We are moving into an era where creative people are a highly prized commodity. Cities will thrive or sink on their ability to attract this key demographic


A characteristic of the global economy in the last decade has been the phenomenon of stagnation, and indeed decline, occurring alongside innovation and success. If you were invested in the right places and technologies, the last decade has been a great time to make money; yet at the same time some people have lost fortunes.

The locations that have performed best in this unpredictable environment have generally hosted the creative and technology industries that lead the digital revolution, and disrupt established markets. In many ways, the Apple iPhone symbolises our era.


The iPhone was launched in June 2007, just as the U.S. sub-prime mortgage crisis was escalating into the Global Financial Crisis (or GFC). This should have been a terrible time to launch a new product, however the iPhone defied years of rollercoaster economic news to post rising sales through the GFC, the Euro Crisis, and the commodities rout.

In the process, the iPhone overshadowed telecom’s old guard, drew other new entrants into smartphones like Samsung, and morphed a complimentary market in tablet computers. Innovation begat further innovation, as the ubiquity of smartphones and tablets sparked a revolution in how people access the internet, email, media, and social networks. Mould breaking companies, from Uber to AirBNB, have used these devices to become overnight threats to the established order in their industries.

Reacting to these fast paced changes, businesses have rushed to recruit creative, highly educated staff, and expanded their offices in the cities that attract the iPhone generation. This ‘generation’ is not characterised by age, but an adaptive, free thinking mindset. Firms want to lock in those individuals, with offices that match workers’ lifestyle and commuting needs.


The iPhone’s success demonstrates the phenomenon that the economist, Joseph Schumpeter, called ‘creative destruction’. This is where changes in technology and the companies born of this fresh innovation have a Darwinian effect on a previous generation. The new kids on the economic block prosper at the expense of the old guard unless established firms quickly change with the times.

In Schumpeter’s era, the rise of aeroplanes, automobiles, and petroleum created economic booms in the cities that led the tech revolution of the 1920s and 1930s. Yet elsewhere recession descended on locations with the industries that lost market share to those new technologies, like ship building, train manufacturing, and coal mining.

Similarly today we have a world where abundant economic opportunities in one region live alongside stagnation elsewhere. It is not easy to reconcile the fact that countries who were booming just a few years ago on rising commodity prices are now adapting to slower growth. Just as surprising is the sight of western cities that were dismissed as busted flushes in 2009 due to their high exposure to financial services, now thriving as innovation centres.

This is creative destruction at work in the modern context. The important lesson for today’s property investor, or occupier of business space, is to ensure you are on-theground where the ‘creation’ is occurring, and have limited exposure to the ‘destruction’. This is not easy, as the pace of technology change is accelerating the speed at which the old finds itself overtaken by the new.

However, real estate in the Global Cities arguably offers a hedged bet against this uncertainty due to the nature of the modern urban economy; where those facing destruction, quickly reposition towards the next wave of creation.




The industries that drive the modern Global City are not dependent upon machinery or commodities but people; which delivers economic flexibility. A locomotive plant cannot easily retool to make electric cars, raising a shortcoming of the single industry factory town; while an oil field in Venezuela has limited value for any other commercial activity. However, a modern office building in a Global City like Paris can quickly move from accommodating bankers in rows of desks to techies in flexible work space. So there is adaptability in the people in a service economy city which is matched by the city’s real estate.

This means large modern cities can quickly adapt to the forces of creative destruction. In 2007, investment banks were the stars of the New York and London economies. They typically consisted of a small cadre of senior traders and financiers, supported by a large infantry of recent graduates, HR, marketing, IT, research, accounts, and other support workers. The technology and creative firms leading the economy in London and New York in 2016 similarly build around a core of senior creative staff, backed by swathes of graduates and support staff.

So in the people-driven Global Cities a new industry can redeploy the ‘infantry’ from a fading industry via recruitment. Similarly the professional and business service companies that served the banks, now serve a new clientele of digital firms. In contrast, manufacturing or commodity driven economies face greater barriers when reinventing themselves.

So the knowledge-fountain cities are well tuned for creative destruction, as people can rapidly redeploy as markets are shifted by fresh innovation. The most flexible cities command the highest real estate rents and lowest yields, and that will continue, as they cope best with rapid change.



Today, landlords across the world struggle with how to judge the covenants of firms who have not been in existence long enough to have three years of accounts, but are clearly the future. Consequently both landlord and tenant need to approach real estate deals with flexibility. Landlords will need to give ground on lease term and financial track record, and occupiers must compensate the landlord for the increased risk via a higher rent.

Another big challenge for the western Global Cities will be competition from emerging market cities that succeed in repositioning themselves away from manufacturing, and towards creative services. The process has started, with Shanghai now seeing a rapid expansion of its tech and creative industries. The big western centres still lead in services, but the challenge from emerging markets cities did not end with the commodities rout. They are just experiencing creative destruction, and will emerge stronger to present a new challenge to the West.

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