World winning cities--the next generation.

INTRODUCTION--CITY COMPETITIVENESS AND REAL ESTATE

Cities are the framework of society, and their continuing existence has become an unquestionable part of world order. They provide the canvas for most real estate market activities, and understanding the factors that have led to the success or failure of cities is a vital part of the property process.

But, the nature of city competitiveness is changing rapidly. "Model" growth cycles in "model" world cities based on size, hierarchies, and economic wealth are being increasingly challenged by technology and by new thinking on what will constitute the winning urban dynamic in the 21st century. Emerging definitions of success are being based not on size but on connectivity, not on hierarchies but on networks, and less on wealth and more on environment, quality of life, culture, city governance, and marketing.

And, competition between cities has never been more intense. City marketing is becoming a precise science and branding campaigns, trade missions, major infrastructure projects and the securing of prestige sporting and cultural events are key ingredients of city strategies. The role of property as a contributor to, rather than as a consequence of competitive advantage is a vastly under researched area and one which we believe will become increasingly vital to any city intent on making its mark on the world stage.

Our firm has therefore launched a major research programme "World Winning Cities," representing a multi-year quest to identify the winning cities of the future. Our aim is to draw together the essence of contemporary city competitiveness, and to better understand the extent to which property can drive the new city order. We are focusing on the trends that will impact on the business and economic landscape, in order to predict which cities will be the rising urban stars of the next decade, and equally importantly those cities that may lose in the battle for world city status.

The objective of this project is to develop an innovative methodological approach that will allow us to deconstruct cities and to define and explore the newly emerging principles of city competition and how they relate to real estate. In essence our project is focused on answering four fundamental questions:

(i) What does history teach us about recent winners?

(ii) Which indicators will be the best predictors of future success?

(iii) Where are the next generation of rising urban stars?

(iv) What will or could be real estate's contribution to a city's sustainable competitive advantage?

In this paper we contrast the results of our first phase analyses, addressing the lessons of history of winning cities over the period 1991-2001, with the much wider questions about the model of world order that will prevail over the emergence of the next generation of urban rising stars.

WINNING CITIES OF THE PAST DECADE

Although the past is not necessarily the best predictor of the future, it does give a baseline position from which to describe the nature of likely future change. In phase one of the project, the firm took a look at city performance over the last 10 years. We needed to know which cities, from both a general economic and property market's viewpoint, have been the most successful in recent years. This analysis was undertaken to throw light on the likely "winning formulae" for future city success, and to set benchmarks against which to measure future city performance.

The firm analysed historic data covering 100 major metropolitan areas worldwide (see Appendix 1). These cities were selected on the basis of size, function and corporate representation, ensuring that the balance of cities in each continental region was broadly in line with each region's economic weight. We covered 40 cities in the Americas, 37 cities in the EMEA region, and 23 cities in the Asia Pacific region.

Annual data was analysed for the ten-year period, 1991-2001, for five key measures of city growth and real estate activity:

* Two Measures of City Growth: Population Change (% per year) Employment Change (% per year)

* Two Measures of Real Estate Activity: Office Net Absorption Rate (as % stock per year) Office Construction Rate (as % stock per year)

* One measure of Real Estate Performance:

Prime Office Rental Change (real, % per year) This historic data was analysed to build up a picture of city performance over the past ten years. Our aim was to identify those cities that have created the right circumstances to stimulate strong city economic growth, high levels of real estate activity and strong real estate performance.

Which cities were the rising urban stars of the past decade?

Our analysis of relative growth over last ten years shows that the strongest growth has been from smaller metropolitan areas of less than two million people.

Three cities stand out:

Dubai (in the United Arab Emirates) holds the top position worldwide for both population and employment growth, at 5.8% pa and 8.3% pa respectively (Figure 1). This rapidly expanding Emirate city-state has emerged over the past decade as a leading economic and trading hub of the Gulf States. Much of its success derives from a drive to create a favourable environment for business, and in providing the physical infrastructure to match. Dubai has been actively promoted on the international arena, and the city has been successful in attracting foreign companies. It has grown rapidly as a tourist destination, and is developing a high-tech image as an Internet hub city. However, the real estate market is still immature, and the building boom of recent years has translated into an oversupply of office space.

Dublin (the "Celtic Tiger") has emerged as probably the most successful city economy and real estate market of the last decade, and it is the only city to score consistently well on all five measures of performance. Strong employment growth (4.1% pa), and (by European standards) strong population growth (0.7% pa) translated into a very dynamic office market, characterised by high levels of take-up and high construction activity-the occupied office stock doubled in a decade. Dublin recorded the strongest real rental growth (at 6.1% pa) of the 100 cities analysed (Figure 2). The city's growth owes much to the success of the Irish national economy in creating one of Europe's most favourable business environments. Whilst external subsidy has been a factor, the economy's success has been built on private investment. Dublin has captured a significant proportion of Ireland's foreign direct investment (FDI), attracted by a favourable tax regime, low regulation, labour market flexibility, and access to a well-educated labour force. IT software and financial services have been particularly active. Dublin is now Europe's largest centre for the software industry, with five of the world's leading top ten software companies having their European centre in Dublin.

Las Vegas has been North America's fastest growing metropolitan area, and stands "head and shoulders" above the other North American cities in terms of population growth, employment growth, office net absorption, and office construction rates (Figure 3). The city's population has been growing by over 70,000 a year, and Las Vegas is now a city of 1.6 million people. Growth has been underpinned by a rapidly expanding leisure sector, but as the city has grown its economy has diversified, and low taxes and low regulation have succeeded in nurturing new business and attracting new companies and labour.

Why have these cities been winners? These cities have created a compelling cocktail of attractions that has stimulated strong economic growth, and all three share a number of common features:

* Size--with metropolitan area populations of 1.6 million in Las Vegas, 1.1 million in Dublin, and 0.9 million in Dubai.

* Attractive business environments, light regulation, and favourable tax regimes for business, which has led to high levels of inward investment.

* Strong in-migration and a successful record of attracting skilled and educated labour.

* Leisure--both Las Vegas and Dubai are underpinned by leisure activities, whilst Dublin has emerged as an important European short-stay tourist destination.

* Branding--All three cities have developed a high profile on the international "stage."

The top city "winners" are spread across the Globe (in Asia, Europe and America), but our analysis has identified significant differences in city growth between continental regions. Figure 4 shows average population and employment growth in cities in North America, Western Europe, and Asia Pacific. North American cities have been the best generators of new employment; Asian cities have shown strong population growth, whilst European cities have shown the weakest growth in both population and employment terms.

The strength of the North American cities is also illustrated when looking at the geographical spread of "winning cities." Our analysis shows that individual cities are linking together into clusters to provide sub regional ecosystems of "winning cities."