Following the global trend of urbanisation, Europe will be the most urban continent in the world by 2050, with 82 per cent of the continent’s population living in cities.

By 2030, that figure will already be 60 per cent, creating a staggering demand for real estate in major cities, and resolving the severe shortage of housing stock in our cities will be one of this decade’s biggest urban challenges. Capital cities will grow even faster as London, Paris, Munich, Madrid, Moscow and Stockholm are all expected to see the largest increases in population.

For a fully functioning, efficient and financially successful urban centre cities must keep businesses and communities alive and essentially they must future proof in order to retain a diverse socio- economic population. Big data gathered via sensors, surveys, mapping and other sources will enable the policy makers to analyse and share the information, leading to more efficient, more manageable, 'smarter cities'.

However, the rising cost of prime urban real estate shows no signs of abating and with the young being priced out of the housing market in the major cities such as London, where – and how – will they strive to live? How are the smart cities future proofing in order to be both successful and sustainable for the next generation of talent? And where will the innovative companies of the future set up and adapt their working environment in order to attract and employ a talented workforce?

Densification to give rise to micro-living

A marked impact of this inevitable urbanisation will be the densification of these desirable cities. The rising number of single/smaller households, immigrants and students in big cities – as well as ageing populations – where conventional housing supply is limited, is translating into demand for ‘micro-living’.

Sustainable urbanisation will therefore need to accommodate the demand for a rising number of smaller, more affordable housing. Investments in student housing and micro-apartments in cities with large student communities, as well as rapid urbanisation trends, is something that is already happening in the UK, the Netherlands and Germany, and accounts for a rising share of investment activity.

The megacities of Europe (London, Paris, Berlin, Madrid and Munich) are already a target for investment, but growing innovation hubs such as Dublin, Barcelona, Amsterdam and Stockholm increasingly attract investor attention.

Hubs for innovation and creativity

The real estate recovery in the old world has not been universal but rather concentrated in the cities most favoured by the digital and creative sectors. This also means that some relatively small cities are moving with great velocity into the realm of world-class cities and competing with the giants of the digital age. Savills has dubbed Dublin and Berlin, for example, ‘upstart cities’ due to their size and performance in attracting a young, well-educated workforce.

Employers are becoming increasingly focused on attracting human capital and the top talent wants smart, sustainable cities with a good lifestyle. With the ratio of salary to cost of living being so out of kilter, Generation Y and Z, struggling to accumulate large sums to save for a mortgage, tend to focus on a better work/life balance compared with other generations. It will therefore be the live/work accommodation costs that will be absolutely key to attract talent.

Geography remains important and the ramifications of rising property costs will be the shift of Gen Y and Z towards satellite, more affordable cities. And as younger generations migrate towards more affordable housing, it will naturally establish hubs of like-minded people – urban centres with a spirit of innovation: communication, collaboration and knowledge. Cities with a spirit of innovation such as Amsterdam, Barcelona, Stockholm, Helsinki, Copenhagen and Liverpool, all appeal to this generation; well-connected, multi-cultural centres, with a great sense of independent style and creativity.

Unlike Europe’s mega cities, these locations on the whole offer a better work/life balance. Interestingly these cities host several multi-national HQs and much business is done in English. Last year the European Commission awarded Barcelona the title of European Capital of Innovation (iCapital) ahead of Grenoble and Groningen for ‘introducing the use of new technologies to bring the city closer to citizens’.

Further information

Savills World Research