Innovation drives place, and place drives innovation

• Innovation continues to disperse geographically, leading to a more diffuse landscape of mature, growing and nascent hubs for growth.
• Competitive clusters are defined by placemaking and differentiation, with less emphasis on net expansion and more focus on quality than ever before.
• Property markets remain severely undersupplied relative to demand for premium, investment-grade product as well as ancillary housing and institutional space.
• Co-location of and improved connectivity between AI and other emerging technologies and relevant institutions with deep capital pools will be essential.

Innovation continues to play a central role in driving economic growth, influencing demographic trends and shaping the built environment and commercial real estate market. Having evolved from being almost synonymous with the tech industry in the 2000s and into the 2010s, innovation encompasses the talent, companies and institutions driving the constant re-invention of every facet of the economy, from the digitization of traditional industries such as finance and insurance to healthcare, media, entertainment, manufacturing and education.

The ubiquity of innovation has fundamentally altered not just where growth clusters are occurring, but also how it interfaces with the property market and cities more broadly. Rather than driving widespread expansions of corporate footprints in “hot” markets and submarkets as in the past, innovation is now deeply intertwined with the process of urban refinement and evolving ways of living and working.

This is not a uniform phenomenon: the scale of urbanization, presence of institutional anchors, provision of infrastructure and ability to attract and retain mobile talent will continue to dictate the amount and form of change between and within cities around the world. In a real estate environment defined by scarcity, volatility and competition, the implications for occupiers, owners, developers and public sector bodies are numerous and varied, from having to accelerate lease decisions to further geographic diversification of investment to adjusting strategic land use plans in order to accommodate greater and more flexible regeneration.

Diffusion is still the main story
 

Although having cooled slightly in recent years, the pandemic-induced wave of migration to affordable, lifestyle-centric cities is still ongoing. In turn, the distinction between globally established and emerging innovation markets has blurred. In its place is a multi-tier structure of globally significant cities complemented by a widening set of ancillary clusters. At the top of this remains the San Francisco Bay Area, whose dominance in terms of capital and talent depth remains unmatched.

The Bay Area is complemented by eight anchor markets of similar importance to the global economy, each with its own set of internationally leading specialisms, namely Beijing, Boston, London, New York, Paris, Seoul, Singapore and Tokyo. Combined, the Bay Area and these anchor cities are responsible for $12.8 trillion in output (as of 2025) and have registered nearly $770 billion in venture capital funding and $78 billion in foreign direct investment (FDI) over the past three years.

Joining these cities are reinforcer markets. Comprised of 18 cities with nearly 91 million residents, reinforcers have shifted from a secondary to critical placement in the global innovation ecosystem. These range from megacities (Los Angeles, Shanghai) to tech powerhouses (Austin, Berlin, Seattle, Tel Aviv), advanced manufacturing hubs (Munich, San Diego), human-centric lifestyle destinations (Amsterdam, Copenhagen, Helsinki, Stockholm, Zurich), university cities (Cambridge, Raleigh) and prominent business destinations (Sydney, Toronto, Washington, DC). Despite these varied profiles, reinforcers share the common characteristics of much higher rates of net migration, having seen population inflows that are 3.8 times higher than the Bay Area and anchor cities, and status as urban areas blurring the line between primary and secondary in terms of population and size.

Joining these cities are reinforcer markets. Comprised of 18 cities with nearly 91 million residents, reinforcers have shifted from a secondary to critical placement in the global innovation ecosystem. These range from megacities (Los Angeles, Shanghai) to tech powerhouses (Austin, Berlin, Seattle, Tel Aviv), advanced manufacturing hubs (Munich, San Diego), human-centric lifestyle destinations (Amsterdam, Copenhagen, Helsinki, Stockholm, Zurich), university cities (Cambridge, Raleigh) and prominent business destinations (Sydney, Toronto, Washington, DC). Despite these varied profiles, reinforcers share the common characteristics of much higher rates of net migration, having seen population inflows that are 3.8 times higher than the Bay Area and anchor cities, and status as urban areas blurring the line between primary and secondary in terms of population and size.

The biggest emerging set of talent concentration-heavy cities are welcomers. With a net migration rate of 5.2% over the past three years, these are the archetypal destinations for movement to lower housing costs compared to primary cities (Adelaide, Brisbane, Bordeaux, Calgary), outsized cultural presence (Bristol, Nashville, Valencia) and favorable tax policy (Orlando, Tampa). Although their innovation credentials are less established than their more mature peers, clusters like Bristol for data analytics are gaining greater prominence.

On the other hand, there are two production-heavy groups that differ in their level of maturity and scale. The first of these are engineers, defined by sustained investment into advanced hardware (Taipei, Phoenix, Shenzhen), software (Bengaluru), industrial engineering (Stuttgart, Detroit, Hangzhou) and energy (Houston). Similarly, motors are seeing similar forms of growth at a somewhat smaller scale, such as with autonomous vehicles in Birmingham (UK) and global capability centres in Hyderabad, Delhi and Chennai.

Bringing all of these together are connector markets that straddle the line between output and talent drivers. Bridging the divide between business and innovation, cities such as Chicago, Dallas, Frankfurt, Hong Kong and Madrid benefit from a large amount of skilled talent, the presence of multinational headquarters and extensive international connectivity. These connectors are likely to be followed by the vanguards, a disparate set of nascent innovation geographies likely to gain the most from spillover and drives to affordability. Under this umbrella are cities as varied as Ahmedabad, Indianapolis, Las Vegas, Mexico City, Porto and Sao Paulo, among others.

Place is shaping where and how new innovation clusters will grow
 

With innovation spread across more cities at scale than ever before, place-based offerings are becoming paramount as a means of talent and corporate occupier attraction. Companies across sizes, industries and geographies have become extremely granular in site selection and approaching real estate decisions from the perspective of not just the city or workplace but the built environment. Micro-locations that maximize sense of place, amenitization and accessibility stand out in almost all cases, but especially in slower-growth established markets with greater structural vacancy and less net corporate expansion.

Innovation and place are intertwined to such a degree that the benchmarks for successful urban regeneration and development can be found when overlaying overall innovation scores onto built environment metrics that include land use efficiency, population density, transport infrastructure and distribution of non-residential land use. Understanding the balance between the ability to densify and a city’s propensity towards being driven by innovative talent or output is critical for creating a new generation of successful innovation and economic growth clusters.

These new precincts and clusters are already taking form. In Midtown Atlanta, Tech Square is acting as an educational and research anchor based on computing technology for a rapidly densifying urban core, just as many other American, Australian and Canadian cities have lower urban densities and housing shortages ripe for transformation into successful communities. Other talent-heavy cities, particularly in Asia, are already quite dense and apt to build new urban extensions focusing on advanced manufacturing and R&D, such as Jurong Lake District and San Tin in Singapore and Hong Kong, respectively. Importantly, these districts incorporate a greater emphasis on sustainability, mixed-use, open space and design than their predecessors.

A similar pattern occurs in output-focused geographies. Berlin’s Siemensstadt Square is transforming a 76-hectare former factory into a mixed-use neighborhood in the west of the urban core centered around AI, digital mobility and thousands of new homes. Seoul, on the other hand, is moving forward with turning the suburb of Yongin into a community focused on what will ultimately become a globally leading semiconductor development factory over 4.2 square kilometers and totaling more than $8.4 billion in investment. Many Indian, Chinese and Japanese cities follow a similar pattern of urban and economic development.

Market performance will depend on how well cities are able to respond to occupier needs
 

Having spent years adjusting to changes brought on by the pandemic, one of the greatest structural changes to working in the past century, cities are now facing an ever more pressing challenge: not having enough institutional quality and attractive workspace. Only 11% of global office space was built since 2020. Looking solely at the Bay Area and anchor cities, this figure falls to around 9%. For tenants, the near-term outlook is even more severe, as new-build CBD vacancy rates in cities such as Paris and London sit at 0.9% and 1.2%, respectively. This shortage is not confined to global innovation hubs: academic, connector and welcomer markets all have single-digit shares of space built over the same period.

The primary exception to this trend remains FDI-driven hubs, namely those in India and China, and to a lesser extent certain, Eastern European and Australian cities that have grown sharply in recent years. In Hyderabad, Bengaluru, Guangzhou, Pune and Shanghai, more than 30% of core supply was built since 2020. Demand-driven construction has helped Indian markets in particular maintain lower vacancy than would otherwise be expected: Bengaluru office vacancy has fallen back to 10.5% after peaking at 13.9% in 2024.

Misalignment between supply and demand is also having outsized effects on the property recovery as well as leading to substantial rent growth at the top of the market as competition increases for fewer blocks of desirable space. While motors and engineers have noted 13.2% and 4.0% net increases in occupancy relative to pre-pandemic levels, anchors, architects and reinforcers are still 1.0-2.0% below their previous highs on aggregate. This consolidation has led anchor cities to record surging prime rents of more than $1,280 per square meter on average, while reinforcers are up to $837 per square meter. In contrast, tenants in vanguard cities will see an average top-end rent of just $324 per square meter.

As the construction pipeline globally cools on the back of elevated interest rates and viability challenges, vacancy outside of select pockets is unlikely to meaningfully relax. Select developers willing to take opportunistic risks in cities where the planning process is ‘retrofit-first’ and requires such scenarios to be studied are likely to benefit from occupier pressure, however. This will be most notable in European cities, where new supply is slower to respond to stronger demand and where structural vacancy is substantially lower and more stable.

Innovation boosts liquidity, and capital is likely to gravitate to a new set of outperformers
 

Few indicators are as distinctly aligned with innovation as liquidity and the presence of investment-grade commercial real estate. Markets in the top half of total innovation scores have 3.3 times more sales activity than those in the bottom half, while the top 10 cities by innovation score have seen more capital markets volume than the next 28 combined. This push-and-pull between the growth of secondary cities and the concentration of capital in traditional hubs is a defining feature of the global innovation ecosystem.

Many cities – especially those outside of the United States – overperform in terms of innovation relative to commercial real estate investment due to differences in the depth of domestic capital pools. These markets are likely to be some of the next beneficiaries of deployment as institutional investors, pension funds and developers look to diversify their allocations geographically.

Among markets with between $1.5 and $6 billion in sales over the past three years, cities in Northern Europe stand out for their ratio of innovation to deal velocity, most notably Copenhagen, Amsterdam, Brussels, Dublin, Frankfurt and Munich. Further refinement of the offering for livability, urban redevelopment and accessibility will accelerate capital flows into these cities, as will continued population growth in urban areas even while national population growth and migration slow in the coming years.

Co-location is also extremely important by lessening the physical distance between research – particularly but not exclusively in AI – and capital. The Bay Area and anchor cities are responsible for roughly 34% of global AI research by publication volume, but in terms of intensity it is smaller, university- and institution-anchored cities that lead. Adjusted per million residents, Oxford, Geneva, Pittsburgh and Cambridge all have more than 360 publications per million compared to 181 for both the Bay Area and Boston. Better linking these hives of research with deeper capital pools domestically as well as gaining additional capital for needed office, lab, educational and residential development will be essential to maintain competitiveness.

Future leaders will be those who think proactively and strategically
 

The pace of change for the innovation economy and its effects on the commercial real estate market continues at pace, often with extensive volatility and uncertainty. Whether they be occupiers, investors, developers or public authorities, those who navigate the new terrain most effectively will be those who understand how, why and where new opportunities will arise.

From an occupier perspective, the supply squeeze and its consequent price pressure will dominate location and site selection strategy. All companies will need to evaluate how well their current portfolio aligns with employees’ desires to work in distinctive, highly amenitized and complete neighborhoods. Smaller firms expecting to grow over the short term will need to act decisively to secure attractive space, while larger companies optimizing their footprint will have to invest substantially in workplace design in the absence of large blocks of new space.

Developers will have to create exciting environments either through holistic regeneration or repositioning of aging assets and precincts. Ensuring that micro-markets become destinations will yield greater occupancy and rent growth. In turn, this will boost interest from institutional investors looking to reshape their portfolios and adjust their exposure to a newer array of assets. Developers and their capital partners will have to time the market correctly and move swiftly in the face of elevated construction costs, which will determine viability even as demand builds, converging with an increasing risk of stranding if substantial capital expenditures are not made.

Public authorities should ensure that long-term planning enables the creation of precincts that allow key industries to scale and cluster in proximity to their talent pools and critical research, educational and regulatory institutions. Planning frameworks should emphasize increased residential density around these anchors along with stronger transport connectivity, public realm enhancement and mix of uses that will contribute to greater city competitiveness against national and global peers. National and local authorities should also explore the creation of or expansion of existing financing mechanisms such as value capture to deliver these components together. Ultimately, such planning will enable cities to harness the benefits of expanding and maturing innovation clusters, while also ensuring that they remain competitive in an era defined by greater dispersion and diversification than ever before.

JLL’s fourth edition of Innovation Geographies covers the dynamics of 135 cities globally, spanning more than 866 million residents, US$54 trillion in annual output, 937 million square metres of office product and 38 million high-tech employees. These markets fall into eight categories based on two indices: innovation output (patent generation, foreign direct investment, venture capital funding, start-ups and R&D spending) and talent concentration (educational attainment, high-tech employment, university publications, university presence, working-age population growth, net migration and GDP per capita).
 

• Core: The San Francisco Bay Area represents the core of global innovation. Even as geographic and sectoral diversification continues apace, the Bay Area remains unique in its breadth and depth of expertise across the innovation spectrum, the maturity of its venture capital sources and extensive interplay between the private sector and educational and research institutions.
• Anchors: There are eight anchor markets – Beijing, Boston, London, New York, Paris, Seoul, Singapore and Tokyo – that complement the Bay Area given their importance to and integration with the global economy as well as their local specialisms. From a commercial real estate perspective, they are uniquely strong with respect to the scale of occupier demand and liquidity despite growing competition from more affordable and lifestyle-oriented geographies.
• Reinforcers: Reinforcers comprise 18 cities of nearly 91 million residents whose profile has shifted from secondary to critical within the global innovation ecosystem and encompass an array of internationally recognised megacities (Los Angeles, Shanghai), tech powerhouses (Austin, Berlin, Seattle, Tel Aviv), advanced manufacturing hubs (Munich, San Diego), human-centric lifestyle destinations (Amsterdam, Copenhagen, Stockholm, Zurich), university cities (Cambridge) and prominent business, financial and professional services clusters (Sydney, Toronto, Washington, DC).
• Architects: Architects are talent-heavy cities that lead in fields including media and entertainment (Melbourne) aerospace (Toulouse), public policy (Geneva and Brussels) and machine learning (Oxford). Architects differ from reinforcers with respect to the degree of interconnectedness to the global economy and greater focus on specific industry expertise.
• Engineers: Engineers represent the most mature production-focused geographies outside of reinforcers. Deeply driven by foreign direct investment across industries, some dominate aspects of advanced hardware manufacturing (Taipei, Phoenix, Shenzhen), software development (Bengaluru), industrial engineering (Detroit, Hangzhou) and natural resources (Houston).
• Connectors: Connectors bring together global hubs, human capitals and production powerhouses by bridging the gaps between the innovation ecosystem and the broader economy. This is evidenced by leading connectors including Chicago, Dallas, Frankfurt, Hong Kong and Madrid all hosting an array of multinational headquarters and some of the most well connected airports in the world.
• Academics: The academic cities of Edinburgh, Madison, Utrecht and Waterloo are small but mighty. Driving their prominence are world-class universities and associated research institutions and cultural presence. Adjusted for population, they are some of the most productive cities in the world economically and for AI and emerging technologies research, but have to compete with much larger and better capitalised neighbors for companies and talent.
• Motors: Motors complement engineers but are less mature, albeit growing at a rapid rate. Many have a strong profile in areas such as autonomous vehicles (Birmingham) as well as global capability centers (Hyderabad, Dehi and Chennai). In the coming years, the distinction between motors and engineers is likely to blur due to sustained inbound capital and population flows on the back of greater affordability.
• Welcomers: Welcomers are the archetypal destinations for individual and increasingly corporate migration to affordability and lifestyle. They are not necessarily traditional innovation geographies, but instead offer substantially more affordable housing than their larger peers (Adelaide, Brisbane, Bordeaux, Calgary), an outsized arts and entertainment offering (Bristol, Nashville, Valencia) and favourable tax policies (Orlando, Tampa). In some cases, they have long-standing niche innovation sectors.
• Vanguards: Smaller and less specialised, the vanguard markets are the least mature innovation geographies, although they have the biggest room for growth. Vanguards are an umbrella of cities as wide-ranging as Ahmedabad, Indianapolis, Las Vegas, Mexico City, Porto and Sao Paulo. Heading closer to the 2030s, the migration and diffusion patterns already well underway will influence the growth trajectories of these rapidly changing urban areas.