Innovation Geographies 2024

The convergence of the technology sector, knowledge-based industries and research institutions is more critical than ever in driving commercial real estate demand and reshaping the built environment.

• Migration of innovation and talent to affordable and lifestyle-centric cities continues apace, leading to sustained growth in secondary and tertiary real estate markets.
• Real estate occupiers and investors alike are diversifying and optimizing their footprints and portfolios in response to talent availability, maturing markets and greater business and research specialization.
• Exposure to AI and other emerging sectors will be critical for occupiers and investors looking to harness this growth as new technologies are deployed and the digitization of traditional sectors accelerates.
• Geopolitics and onshoring are reshaping the global business landscape at a profound pace and opening up opportunities for new clusters of advanced manufacturing and R&D.
• Institutions and companies in highly knowledge-intensive sectors are anchoring sustainability-focused regeneration and bolder public-private partnerships.

Despite widespread changes to how we work and live, the importance of innovation to economic growth is only intensifying

Digital segments of the economy – already comprising 15% of global economic output and rising rapidly – are upending sectors and society more broadly. From traditional areas such as software development and hardware manufacturing to genomics, challenger banks and space tech, the scope of the digital economy is expanding at breath-taking speed. This will require a proactive response from companies looking at their location strategies with a need to balance talent, operating environment, risk and cost requirements. Location strategy will also be key for owners seeking to attract high-growth occupiers.

The ubiquity of innovation has similarly profound effects on the built environment and demand for commercial real estate. After the most severe correction on record during the pandemic, shifting demands from innovation-focused users across the office, industrial, lab and data center classes pose further questions but also opportunities for occupiers, investors and public bodies alike.

JLL’s third edition of Innovation Geographies covers the dynamics of 108 cities globally, spanning more than 720 million residents, US$40 trillion in annual output, nearly 900 million square metres of office product and 37 million high-tech employees. These cities have been ranked and clustered on a range of output, funding and talent indicators to provide an up-to-date perspective into the rapidly evolving innovation landscape at the global, regional and local levels.

Migration to affordability

Migration to affordability

A shifting hierarchy of innovation hubs

A shifting hierarchy of innovation hubs

New and emerging innovation sectors

New and emerging innovation sectors

Geopolitical tension and barriers to trade

Geopolitical tension and barriers to trade

Sustainability-focused mixed-use regeneration

Sustainability-focused mixed-use regeneration

Key considerations for occupiers, investors and public authorities

Key considerations for occupiers, investors and public authorities

Secondary cities are competing with the world’s largest innovation hubs for talent, corporate presence and investment

In recent years, talent shortages, rising home prices and regulatory pressures have catalyzed expansion into lower-cost markets, aided by more flexible working patterns and technology. As a result, cities such as Austin have moved into the global tier of innovation hubs, while secondary and tertiary cities including Brisbane, Hangzhou, Lisbon, Manchester and Raleigh all registered marked improvements in both innovation and talent.

In other cases, such as Adelaide, Leeds, Rotterdam and Stuttgart, growth has disproportionately come from individuals moving for quality-of-life reasons and pushing up talent concentration scores. Simultaneously, destinations for investment capital and business including Dublin, Frankfurt, Las Vegas, Melbourne and Warsaw are at the top of the board for gains in innovation output, particularly patents and venture capital deployment.

Austin emerges as a global hub for innovation, joining the ranks of the world’s leading cities

The San Francisco Bay Area remains at the forefront of global innovation by a significant margin, outperforming most on venture capital, R&D investment, productivity and talent breadth. Beijing, Boston, Tokyo, London, Seoul, Singapore, Shanghai, New York and Paris all rounded out the pool of global leading hubs when factoring in both innovation output and talent concentration, as was the case in previous years.

Notably, Singapore and Shanghai improved even more on their already strong showings within this elite grouping. At the same time, the continued migration of talent, manufacturing and economic and corporate activity has pushed Austin into the realm of “global builders”, joining Los Angeles, Munich, San Diego, Shenzhen, Tel Aviv and Toronto.

Despite the increasing competition for talent and challenges relating to costs of housing and doing business, “global leaders” remain distinguished by access to critical capital and funding as well as the breadth and depth of skilled workers. It will be critical for innovation-related firms to maintain – and in some cases expand – their footholds in these cities in order to realise the benefits of such structural advantages that are unlikely to be replicated elsewhere.

Cities that have developed specializations in emerging technologies will have a competitive advantage

Driving much of this market maturation and development of increasingly specialized clusters has been an injection of capital into newer technologies, eroding the previous dominance of traditional tech segments and companies. Leading this has been generative AI, which received US$22.3 billion in venture capital funding in 2023, along with growth in electric mobility, batteries, space tech, green buildings, hydrogen, challenger banks, drug development and synthetic biology to bring new innovation funding to US$54.7 billion throughout the year, more than doubling since 2020.

Notably, the San Francisco Bay Area is dominant for AI deployment, having received nearly US$49 billion in funding for AI and related technologies over the past three years, more than Beijing and New York combined. Just as important as emerging technologies are to site selection for corporate expansion and investment, so too is the digitization of traditional industries. Most prominently seen in the venture capital sphere by the rise of challenger banks, fintech and insurance tech are radically overhauling finance and insurance and opening up new growth streams.

Alternative sectors will also be critical in enabling many of the fastest-growing innovation geographies, particularly those in Asia and the United States, to cope with the disproportionate burden of the effects of climate change on real estate investment. For instance, estimates from S&P suggest that 63% of the increase in the operational costs for data centers will come from extreme heat and a further 17% from drought. In recognition of this, venture capital funding for green building technologies rose by 32% in 2023, faster than even the alternative innovation sector average of 29%.

Local research and development hubs will play an increasingly important role

The geography of innovation is further being shaped by external geopolitical forces. More aggressive trade and industrial policy in the United States, the European Union and China, among other players, is incentivizing onshoring and domestic production of critical components at levels not seen in decades. Although this has been most notable in terms of semiconductor manufacturing, evidenced by the CHIPS Act in the United States, it is also coming in the form of legislation such as the European Union’s Net-Zero Industry Act.

Over the long-term, this realignment will place additional emphasis on in-house research and development, as well as co-location with manufacturing firms’ access to transportation and logistics nodes. Phoenix, Columbus, Fukuoka and Berlin are just some of the cities with multi-billion-dollar semiconductor or high-tech materials fabrication plants being built in or near their metropolitan areas due to these policies.

Partnerships between the public and the private sector will be crucial to the success of city transformation projects

Cities across the globe are grappling with the challenges posed by an ever-greater share of the built environment risking obsolescence in terms of both meeting not only newer occupier and investor requirements, but also those posed by more stringent efficiency and sustainability standards. At the same time, the intensifying pace of urbanization is placing additional pressure on public authorities to increase the scale and longer-term planning to accommodate future growth in a more holistic and environmentally focused manner.

Innovation anchors are and will continue to be vital to the success of these initiatives. In recent years, they have been at the core of highly localized economies of scale with outsized prominence at the global and regional levels. Precincts such as Tech Central in Sydney, the Jurong Innovation District in Singapore, Schuylkill Yards in Philadelphia and ID in Manchester exemplify the ability of innovation to catalyze multi-faceted regeneration. Importantly, these comprize cross-sector investment in housing, office, lab space, research incubators, medical and diagnostic facilities and manufacturing and production hubs, all tied together with consideration towards improved amenitization, green space and infrastructure provisions.

• The sustained importance of innovation as an economic force and driver of real estate demand poses a number of strategic implications and considerations on both the private and public sectors if they are to harness the benefits of demographic shifts, property requirements and new technologies to drive change.
• Occupiers and investors alike will need to further diversify their footprints and portfolios to account for the unprecedented geographic distribution of skilled talent and hotspots for innovation-led growth.
• The importance of co-location between institutions, corporates, talent and requisite infrastructure will necessitate strategy that focuses increasingly on submarket and micromarket performance rather than solely at the city level.
• A rapidly evolving innovation ecosystem is also leading to more responsive and fluctuating real estate dynamics. Tenants and owners will have to become more attuned to pricing sensitivities to avoid missing out on higher returns on investment.
• Public authorities, corporate occupiers and real estate investors will need to step up proactive collaboration so that innovation-anchored regeneration is done through an integrated, sustainable and cohesive approach.