Global City Competition

Some European metropolises are positioning themselves more successfully than others in the global competition for capital, know-how and skilled workers. They benefit from sustainable growth and are particularly adaptable in times of economic, social and political transformation. What is on the future agenda of cities and regions that successfully attract investment, attract human capital and offer a high quality of life?

Knowledge makes the world go round

A major challenge that affects all cities and regions equally is the transition to a knowledge society. Knowledge is the key resource of the 21st century and the decisive driver of economic success. Exemplary for the transition to the knowledge economy are the US tech giants, which base their successes and innovations on comprehensive knowledge and the application of information. Apple, Alphabet, Microsoft, Meta, etc. have displaced the old economy and now lead the ranking of the world’s most valuable companies (Fig. 01).

The transition to the knowledge economy does not only refer to changed economic structures and market shares, but also significantly determines the development prospects and competitiveness of regions and thus ultimately also of real estate markets. In order for the transition to a knowledge economy to succeed and thus ensure the long-term success and prosperity of a city or region, targeted future strategies are needed that create incentives for companies in the knowledge society.

Recent scientific explanatory models emphasize the importance of knowledge and creativity for the development of urban and regional development potential. One of the key works of urban growth theories is the theoretical approach to the creative class developed by the US economist Richard Florida. His book about the rise of the creative class became a world bestseller.

Core thesis: Companies no longer make their location decisions solely on the basis of traditional location factors (such as financial incentives or existing infrastructure), but above all choose locations that offer a high potential of highly qualified workers. Therefore, in order to increase its prosperity, a city should try to attract the right residents. Namely, all those knowledge workers who use their creativity to create innovations, which in turn are a prerequisite for sustainable growth.

The Concept of Creative Class by Richard Florida

Richard Florida bundles his assumptions into an economic growth theory: “Technology, Talents and Tolerance”. These three “T’s” mark out the field in which regions and cities compete for a successful economic future. Technology refers in particular to innovations and future technologies. The second T, talents, refers to the existing human capital and tolerance to the diversity and openness of a city or region.

The decisive factor for Florida’s thesis is that only regions in which the three T’s coincide in a favorable ratio can expect economic growth. Each of the three T’s is significant, but none is sufficient on its own. It is the interaction of the three T’s that determines the future prospects of regions (Fig. 02).

A tolerant atmosphere, for example, makes a city attractive for highly qualified talent. Where many creative talents live, companies from future technologies or knowledge-based services are settling, attracting further talent with their jobs and thus making the city even more attractive and diverse. In this way, a permanent upward spiral can develop.

“Territory assets”, which encompass local and socio-spatial location qualities, are according to Florida one of the decisive factors for the expression of the three T’s. On the one hand, this includes the built environment. To attract technology and talent, you need the right residential, industrial and office buildings. On the other hand, so-called “placemaking” is also of particular importance, i.e. the existence of identity-forming places of encounter and experience.

“Geography of Creativity” Ranking

Which metropolises meet the requirements of Richard Florida’s concept of the three T’s and are thus among the regions with the best development prospects? To this end, Florida has implemented a ranking that uses various individual indicators to make the three T’s empirically measurable and comparable. The current results show two exciting trends from a European and German perspective: Supercities such as London and New York continue to set standards in this competition and lead the ranking. But their advantage is dwindling. Both cities rank low in their ability to adapt to the speed of change. In contrast, especially in smaller European cities such as Copenhagen, Vienna, Amsterdam, Warsaw, Stockholm and Munich, an optimal combination of the three T’s has led to success in recent years and has developed strong growth momentum (Florida et al 2023). These cities now also occupy the top places in the global ranking and are leaders in Europe (Table 01). It is noteworthy that five German cities – Munich, Hamburg, Düsseldorf, Berlin and Frankfurt – have been included in the top 15 in Europe.

What exactly is behind the three T’s and why are they so important for urban growth and future viability? What do these 15 metropolises in Europe do better than others and how does their success affect the real estate markets?

You will find out in the next article in this series: