The Emergence of Urban Innovation Districts

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Joshua Lau

Joshua Lau is a masters student of the Baker Program in Real Estate at Cornell University. Originally from Singapore, Joshua grew up in a family of architects, and completed an undergraduate degree in Civil Engineering from the University of Toronto. Recently, his passion for the future of cities has challenged him to think about the impacts of the built environment through a leadership in Real Estate. By drawing on his quantitative background, Joshua is pursuing a career in Opportunistic Real Estate Investments.

An evolving geographical pattern is taking place in cities, as companies from the innovation field have been nucleating around city cores. This phenomenon can best be described as the rise of the Urban Innovation Districts. Their recent emergence has had a direct impact on the local economies of cities, and an implication on the growing trends in real estate.  The characteristics of this new type of neighborhood offers a glimpse into the future of cities, and what that future could be like for different segments of the population.

 

Loosely defined, innovation districts are distinct areas intended to attract cutting-edge companies, research institutions, startups, and incubators within the tech world (Rodriguez, Congdon, & Ampelas).  The clustering of these firms allows for open innovation, knowledge spillover, technology sharing, and skilled talent concentration in the local labor pool.  Innovation districts can be viewed as an extension of the “Live, Work, Play” principles that cities have been adopting. Thus, the local coffee shop becomes not just a place to re-caffeinate anymore, but also a place to network, conceive ideas, and close deals.  In terms of economic benefits, innovation districts have the potential to improve a city’s competitiveness in attracting major Tech, Advertising, Media, Information (TAMI) companies. These companies, and the skilled labor they employ, provide meaningful economic growth to their host cities (Katz & Wagner, 2014).  The Brookings Institute reports that economic indicators such as job growth, wages and exports are all stronger in Science-Tech-Engineering-Math (STEM) oriented metro areas (Rothwell, 2013).

 

One of the first major innovation districts began in Silicon Valley, which was modeled after the suburban science park.  In the tech-driven economy however, knowledge is a key resource; so naturally, firms tend to relocate based on where the skilled labor pools are. And because of the urban migration effect, cities are now experiencing an increase in clustering of tech companies (Katz & Wagner, 2014).  In addition to the ease of collaboration due to higher density, cities are also becoming attractive places to live.  According to one correlation analysis conducted by Richard Florida, an appeal of a city is strongly correlated to safety, recreational activities, jobs, air quality, arts, culture and nightlife (Florida, 2014).  On the list of “Most desirable places to live in the U.S.”, the top ranked city was Austin, Texas (Im, 2019).  Also on the list were Denver, San Francisco, Seattle, and Raleigh-Durham. Unsurprisingly, they all have strong urban innovation districts.

 

For an innovation district to thrive, it is important to first establish the necessary infrastructure and policies.  Since companies prefer to locate where the skilled labor pool is, cities can increase their attractiveness by continuing to supply new graduates from their local universities.  In particular, a university that puts an emphasis on STEM programs would be ideal. The second important element is a world-class globally connected airport. In today’s business world in which physical borders are becoming less relevant, capital and skilled people are relatively free to move around the world.  Lastly, low-barrier immigration policies can also boost such a knowledge-based economy.  A prospering innovation district requires both a local and global workforce. Cities can, and should, look to accept foreign skilled workers who are motivated to emigrate in search of better opportunities.  High-skilled immigrants in recent years have been targeting countries, like Canada, that have immigration policies aimed at increasing their skilled workforce.  Consequently, in 2017, Toronto added more tech jobs than the Bay Area, Seattle, and Washington D.C. combined (Wu, 2018).  For instance, large companies like Uber and Microsoft recently expanded their offices to Toronto, while Google’s Sidewalk Labs is also planning it’s first smart-city development there, which will anchor Toronto’s Waterfront Innovation District (Bliss, 2019).

 

Arguably the capital of the world for much of the last century, New York City was at risk of losing that title with the rise of Silicon Valley at the turn of the century.  Then-Mayor Michael Bloomberg recognized that NYC was too concentrated in the financial and high-fashion industry.  He understood that education would be essential for the local workforce to keep up with industry shifts.  Under his Administration, a proposal was tendered in 2010 to build a science campus on Roosevelt Island.  Bids were submitted from numerous universities, but several years later, Cornell-Tech opened its doors to New York City.  In true competitive collegiate spirit, NYU and Columbia have since expanded their campuses to promote their own innovation-focused programs (Berridge, 2019).  This experience highlights how a simple idea can manifest itself through a ripple effect.  Furthermore, Cornell-Tech is expected to anchor an innovation district in Long Island City, create an overall 8,000 STEM-related jobs, and spin off even more start-up companies.(Saporito, 2019).

 

The rise of urban innovation districts has also coincided with the recent emergence of the co-working movement, which further highlights the shifting preference for collaborative settings.  These non-traditional offices are available to firms or individuals looking to rent desks, booths or rooms for as little, or as much time as needed.  For fast growing businesses like tech startups, flexibility is crucial. For example, a company can start with two founders in Denver, and eventually grow into a team of a hundred employees in Seattle over a short period of time with significant overhead savings.  Co-working offers a legitimate service to start-up companies by reducing their long-term lease liabilities, and increasing mobility.  When it comes to innovation districts, the implication of this shifting trend in office space means that the real estate industry will need to adapt accordingly to their customers who are anything but conventional.  Interestingly, mobility is another reason co-working spaces have also begun in the far-reaching island of Bali, where “digital nomads” escape to the sun-soaked paradise to work on a software script and a suntan.

Collaborative Environment in Innovation Districts through Co-working Offices

If innovation districts truly have the potential to drive growth in urban centers, then why are cities slow to adopt this change?  Because the challenges of fostering an innovation district are two-fold.  First, the recommended infrastructure and policies identified earlier cannot be replicated in cities overnight.  Not all cities possess the right mix of education, population, and economic drivers.  Second, innovation districts are emerging at a time when affordability issues are on the rise, and the tech sector has been identified as a main cause (Florida, 2019).  Unfortunately, the affordability issue may never go away. Highly paid workers will always be able to outbid those who can’t afford space.  Moreover, the economic benefits of high-skilled job growth do not effectively trickle down to lower income earners. After accounting for the increase in housing costs, their real income actually falls.  Additionally, since high-skilled workers are relatively mobile, it makes it worse for the low-skilled workers who typically lack the resources to relocate in search of opportunities (Florida, 2019).  Rather than protesting the presence of high-skilled workers (similar to Amazon HQ2’s fate), one solution becomes providing resources and opportunities for this overlooked population to increase their skill sets.  Increased access to technical training schools, or universities with programs focusing on the future would help cities grow more quickly, and across a wider array of the residents.  This applies even to cities not actively pursuing an innovation district, as education is a necessary commodity for any population.

 

Just as venture capitalists continuously seek out the next startup unicorn, so too should the real estate industry be looking for the next emerging innovation district.  These tech-centered neighborhoods have the immense potential to drive economic growth in urban areas, and the tell-tale signs of a city poised to create the next urban incubator are easily recognizable. While desirability, universities, airports and government policies are some necessary traits for the district to thrive, cities will continue to face the challenge of successfully combining them to benefit all income levels of the local population.

 

 

References

 

Berridge, J. (2019). Perfect City. Toronto: Sutherland House.

Bliss, L. (2019, June 25). A Big Master Plan for Google’s Growing Smart City. Retrieved from CITYLAB: https://www.citylab.com/solutions/2019/06/alphabet-sidewalk-labs-toronto-quayside-smart-city-google/592453/

Florida, R. (2014, September 19). What Makes Us the Happiest About the Places We Live. Retrieved from CITYLAB.

Florida, R. (2019, August 8). The Benefits of High-Tech Job Growth Don’t Trickle Down. Retrieved from CITYLAB: https://www.citylab.com/equity/2019/08/technology-employment-multiplier-effect-inequality-research/595291/

Im, J. (2019, April 15). These are the 10 best places to live in the US in 2019. Retrieved from CNBC: https://www.cnbc.com/2019/04/15/us-news-world-report-best-places-to-live-in-the-us-in-2019.html

Katz, B., & Wagner, J. (2014, May). The Rise of Innovation Districts: A New Geography of Innovation in America. Retrieved from Metropolitan Policy Program at Brookings: https://www.brookings.edu/wp-content/uploads/2016/07/InnovationDistricts1.pdf

Rodriguez, H., Congdon, D., & Ampelas, V. (n.d.). The Development of Boston’s Innovation District: A Case Study of Cross-Sector Collaboration and Public Entrepreneurship. Retrieved from The Intersector Project: http://intersector.com/wp-content/uploads/2015/10/The-Development-of-Bostons-Innovation-District.pdf

Rothwell, J. (2013, June 10). THe Hidden STEM Economy. Retrieved from The Brookings Institution: https://www.brookings.edu/research/the-hidden-stem-economy/

Saporito, B. (2019, Feburary 14). The Ugly Truth About Amazon’s $3 Billion Beauty Contest: It Was Never Going to Pay Off. Retrieved from Inc.: https://www.inc.com/bill-saporito/amazon-3-billion-deal-pay-off-investment-startups.html

Wu, Y. (2018, September 25). The Waterfront: Toronto’s new innovation community. Retrieved from MaRS: https://www.marsdd.com/news/the-waterfront-torontos-new-innovation-community/

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