Where are the top European markets that real estate investors should target for the most resilient and best-performing assets? Follow the entrepreneurs.
As part of the research for Techopolis: liveability, technology and the future of cities, Pi Labs recently surveyed 63 start-up entrepreneurs with a current or intended presence in Europe and offering products relevant to the “future of cities.” The purpose of the survey was to understand which cities they view as most attractive to launch their products in and why; how these rankings compare to others; and what this says about cities of the future. Respondents were leaders of start-ups predominantly launched in Europe, but also the US, United Arab Emirates, Nigeria, Israel and Australia.
When asked to rank European cities by attractiveness for launching new products, London emerged as a clear winner – claiming top place in 61.9 percent of all responses. The next three cities – Berlin, Amsterdam and Paris – were a tight race (See top chart). When respondents were asked why they gave a city a particular ranking, “Size of market” emerged as the most popular response, followed by “Connections/relationships” and “My product solves a unique problem for this market” (See bottom chart). Other reasons respondents gave included language, reputation, data quality, culture and attitudes, regulatory and legal reasons, labor costs and talent, stability and weather.
A question then emerges as to whether a relationship exists between the results of our surveys and other rating/ranking systems for cities. This would allow us to extrapolate the European survey results to other markets.
As a measure of globalization and level of interconnectedness with other cities, the Globalization and World Cities (GaWC) framework rates London and other European cities highly. Within the 2022 GaWC ranking, 18 of the 52 world cities classified as “highly integrated” or “very important world cities” were located within Europe. The correlation between GaWC ratings and the scores produced by our survey is positive (r = 0.47), indicating a link between the interconnectedness of a city and the priority entrepreneurs attribute to it for the launch of their product.
Clustering of Europe’s built-world innovators
Pi Labs’ analysis indicates that nine of the top 10 cities from our survey also happen to be the nine European cities hosting the headquarters of the largest number of venture-funded start-ups offering products relevant to the future of cities, such as healthtech, proptech and climatetech, among others. This indicates that “Size of market” is not an indicator of just population size, but also of the vibrancy of the existing built-world innovation ecosystem within that city. This implies a virtuous cycle. Entrepreneurs are attracted to launching their products in cities where there is already an established community of innovators like them, despite the fact some are probable competitors.
Knowing where relevant entrepreneurs are converging is a handy tool for real estate developers and investors that value the medium-to-long-term outlook of the cities within which they operate. Existing quality-of-life frameworks can give an indication of the current and historical state of a city, but most offer little, if any, observations of a city’s medium-term outlook based on innovations to come.
If we assume that entrepreneurs’ intentions are aligned with their current and future actions, we are offered a glimpse into which cities are most likely to benefit from technology-driven improvements in quality-of-life outcomes. These improvements include indoor air monitoring and purification, localized wastewater analytics, outdoor acoustic cough analytics and diagnosis, lower-friction brick-and-mortar retail experience, digitally enabled sustainable urban design interventions and hundreds of other use cases.
The technologies these entrepreneurs are developing, meanwhile, will impact asset performance, as the rise of green premiums and brown discounts will attest. Consider healthy building technologies, taking a London office building with a net leasable area of one million square feet as an example. If a technology provider can reliably reduce the average annual sick days of the occupiers by one day per year, our research indicates it would save occupiers an estimated £6.4 million ($8.2 million; €7.6 million) in lost productivity annually.
As these outcomes become increasingly easier to track through the digitalization of buildings, we should expect more of them to affect asset performance. It is an affirmation of “what gets measured, gets managed.”
