The development of cities has historically been the cradle of major changes, be it technological progress or social, political, economic and cultura progress. And this will be increasingly the case in the future. The city of the future is already taking form. It is greener, more flexible and accessible, automated, focused on technology and innovation, better monitored, and home to the head offices of large companies and a broad array of services. Despite inequality issues, the continued growth of cities could provide numerous attractive investment opportunities.
The city in transformation
According to the United Nations, an additional 2.5 billion people will live in urban areas by 2050, bringing the world’s urban population to about 68%. This percentage is expected to be as high as 80% in the wealthiest countries. This rapid urbanisation is creating considerable challenges in terms of infrastructure, mobility, sustainability and quality of life, and even in the balance between population categories. In this constantly changing world, the cities of tomorrow are emerging today through the prisms of sustainability, accessibility, technological innovation and the economic opportunities they generate. As urbanisation accelerates, environmental and social challenges are becoming ever more pressing, prompting municipalities and investors to rethink infrastructure and urban lifestyles. Sustainable, smart and connected cities are no longer a utopia; they are vital to responding to the demands of a growing urban population.
For savvy investors, these transformations represent endless opportunities. Green technologies, smart transport systems, neutral or positive-energy buildings, connection platforms, monitoring systems and digital infrastructure are just some of the promising avenues for profitable and responsible investments in the cities of tomorrow, even if the future also involves challenges.
The sustainable city
Sustainability will be the central aspect of the cities of tomorrow, going beyond environmental considerations to embrace a holistic vision of urban planning. This is a new approach, after centuries of growth through a simple influx of population and the development of neighbourhoods with no real control over the whole. Faced with climate emergency and resource scarcity, cities around the world are required to adopt ambitious strategies to reduce their carbon footprint and improve the quality of life of their inhabitants. The transition to more sustainable cities can be seen in a multitude of innovative initiatives, supported by increasing public policies and growing private investment. For example, the large-scale integration of renewable energy into urban networks not only reduces greenhouse gas emissions; it also creates local jobs in green technology sectors. Offshore wind farms, such as in Hornsea in the UK, and urban solar farms, such as those developed in Singapore, are becoming new components of modern urban landscapes.
The conversion of disused industrial buildings
Rehabilitating brownfield sites and converting existing buildings is vital to ensuring urban sustainability. Rather than expanding indefinitely, cities need to rebuild themselves, optimising the use of existing urbanised spaces. Thi approach preserves natural and agricultural land by limiting land take and also serves to revitalise neglected areas. Brownfield sites are unique opportunities for developing innovative projects such as eco-neighbourhoods or spaces dedicated to the circular economy, where old structures are transformed into living, working or cultural venues. This intelligent approach to increasing urban density also fosters the improved management of resources and infrastructure while encouraging social and functional diversity in city centres.
Towards zero-emission cities
The transition to more sustainable cities is also illustrated by positive-energy buildings, which produce more energy than they consume thanks to integrated solar panels and smart energy management systems. Cities such as Copenhagen and Stockholm have set ambitious targets to become carbon neutral, by 2025 and 2040 respectively, in part through the construction of such buildings. In Switzerland, the city of Geneva has undertaken an ambitious overhaul of its thermal networks, whereby, instead of having a boiler in every building in the city, the heat will be produced in a power plant and conveyed to buildings via underground pipes. The energy will come from the incineration of waste, natural gas and heat pumps that draw water from Lake Geneva to supply the network with heat. The deep water of Lake Geneva will also be used to cool the buildings. Through this initiative, Geneva intends to accelerate the energy transition and reduce its greenhouse gas emissions by 60% by 2030. These developments are backed by strict regulatory frameworks and tax incentives, creating a favourable environment for investments in sustainable real estate.
Green, waste-free cities
The creation of urban green spaces and the promotion of soft mobility are also key to improving air quality and public health. Green spaces have a significant impact on urban temperatures by acting as “islands of freshness”. They reduce the average temperature of cities by about 2°C and can even create differences of 10°C or more between a street and a green space during a heatwave. The coolness of these spaces is ensured by the shade of the trees, the absence of bitumen (which stores heat during the day) and “evapotranspiration”, which cools the ambient air.
Cities are also investing in bicycle infrastructure, extended pedestrian areas and more efficient and less polluting public transport. Sustainable cities are also innovating in smart waste and water management systems. Increasing use is also being made of advanced technologies, such as IoT (Internet of Things) sensors to monitor waste levels and optimise collection routes, and rainwater recovery systems to irrigate green spaces. These solutions reduce operational costs and also improve the efficiency and sustainability of urban services.
Sustainable cities thus become ecosystems conducive to innovation, attracting talent and capital into a virtuous circle of responsible growth.
Cities with significant economic disparities but sources of opportunities
The proximity of universities, research centres and large groups, which are becoming increasingly powerful owing to globalisation, makes capitals more attractive than other cities for highly-skilled populations. However, lower-skilled populations seeking service jobs are leaving medium-sized cities, rural areas and poor countries to settle precariously in capital cities or their outskirts. Soaring property prices are forcing some middle-class families out of large cities (for example, Paris has lost some 100,000 inhabitants since 2010). Because large cities create skilled jobs and service jobs, their populations are split between highly-skilled populations and precarious populations, and the number of middle-class inhabitants is decreasing.
What will cities look like ten years from now? Property prices will increase further in city centres, driving out families and the working classes and attracting wealthy populations and those willing to accept modest housing for employment. However, contemporary occupational models such as teleworking and co-working spaces could offer younger generations a chance to return to vibrant urban centres. Inequalities in cities are expected to further increase. This will strengthen the need for security but also forge an international culture. This skilled and globalised population will prove a windfall for service providers, traditionally from other countries. Cities will be home to technological leaps and bounds, driven by AI. But they could also be home to a greater intertwining of diverse cultures, which are both a source of richness and tensions, and which ultimately succeed in co-existing and creating more sustainable, high-tech and connected cities that are more pleasant to live in.
Technology central to tomorrow’s cities
In an ever-changing world, the challenge for tomorrow’s cities will be to merge technological innovations with urban development to create resilient, sustainable and smart environments where quality of life is enhanced by the seamless integration of smart and connected systems.
Singapore, a leader in this field, uses a dense network of IoT sensors to monitor various aspects of urban life, such as air quality and traffic volume. This network optimises the use of resources and improves urban mobility in real time. Dubai is investing heavily in 3D printing, with an ambitious plan for 2030 to build 25% of its new buildings using this technology to optimise the resources used in their construction.
Several US cities, including San Francisco and Phoenix, continue to make headway on integrating autonomous vehicles, serving to offset both the increasing density of car traffic and the lack of drivers. Meanwhile, London is experimenting with public lighting systems that adapt to the amount of people in the city’s various districts at any given time, thus reducing night-time energy consumption. Autonomous air transport is on the rise, notably in Paris, where tests with drone taxis are under way with a view to offering rapid and environmentally sustainable journeys between the city’s main hubs. Numerous cities plan to use drones to streamline goods transport, for home deliveries in particular, to reduce congestion.
In a further new trend, augmented and virtual reality technologies are being harnessed in urban planning to foster collaboration between designers, architects and developers so as to facilitate the planning of real estate projects. For example, digital “twins” or “clones” can be used both to improve urban projects ahead of construction and to manage the entire ecosystem virtually once the projects have been finalised. Lastly, the vertical “urban forests” that are thriving across Asia, as well as in the West, in cities such as Milan, demonstrate how sensors can be used to ensure the health of vegetation, while contributing to the reduction of carbon dioxide in urban environments.
How to gain exposure to the ramp-up of technology in cities?
The Internet of Things is central to this transformation, enabling efficient monitoring and intelligent management of urban infrastructures through a multitude of interconnected sensors. Artificial intelligence, the spearhead of smart technologies integrated into tomorrow’s cities, plays a crucial role in optimising autonomous systems and providing predictive analytics capabilities that facilitate informed decision-making. Connectivity (5G, and soon 6G) improves communication between smart devices, accelerating the implementation of mobility and resource management solutions. 3D printing stands as a revolution in the construction industry, making it possible to build faster while reducing waste. Augmented and virtual reality technologies optimise the planning and visualisation of urban projects, thus facilitating collaboration between property development players. In a further development, the rise of drone technology opens up new avenues for autonomous air transport, offering logistics solutions that could reduce road congestion. Semiconductors, ubiquitous in technological devices, will remain the backbone of all these innovations and the best way to gain financial exposure.
How to gain exposure to the infrastructure challenges of tomorrow’s cities?
Sustainable cities are fostering the emergence of new forms of collaboration between the public and private sectors. Public-private partnerships (PPPs) are becoming an essential tool, serving to share the risks and benefits while stepping up the implementation of innovative solutions. For example, private companies can invest in cutting-edge technologies for energy or waste management, while municipalities provide the necessary infrastructure and regulatory frameworks and ensure long-term cash flow visibility for companies.
Urban sustainability is an unprecedented opportunity for investors to play a role in the construction of more resilient and prosperous cities. By supporting projects that incorporate sustainable practices, investors can not only contribute to the fight against climate change but also benefit from attractive returns in growing markets. The sustainable and innovative cities of tomorrow offer fertile ground for investments that are both profitable and responsible.
In conclusion, tomorrow’s cities are shaping up to be dynamic and sustainable entities forged through technological innovation and a vision firmly focused on sustainability. This does not preclude cohabitation between the “extremely well-off” and the “extremely assisted”. The challenges posed by increasing urbanisation and climate change, including the need for security, are paving the way for unprecedented investment opportunities in which financial performance and environmental responsibility go hand in hand. Investors have a crucial role to play in this transformation by supporting projects that generate attractive returns but also help to build a more sustainable future.
Eric de Tessières
Group Chief Sustainability Officer
Nadjat Hamrouni
Director Sustainable Investment Solutions
Anthony Toupin
Senior Analyst, Global Investment Research