the National Growth Engines, like Nashville, make them increasingly attractive to businesses.
The report stresses the long-term success of these cities can come down to their ability to innovate and tackle issues like logistics and transportation infrastructure. This can mean strengthening regional cooperation and preventing competition from micro-governments within the metropolitan area.
The National Growth Engines: Atlanta, Dallas, Houston, Nagoya and Osaka