How Europe’s cities are using innovation to their advantage

As global cities battle it out to catch the eye of investors and position themselves as worthy destinations for billions of dollars, their capacity for innovation is becoming a key tool in their armory to give them a critical edge.

February 06, 2018

Yet the concept of innovation itself doesn’t come neatly packaged for the mid-sized European cities and each city is following its own pathway to success in the knowledge and high-tech sectors.

Berlin, for example, is known for its creative industries and thriving start-up culture. Stockholm’s strong infrastructure and ground-breaking public sector R&D are seen as crucial factors in its success producing a string of tech-focused start-ups including Spotify, Skype and game developer Mojang. The Swedish capital is known as Europe’s ‘unicorn factory’, thanks to its track record of spawning $1 billion plus companies; indeed, only Silicon Valley can outperform the Swedish capital in terms of unicorns per capita

Munich, home to BMW and Siemens, has nurtured the advanced manufacturing and high-value engineering industries which are synonymous with German success. And Dublin, with its young, well-educated population, has drawn in U.S. and other multinationals, partly through its low corporation tax rate of 12.5 percent.

“These cities are what we call the Innovators,” says Will McBryde, Global Research Analyst at JLL. “They all possess a critical mass of knowledge and expertise and they’re very much geared up for the future. As a result, they’re at the forefront of the modern economy with important positions in global chains of high-value products and services.”

The pull of the Innovators — from clubs to colleges

Berlin, with its 3.7 million population, is less than half the size of Paris of New York yet the German city attracts about the same level of investment in proportion to its economic size as these leading cities— equal to around 10 per cent of its GDP, according to JLL research. Its cultural offer and enviable lifestyle are among the factors that draw people to live in the city, pushing up the population by as much as 50,000 a year.

Indeed, attracting international talent and business is one of the big factors in the success of Innovator cities, says McBryde. As such, they’re highly focused on delivering in the areas that improve daily life for inhabitants — particularly the environment, infrastructure and education.

Munich, for instance, is consistently in the top five of the Mercer ‘Quality of Living Rankings’ that covers over 230 cities around the world. Stockholm, second in the 2017 rankings of ‘Best-Performing Cities in Europe’, invests so heavily in its education (with graduates making up over half the workforce), digital network and start-up support that it could challenge top-placed London in future, according to the report’s authors at the Milken Institute.

Throw in other pull factors such as a more affordable cost of living than global leaders such as Paris and London, a solid infrastructure base and business-friendly policies to attract domestic and international investment, and their appeal only increases.

However, growing demand places pressure on commercial space, housing and infrastructure. “If there isn’t the real estate supply to meet demand in the market, it can have a snowballing effect,” says McBryde. “Corporates invest, space is restricted and rents go up.” Berlin and Stockholm have both seen office rents rise by almost 10 per cent in the last year, according to JLL research. And while Berlin’s mayor welcomed the arrival of Google in its fashionable Kreuzberg district last year, the new Google Campus spawned a local backlash, amid concerns of rising pricing and dilution of the distinctive Berlin culture.

Cities begin to outshine countries

Today’s start-ups and multinationals are focusing on understanding the cities they work and invest in like never before. “Competition is becoming ever more global — and increasingly at city, rather than national, level,” says McBryde. “It’s about London or Paris or Berlin, rather than UK or France or Germany.”

And while cities have some control over driving their own development and positioning themselves as innovators, there are plenty of external factors at work as the global economy changes and technological advancements drive progress.

As such, tomorrow’s leaders in innovation might look rather different to today’s – even featuring some cities that have managed to recover lost ground. Take Pittsburgh, a ‘Rust Belt’ city in the U.S., which is now beginning to re-emerge as tech giants leverage the city’s strengths in the robotics sector. Meanwhile, cities in emerging economies – notably China – are starting on their own distinct pathways to becoming truly innovative cities.

Yet creating a reputation as an Innovator is easier in many ways than sustaining it- and therein lies the challenge for ambitious cities. Getting it right will bring substantial benefits. “As the economy shifts increasingly towards technology and research-oriented industries, innovation will continue to be a key driver of growth for Europe’s mid-sized cities in a highly competitive globalized world,” McBryde concludes.