Innovation is the lifeblood of progress. It rewrites the rules, redefines industries, and reshapes the very landscapes we inhabit. Asia Pacific stands at the forefront of this transformation, having half of the top 10 performing cities in the world for innovation and talent – Beijing (2nd), Tokyo (4th), Seoul (6th), Singapore (7th) and Shanghai (9th) – according to JLL’s Innovation Geographies report.
The real estate industry is undergoing major changes as technological advancements and evolving work patterns rewrite the script, particularly when it comes to attracting and retaining talent in a competitive landscape. Companies in Asia Pacific must carefully navigate a balance between talent, operating environment, risk, and cost considerations when making location decisions. For owners seeking to attract high-growth occupiers, location strategy is crucial.
Talent and opportunity beyond traditional hubs
Gone are the days when leading global markets held an effective monopoly on talent and economic growth. Today, cities with a strong focus on affordability and a vibrant lifestyle are witnessing a surge in migration, particularly from individuals within the innovation ecosystem. Talent shortages, rising home prices and regulatory pressures have contributed to the migration into lower-cost markets. Coupled with flexible working patterns and technology, these cities have gradually expanded to become global innovation hubs.
Despite the increasing competition for talent and challenges relating to costs of housing and doing business, Tokyo, Seoul, Shanghai, Beijing, Singapore, and Shenzhen all outperform in innovation output, while Beijing, Tokyo, and Singapore are high in talent concentration. These innovation hubs 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, to realize the benefits of such structural advantages that are unlikely to be replicated elsewhere. Additionally, the convergence of technology, knowledge-based industries, and research institutions is further driving the demand for specialized commercial real estate, creating new opportunities within sectors like fintech and insurance tech. Strategic location decisions and real estate investments are becoming increasingly critical in this dynamic and innovation-driven landscape. Cities are actively adapting to accommodate this shift, recognizing the need for infrastructure and spaces that cater to the specific needs of these dynamic industries.
Tech-driven market maturation
We are witnessing a surge in capital flowing towards emerging technologies, particularly in the realm of artificial intelligence (AI), electric mobility, and environmental engineering. This influx of investment is eroding the previous dominance of traditional tech segments and companies, driving market maturation and catalyzing the development of specialized clusters, often focused on addressing pressing challenges like climate change.
The need to cope with the disproportionate burden of the effects of climate change on real estate investment is driving investment into alternative sectors including generative AI, electric mobility, EV batteries, space tech, green buildings, hydrogen, challenger banks, drug development, and synthetic biology. As S&P’s estimate suggest, 63 percent of the increase in operational costs for data centers will come from extreme heat and a further 17 percent 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%.
In established markets like Singapore, sustained investment in infrastructure, education, and health care is driving its already strong innovation presence. Meanwhile, Beijing has received the greatest AI-specific VC funding in the region over the past three years at US$ 23 billion, followed by Shanghai (US$12.4 billion), Shenzhen (US$ 7.7 billion) and Singapore (US$ 6.0 billion).
Apart from generative AI, investors seeking to harness the growth potential of alternative innovation clusters in Asia Pacific are looking towards Tokyo, Hangzhou, and Shanghai for electric mobility, Tokyo for EV batteries, Beijing for space tech and hydrogen, and Seoul and Singapore for challenger banks. Collectively, alternative sectors have brought new innovation funding across the world to US$ 54.7 billion throughout 2023, more than doubling since 2020.
Finding the right balance of assets across established markets and emerging secondary and tertiary markets globally will be crucial for sustained growth and resilience, especially as competition in emerging markets intensifies. This necessitates a strategic approach that considers the unique opportunities and challenges presented by both established and developing innovation hubs.
Innovation anchors as catalysts for growth
Innovation anchors are more than just physical locations; they are vibrant ecosystems that act as catalysts for economic growth and real estate development. Their significance extends beyond attracting talent and fostering collaboration; they are 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 play a crucial role in this dynamic. They act as catalysts for local economies, attracting talent, fostering cross-sector collaboration, and driving real estate development. Their significance lies in their ability to create a critical mass of innovation, fostering a thriving ecosystem that benefits both the local economy and the broader real estate landscape.
Furthermore, these innovation anchors often spearhead sustainable regeneration projects, demonstrating the vital role public-private partnerships play in shaping the future of urban development. Innovation anchors are and will continue to be vital to the success of initiatives to accommodate future growth.
Innovation is undeniably the driving force reshaping the real estate landscape in Asia Pacific. As the real estate industry adapts to this shift, strategic decision-making becomes paramount, requiring a delicate balance of talent, cost, and risk considerations across both established and emerging markets.
The rise of alternative sectors like AI and green technologies demands specialized real estate solutions, with cities adapting to cater to these needs. Meanwhile, innovation anchors will continue to play a crucial role in fostering collaboration and driving real estate development, shaping the future of urban landscapes in this dynamic and innovation-driven era.
Phil Ryan is Research Director at JLL.
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