Ravi Chandran
Singapore stands only behind San Francisco and Tokyo in world innovation rankings, according to new research from global real estate consultant JLL.
Singapore’s high ranking is supported by significant levels of foreign domestic investments, and a rapidly-growing start-up scene. A regional hub for R&D and services, Singapore is the world’s top destination for FDI in high-tech industries. Over US$10 billion has been invested over the last three years in sectors ranging from software design to semiconductor manufacturing. Global tech companies such as Google and Facebook have established regional operations in the city, while it has also seen over US$10 billion of venture capital invested in local start-ups over the same period.
“Over the past few years ‘innovation’ has become a buzzword for city success, and the real estate industry is catching on. Major corporations have long targeted talent-rich innovation hubs, but the ‘war for talent’ is now intensifying their focus on talent hotspots. Meanwhile, several large investment managers have started to explicitly target cities which are perceived to have a strong innovation system.”
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The Innovation Geographies report, which looks at factors such as investment in high-tech industries, research and development expenditure and talent pool, further reveals that in today’s technology-driven world, innovation-oriented cities have a strong competitive advantage in attracting capital. Of the 109 cities analysed, the seven leading Asia Pacific cities – Tokyo, Singapore, Beijing, Seoul, Shanghai, Shenzhen and Sydney – accounted for more than 50 per cent of total annual real estate investment volumes over the past decade in the region.
Ms Tay Huey Ying, Head of Research and Consultancy, JLL Singapore explains, “Targeting innovative cities has now become an explicit part of investment strategies. This is partly because innovation centric cities appears to be more resilient to economic shocks. For example, tech-savvy cities such as Seoul, Berlin and Chicago, saw average real estate capital values fall less and bounce back more quickly.”
Dr Megan Walters, Head of Asia Pacific Research, JLL adds, “Innovation plays a key role in driving cities’ economic growth by attracting investors and companies. Investors tend to focus on locations that are capable of sustaining long-term occupier demand, while corporates are drawn to those that have sophisticated innovation ecosystems and deep talent pools to ensure they are well-placed to succeed in the global marketplace.”
“The top three city clusters – Global Leaders, Innovation Centric and Talent Rich – account for the vast majority of commercial real estate investment globally – approximately three quarters. This focus of capital on innovation-based cities was previously implicit in investment strategies, but it is now becoming an explicit part of strategy, and several major investors have announced that they are actively targeting innovation-oriented cities.”
“Backing up this interest from investors, there appears to be a strong link between a city’s Innovation and Talent attributes and its rental growth potential. Looking historically, the same three top groups have significantly outperformed in terms of office rental growth. Total returns also tend to be higher in these cities.”
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Although Singapore has fallen out of JLL’s top 20 talent hotspots, mainly due to the drag of a slow growing ‘engine room’ population – i.e. those in the 20-40 years cohort, Singapore scored well on other talent attributes such as its well-educated workforce, the presence of three world class universities and an above-average proportion of the workforce employed in high-tech industries.
“Talent Concentration is not as evenly balanced geographically across the three global regions as Innovation, with the more mature cities and educational systems of the U.S., Europe and Australia pushing their cities higher in the Talent ranking. London is propelled to the top by its world-class universities and a highly educated workforce.
After London in prime position, the U.S. cities dominate the uppermost rankings: Washington DC, at third, stands out with one of the largest proportions of people working within the innovation economy – in part supported by demand for high-tech products and services by the federal government. The highest-ranking universities globally are based around the Boston and San Francisco Bay metro areas, helping to push these cities into the top echelons.”
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Ms Tay concludes, “This study reinforces our optimism for Singapore real estate investment and office markets to stay vibrant in the short to medium-term, barring adverse external shocks. That said, competition is heating up and many cities are making rapid progress towards developing sophisticated future-looking business ecosystems. Singapore must not rest on its laurels, but instead strive to stay ahead of the competition by continuing to nurture an innovative culture, for example through allocating a higher budget for Research and Development.”
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