As urbanisation accelerates, cities will be ranked by – and desired for – elements such as business activity, information exchange and human capital. We unpack some of these trends
More than half the world’s population live in cities. The UN projects that by 2050, two-thirds of the global population will live in urban areas. As cities continue to swell, so their reach will expand. According to real estate consultants Knight Frank, the UN forecasts that the world’s urban population will expand by 380m people by 2020, which means that demand for real estate in cities will surge, too.
Every year global management consulting firm AT Kearney examines 125 of the largest, most influential cities in their annual Global Cities report. In May 2016, AT Kearney released its sixth annual Global Cities Index, ranking 125 of the most influential cities for their level of global engagement. In a second related ranking, their annual Global Cities Outlook list measured the future potential of 125 cities primed to have an impact.
AT Kearney defines a truly global city as one that is “measured by its ability to attract and retain global capital, people and ideas, as well as sustain that performance in the long term”.
GLOBAL CITIES INDEX: PERFORMANCE
The Global Cities Index is an examination of a given city’s current performance in five areas: business activity, human capital, information exchange, cultural experience and political engagement.
These areas are then broken down into subcategories and rated. For example, the cultural experience aspect looks at whether a city offers museums, visual and performing arts, sporting events and culinary offerings. Human capital considers the extent of a city’s foreign-born population, citizens with tertiary degrees and the number of international schools, among others.
A Global Cities Index is supposed to provide insight into the global reach, performance and development levels of the world’s largest cities. London, New York and Paris take the top places this year.
GLOBAL CITIES OUTLOOK: POTENTIAL
On the other hand, the Global Cities Outlook is a projection of a city’s potential measured by its rate of change and policies that could shape future competitiveness. Four evaluated areas include personal wellbeing, economics, innovation and governance. San Francisco, New York and Boston top this index in 2016.
AT Kearney also identifies the Global Elite, that is, cities ranking in the top 25. They tick all the boxes in both Kearney’s Index and Outlook rankings. This year, 15 cities qualify as “well-known hubs of culture and politics, as well as true global economic hubs”. It isn’t hard to imagine why London and New York top the Global Elite list. Other cities with positive 2016 rankings include Los Angeles, Tokyo and Paris.
WHY THE GLOBAL FOCUS?
Knight Frank also produces an annual Global Cities report, which looks in detail at the extent to which globalisation influences the way that cities are structured, worked in and lived in.
Rapid population growth and innovative infrastructure projects are “creating new business hubs” and “transforming the geography” of global cities, too. These hubs are increasing in importance as investors cast their nets wider when pursuing real estate opportunities to increase “cross-border money flows”.
Changing current workplaces into a “series of meeting places” and companies needing to redeploy to meet market needs in new global outposts are just some of the factors that could affect how cities expand or are built. Knight Frank’s authors say that in Sydney, a “growing number of firms” are no longer providing desks for all workers.
There are further aspects with which future urban hot spots will have to cope. It’s why Knight Frank identifies diversification and flexibility as key concepts for anybody investing in or selling property in years to come. “Cities in high-income countries are projected to increase in population by 34m by 2020, the equivalent of three cities the size of Paris. City populations in middle-income countries are forecast to increase by 290m people over the same period, which is about 12 cities the size of Shanghai.”
BUSINESS TRAVEL SURGE
One of the practical implications of this urbanisation and globalisation surge is an increase in business travel. Correspondingly Knight Frank researchers believe there will be a marked increase in the popularity of short-term serviced apartment rentals.
The company predicts that globalised companies will increasingly look for outlets in multiple cities around the world. Real estate agents will have to facilitate these rental agreements and provide local knowledge about markets and customers, as few international businesses and retailers may have first-hand experience of property practices and idiosyncrasies.
While many globalised businesses and retailers might automatically be drawn to capital cities, estate agents can and should make a good case for provincial towns and cities as alternatives to provide “far greater potential at lower costs”. Of course, businesses may need educating about these opportunities, which is where the property market could gain traction.
THE SMARTEST CITIES
AT Kearney’s 2015 report focused on innovation as a crucial differentiator between developed and emerging economy cities’ performances. This year, the report broadened the innovation theme to encompass the idea of “smart” cities. Many define a smart city as one that places technology at the core of its development strategy. In other words, where communities build infrastructure to improve the lives of their residents by harnessing a growing data revolution and research collaborations, to securely protect residents’ safety and privacy.
AT Kearney looked at some of the world’s smart city leaders and analysed their performance to help determine qualities that make a city smart. Of 14 cities analysed, their final list included New York and London, as well as Amsterdam, Barcelona, Tokyo, Vancouver, Los Angeles and Melbourne. Five traits stood out: information exchange, human capital, business activity, governance and personal wellbeing – all clues to the factors that will help current cities transform into smart cities of the future.
HOW DOES SOUTH AFRICA RANK?
No African cities are near the top in AT Kearney’s 2016 ranking of 125 global cities. Johannesburg ranks only 60 on their Global Cities Index and 102 on their Global Cities Outlook results. Cape Town ranks 70 on the Index and 108 on the Outlook results. Both South African cities fall behind Cairo, Mumbai and Milan, but rank ahead of Nairobi, Bangalore and Ho Chi Minh. In an international scenario, Africa has work to do.
WHAT ARE THE PRACTICAL APPLICATIONS?
The AT Kearney report predicts that global cities and metro regions will play an increasingly important role in geopolitics and macroeconomics of the future. The big metros showing in South Africa’s national elections are already a case in point. Some experts suggest that cities are starting to overtake traditional nation-states as economic and political drivers. What is undisputed is that the performance of cities can influence strategies of business leaders and city government improvement plans.
Highlighting those areas in which cities perform will continue to be indicators of global competitiveness. In South Africa in particular, the goal should be to provide an engaged network of information-sharing, specialist talent, a vibrant economy and policies that enable technology adoption and experimentation – a quest towards smarter cities that appeal to local and global and investors, business communities and property buyers.
Words Georgina Guedes