_How rising incomes & war for talent will shape urban environments

Over the past few years this report has documented the growing focus by city authorities and private developers on creating true mixed-use environments – those that aim to provide seamlessly for living, working and leisure.

This process has been encouraged by shifts in economic activity, for example the redevelopment of former industrial and dockland districts near city centres, and also by rising competition between businesses as they vie to attract and retain talent. Young employees, in particular, increasingly seem less attracted to the pattern of travelling from a monocultural housing zone to a similarly one-dimensional office neighbourhood.

While the development of mixed-use projects in markets like London or New York City may feel relatively advanced, there are clear signs that the future rate of delivery of this type of environment will rise over the coming decade.

If we consider key economic forecasts we can observe supports for future growth including: a rise in the overall numbers of employees in these markets, especially strong in sectors that have helped to fuel the mixed-use concept; an increase in the incomes of these employees (notably in cities across developing economies); and an enhanced desire to spend their income in ways that supports the expansion of the full range of facilities and uses that make these environments successful.

Over the last decade, employee numbers have risen in key Global Cities, partly as a result of general population growth, but also as a result of the ability of the most successful cities to pull in workers from surrounding regions.

While an impressive sounding 1.1 million additional workers have been added to London’s workforce since 2007, even this figure pales alongside the additional 2.1 million in Beijing or the two million in Mumbai.

Critically, for our purposes, rapid employment growth has been happening in the sectors that have powered the expansion of mixed-use urban forms: finance, information, telecommunications and business services. At the current time the biggest global cluster of finance and business service jobs is to be found in London (with 2.7 million employees across the metropolitan region).

A decade hence and the largest concentration is likely to be found in Beijing (forecast 3.4 million, according to Oxford Economics) - although the fastest rate of growth will be seen in Bengaluru, which is expected to see an anticipated 65% growth over the 10 years to 2027 (to 809,000).

The ability to support the services and facilities that generally accompany mixed-use development - retail, restaurants and hotels - has been driven by growth in disposable incomes in some markets; although in others the picture has been more mixed.

This growth has been rapid in Asia, typified by an 87% rise in Shanghai over the past decade, compared with less impressive rates of around 10% across U.S. cities and 5% in Europe. This weakness in developed markets reflects the impact of the global financial crisis that in many western cities saw real incomes squeezed during the five years from 2007, with a recovery only noticeable from 2012 in most cases.

Brigade Road, the main shopping street in Bengaluru

The rise in disposable income across Asia reflects the rapid growth of professional and high-skilled employment. In Beijing a decade ago, the numbers of people earning between US$35,000 and US$70,000 stood at 231,000, compared to 1.7 million in London. In ten year’s time the relationship is expected to reverse with numbers anticipated to stand at 3.5 million and 2.1 million, respectively.

Moving up the income curve and the growth of higher wages in developing markets becomes even clearer. The number of people earning between US$70,000 and US$100,000 in Mumbai in 2007 was 32,000, but by this year this number had increased by 244% to 109,000.

In 10 years’ time the number is expected to be a little over 210,000 – if achieved, this would see the population of this earning group approach the levels expected at the same point in time in Berlin. On the same metric the expectation is that there will be a similar number of people earning this level of income in Shanghai in 2027 as in Los Angeles.

^{Source: Oxford Economics,} 

^{Note: Resident based, constant 2012 prices}

How rising incomes are spent will influence the shape and content of urban environments. Looking at those sectors that help to glue mixed-use locations together, there is an expectation of considerable future growth in emerging markets.

Take Nairobi as an example, the total spend in restaurants, and eating out more broadly, is anticipated to rise from US$848 million in 2017 to US$1.5 billion over the next decade. Even the Kenyan capital’s impressive performance on this measure is overshadowed by the 100% to 200% growth expected in key Indian and Chinese cities.

The increase in restaurant spend is mirrored in the hotel sector. Markets as mature as those in London, San Francisco or Miami will see hotel spend rise by around a third over the next 10 years, while key African and Asian cities will see growth of 50%, 100% and even 200%.

 If the forecasts detailed above are proved accurate there is likely to be an exponential growth in the demand for these environments in an ever-widening spread of cities over the next decade. The opportunity for developers and other experts involved in providing these environments is set to grow in tandem.

Whether seeking advice on planning or guidance on overcoming a specific development constraint, our Development Consultancy Team is committed to ensuring the optimal strategy for your site. Providing full evaluation services, strategic direction and support with procurement and implementation, Knight Frank boasts an impressive track record having worked on numerous high profile developments across the UK.