April 25, 2019
Today’s cities are as inefficient as farming was in 1950…
In our book ‘Flex or Fail’, we described how technology transformed agriculture in the last century. Fifty percent of the people working in the US were active on the land in 1900. Today, less than 1 percent of the workforce does the same work and delivers higher output. Farming has become a high tech business with drones, sensors, apps, direct trading platforms on smartphones and self-driving tractors abound.
The same thing is happening with manufacturing. In the middle of the last century, half of the workforce of the US were employed in factories. This is now down to 5 or 6 percent. Factories have become lean, robotised environments that run day and night managed by ‘machine supervisors’ and utilise innovative technologies that have reduced waste and emissions.
Cities as we know them are still as inefficient as the farming of the 1950’s. Offices sit empty half of the time, cars and bicycles idle on the streets until rush hour. Many homes are often empty or rooms unoccupied. Most young people can not afford to enter the property market for apartments, which are expensive and hard to finance. Elderly people see their children move to the cities; often they cannot follow as they live remotely and could not afford high city real estate prices.
The rise of the independent worker and the creation of smart cities goes hand in hand. Much of what people need in order to handle their additional responsibility for income and personal development (which we described earlier in the book) is present in the cities. By that we mean: paying customers, supportive communities for single-person households, connectivity, mobility, opportunities to learn, inspiration from culture and arts to recharge people’s energy, housing and (inter)national transportation connections.
Part of the reason why cities are not yet as efficient and attractive as they could be is fragmented ownership. Shopping centers, offices, houses, sport facilities and public transportation infrastructure are the property of different owners, which makes coordinated upgrading difficult. Investors pour money into the cities but do so in a mono-disciplinary manner, in other words: they give money to specialists who handle just one type of assets, e.g. offices or houses.
However, when citizens describe their ideal neighbourhoods they often do so in holistic terms: ‘easy to get to’, ‘lots of green spaces’, ‘safe and well lit’, ‘close to school’, ‘there are shops nearby’, ‘space to park’, ‘close to work and the city center’. To effectively manage the upgrading or development of neighbourhoods, a more multi-disciplinary approach to ownership and investing is needed.
Some companies, like CBRE Global Investors, are starting to formulate ‘urban strategies’ which have multifunctionality at the core. Compare it to ‘assorted liquorice’, whereby the layers and shapes represent different functions of building within an area, with the aim to provide an answer to the new needs of citizens. A second element within this strategy is sustainability. Leading companies in this field build towards BREEAM Excellent standards, which has become the standard of the industry to make buildings green.
Technology will play an important role in the further development of cities. A new field, called Urban Tech, encompasses the following fields:
- co-living and co-working
- smart cities
- construction tech
- real estate tech
- We’d like to offer a 7th, namely travel, where technology should support the solution to ‘tourism overload’ as witnessed in Venice or Barcelona.
The new round of urban economic growth has to handle three challenges at the same time:
- Build and develop in a sustainable manner so that cities become evermore pleasant places to live;
- Make the city a green, with clean air and visually pleasing green environments, open to new workers and visitors;
- Enable a fair distribution of work and pay to all stakeholders.
Research by Richard Florida’s team at CityLab reveals that investment in Urban Tech totaled more than $75 billion during 2016-2018, representing roughly 17 percent of all global venture-capital investment. Between 2016 and 2017, urban-tech investment more than doubled. Urban tech may well be the largest sector for venture capital investment, attracting more funding than pharma and biotech ($16 billion in 2017) or artificial intelligence ($12 billion in 2017).
Venture capital and start-ups in the urban tech field start to appear in a small number of global cities. The San Francisco Bay takes roughly 30 percent of all global venture-capital investment in urban tech. Beijing follows second with 26 percent of funding. New York City is third, with 10 percent, followed by Shanghai, with nearly 7 percent. The US cities produce many more urban-tech startups than Shanghai and Beijing.
Singapore accounts 6 percent of all investment, trailed by Bangalore, Los Angeles, Berlin, and London, the only other global cities to attract more than 2 percent of global urban-tech investment. Other cities that are generating reasonable numbers of urban-tech startups include Seoul, Chicago, Dubai, Amsterdam, Madrid, Paris, Boston, and Toronto, although none of them accounts for more than 1 percent of total investment. This global group of cities that are key players in urban tech suggests that the “rise of the rest” is not occurring inside the United States but outside it, especially in China’s two largest cities.
Cities have become the new platform for innovation and economic growth. The investment made in campuses and offices by Google and Amazon recently are further evidence that talent and work are increasingly found in cities. As such, they have become more important than countries or for that matter, companies. Some cities go the great length to create space for new urban developments. Copenhagen has announced plans to start building 7 new islands starting 2022, aimed at attracting new tech start-ups and green energy initiatives. The islands, called ‘holmene’, will require and investment of Euro 425 million and will host waste-recycling facilities from which 25% of the cities energy consumption can be generated. The next couple of decades we will hear people talk about the ‘success of Shanghai’ versus the ‘competitive position of Berlin’.
If we were to make a prediction about the faith of companies in urban areas, we would say that, for example, ‘Google in Paris’ needs to be a really good neighbour to the people in Paris in order to maintain its license to operate. If not, companies risk expulsion from these economically important zones.
On the one hand, Microsoft seems the be aware of this risk and has invested $500 million in building affordable housing for medium- and low income families in its home city Seattle. The program includes $25 million for homeless people in the region. On the other hand, the number of homeless people in street in the vicinity of Facebook’s HeadQuarters is unpalatable and will backfire on the companies in the area if they do not become a part of the solution. In this context the comments made by high ranking government officials at the 2019 WEF in Davos are worth noting: ‘business can expect a lot more demands from civil society. It’s no longer good enough to conduct passive corporate social responsibility, because the values in society have shifted and a more active and inclusive approach from business is called for’.
Multi-stakeholder approaches and new forms of collaboration are called for from both owners & investors (the private sector), politicians, city councils and education officials (the public sector) and workers (be it independent or dependent). Companies will need to reach out beyond their own staff in providing active support, investment and benefits to local communities if they wish to be treated as a ‘good neighbor’.
by Tony Felton, Robby Mol, Arturo Bris who welcome your comments!