How talent and innovation are reshaping cities and CRE decisions

Innovation has become a buzzword, but it’s becoming an imperative for survival as well and increasingly an indicator of future success when it comes to cities and commercial real estate. The idea of innovation itself has many layers as it relates to our industry. It impacts cities globally as our latest research on Innovation Geographies explores through clusters of talent and innovation.

This subject is also disrupting business models as process automation, online marketplaces, and apps that make life easier proliferate. Buildings themselves are quickly becoming smart and connected in a myriad of ways we may have only dreamed of just a few years ago. Real estate assets are now more like computers with a roof, much the way cars have become computers on wheels.

On the first of these layers, our latest research shows that innovation ecosystems within cities are key to driving productivity and, in turn, lead to economic growth. Innovation ecosystems will ultimately lead to demand for real estate, particularly when combined with a high concentration of human capital.

Major corporations have long targeted talent-rich innovation hubs, but the war for talent and margin pressures are further pushing companies to rethink their global location strategies with a focus on talent hotspots. For many companies, identifying cities that provide top access to talent at an affordable cost, or in some cases at any cost, is a priority.

Assessing a city’s real estate potential

We created JLL’s new research program — Innovation Geographies — where we explore over 100 cities worldwide to quantify their innovation and talent attributes, as a way to help companies and investors make key decisions. Our research overwhelmingly confirms cities that combine strong innovation capabilities and talent concentrations have outperformed in economic and real estate terms over the last couple of decades.

Put simply, the top performing cities in our innovation and talent concentration indices have recorded the fastest, most vigorous office rental growth over the past decade and are attracting a higher proportion of real estate capital. There are now clearly compelling reasons for real estate professionals to include innovation and talent metrics when assessing a city’s real estate potential, combining them with the traditional measures of city economy and real estate dynamism relating to GDP, employment and population.

The well-established Global Leaders, with strength in both innovation and talent — such as San Francisco, London and Tokyo — continue to dominate the global innovation ecosystem. But competition is increasing, particularly from several smaller, more agile cities from Austin to Amsterdam to Melbourne. These cities are building impressive, globally-competitive innovation ecosystems supported by exceptional talent pools.

But the cities of the future offer much more than just solid talent and innovation metrics — everything from their skyline to a single building is attuned to the future. The commercial real estate industry has historically been slow to adopt leading-edge technologies. However, this is starting to change. For example, virtual reality enables prospective tenants to visually inspect a finished space before a building is constructed, allowing them to determine whether the build-out will suit their business. The Internet of Things (IoT) is also having an impact on commercial buildings with sensors that monitor the environment and measure temperature, utilization and power consumption. The sharing economy, 5G, and AI are all potential game changers for cities and real estate.

The reality is, however, there is limited information available to the CRE industry on these emerging technologies and especially on how they apply to the built environment. How do we navigate the landscape and advise our clients? That’s why we’re working with our partners at the MIT Real Estate Innovation Lab to address this information gap through our collaboration on the MIT Tech Tracker — a virtual catalogue that identifies cutting-edge innovations in real estate. For the first time, we’re pinpointing the puzzle pieces of disruption that are leading our industry into the future.

This is an exciting time to be working in our industry, and we are well positioned to be innovators. We have tremendous opportunities to transform what we do and how the industry works to drive more value for our people, clients, and shareholders in the future. That will mean taking some risks to ride this new wave of innovation, but the rewards will be more than worth it.

Tracking innovation and talent across global cities

Urbanization means more people are moving into cities, and it has also created a war for talent amongst those markets looking for an advantage on the global stage. According to JLL research, cities with an innovation economy attract the type of talent and investment that allow those markets to find continued economic success.

“We found that innovation centric cities — those that rank highly on both innovation and talent — tend to be a bit more resilient in terms of real estate performance,” said Carol Hodgson, Senior Director with JLL’s Global Research team. “During the last crisis, (those markets) fell less, and they bounced back a lot quicker.”

JLL explored the relationship between innovation and talent in its report — Innovation Geographies — which found that the top performing cities for concentrations of innovation and talent saw the most vigorous rental growth over the past decade and attracted a higher proportion of real estate capital.

The report examined more than 100 cities worldwide. The results, Hodgson said, offer proof that cities with strong innovation capabilities and concentrations of talent have economically outperformed their peers in recent decades.

Interested in how we rank the world's talent hotspots? Download our report, Innovation Geographies.

Ben Breslau is Chief Research Officer for the Americas at JLL. He can be reached at benjamin.breslau@am.jll.com.