Future cities

"Can machines think?” This was the question posed by mathematician and computer scientist Alan Turing in a seminal paper exploring the possibilities of artificial intelligence (AI) published over seven decades ago¹. In 1951, just one year later, what is widely considered the first successful AI program was written by fellow computing pioneer Christopher Strachey². The technology has come a long way since those early days.

With the launch of ChatGPT in 2022, AI arguably went mainstream as the doors were opened to a wider user base, spurring a surge in global investment that reached $22.4 billion throughout 2023, up from $2.6 billion the previous year³. Beyond the hype, some believe we are only at the start of this journey and just beginning to understand what the wider implications of AI could be for humanity⁴ and how it could reshape the global economy.

Although its true potential and long-term impact is still not fully known, there is little doubt that AI has the capacity to revolutionise industries, enhance healthcare, and help solve global challenges such as climate change, food security and water scarcity. This transformative technology could change the way we live, work and play. 

A better future is possible. AI implementation could lead to unprecedented levels of efficiency and innovation, realising a utopian vision of society where humans are liberated from mundane tasks and are able to focus on creative and intellectual pursuits.

Conversely, in a dystopian scenario, unchecked AI development could exacerbate inequalities, lead to mass unemployment due to automation, and pose significant ethical and security risks. The concentration of AI power in the hands of a few could result in surveillance states and loss of privacy, while autonomous systems might act unpredictably, causing harm. The future of AI hinges on responsible development, ethical considerations, and robust regulatory frameworks to ensure it benefits humanity as a whole.

From a real estate perspective, we believe there will be winners and losers amongst the cities of tomorrow’s world as AI continues to evolve. The scene is set for a dramatic geographic dispersion in the not-so-distant future as this disruptive technology becomes increasingly embedded in the long-term super trends currently unfolding and defining our times. 

A transformed world

Automation in itself is nothing new, but unlike previous iterations – such as the first industrial revolution over 200 years ago which largely modernised agrarian and rural societies – artificial intelligence could even replace jobs that require nuanced judgement, sophisticated reasoning, creative problem-solving and data interpretation.

“Most of these are white collar jobs in more developed countries,” notes Singapore-based Regina Lim, Head of Property Research, Asia.

According to a recent study by the International Monetary Fund, 60% of jobs in advanced economies are highly exposed to AI⁵ adoption. Of these, half are expected to be negatively impacted, while half stand to benefit from higher productivity from AI integration or augmentation. On a global scale, nearly 40% of all jobs are likely to be affected as the technology is increasingly assimilated into business processes.

Job disruption could disproportionately impact highly skilled or creative roles and drive the flow of talent, enterprises and capital towards cities that harness, invest, and regulate AI well.

“We already find ourselves in a situation where the rich are getting richer, and the poor are getting poorer in many regions. Even though technology, industrialisation and globalisation benefited most countries, the benefits did not reach everyone equally within each country,” says Lim. “Not everyone is winning, and I think it will be the same with AI. As the technology continues to develop, it will likely magnify already existing disparities in income and wealth.”

“Higher income jobs have higher AI complementarity and can expect disproportionately higher income growth,” adds Lim. “College educated and younger workers can adapt to AI faster. Fiscal and redistributive policies will impact income and wealth inequality.”

There is a possibility that AI could exacerbate cross-country inequalities as advanced economies might be better positioned to harness the power of AI relative to less developed regions. As it stands, while nearly 40% of AI companies are based in the US, a number of Asia Pacific countries also have first mover advantage due to a high concentration of such firms⁶. Furthermore, five out of the top 10 innovative cities are found in the APAC region.

“Countries that invest in AI to create and protect that ecosystem through regulation, and the best redistribution policies, are less likely to be left behind as AI advances,” Lim explains.
 

Riding the wave of change

Given AI’s likely significant impact on job security and income propensity, we expect highly mobile skilled professionals to migrate towards AI-enabled cities to maximise their earnings potential. These cities would invest into AI infrastructure, carefully adopt the latest available tools and proactively regulate intellectual property rights, data integrity and privacy issues well. It would be natural for companies and capital to follow the flow of talent to these cities in order to compete.

“In real estate terms, it’s important to be aware that today hub cities brimming with global talent like New York, London, Shanghai, and Singapore are thriving because of their respective governments. Legal constructs have facilitated a flow of capital and people that has accumulated to an extent where scale generates scale. Real estate becomes more valuable when there are more people using it,” Lim states.

“Once a city becomes like a London or a Tokyo, it is usually very, very hard to unseat as the incumbency is there. So capital begets capital, and talent begets talent. When you win the talent, the businesses and capital will follow.”

As a result, a widening of income and wealth inequality between countries could potentially lead to higher geopolitical tensions, but more importantly, income gaps within cities may also increase, which could affect social cohesion. As such, proactive fiscal and redistributive policies should be an important consideration for governments.

The need to prepare for such potentially dramatic social and economic changes has not been overlooked. Alongside the impact on jobs, AI’s ramifications in privacy and security have been a core talking point for policymakers and technology firms seeking to develop means to manage its rollout accordingly. The European Union has taken the lead in this area with its Artificial Intelligence Act, which came into effect in August. The law places obligations on the technology firms relating to transparency, copyright and bias, and other regions are expected to introduce policy frameworks⁷.

Lim highlights that it will be fundamental for real estate investors to be aware of how countries are proactively engaging with AI to ride this wave of change, and which cities are “future-ready”.

“The aim is to continue investing in the winners, tracking which cities are implementing the right policies and fostering the right ecosystem for AI,” she adds.

In the medium-term, with disruption set to transform office-based jobs in sectors such as finance, prime employee-focused, ESG compliant offices in cities like Tokyo, Seoul, and Singapore may be most resilient as demand shifts.

Strategically, we think offices in secondary cities could be less relevant over time as mundane or manual tasks are replaced by AI. Innovative cities with progressive economic, technologically informed policies could draw more demand from occupiers. ESG regulation and support as well as quality of life factors will continue to be crucial for cities as well, in our view.

Longer lifespans, increasing demands

The world’s population is expected to peak at 10.3 billion in 2083, up from 8.2 billion in 2024 – slightly earlier than previous predictions, data from the UN shows⁸. Currently, just over half the global population live in cities, but by 2050, this will likely increase to nearly 70%⁹.

Meanwhile, global life expectancy is on the rise once again, returning to pre-COVID levels in nearly all countries and regions. Among other factors, AI could play a significant role in this ongoing demographic shift by facilitating an acceleration in disease identification, drug discovery, and targeted therapies. This, in turn, would impact demand for rental properties and the need to build more housing. 

“If everyone's going to live longer and healthier lives than today, then the current shortage of housing in cities like London is going to be even more severe,” Lim points out. “Likewise, with people living longer, there will also be a greater need for more independent retirement living.”
 

Powering the AI revolution

The mass adoption of AI and cloud computing will need to be supported with vast computing power and extensive resources such as computing hardware, high-speed connectivity networks, power supply, cloud infrastructure, and data storage.

For Dickson Koh, Manager, Property Research, Asia, this means there will be a transformative shift in data centre design and site selection.

“For instance, to keep up with the growing demand for computational power, data centres’ power densities would need to increase exponentially, which would translate to heavier racks and affects floorplate loads and footprint,” he explains. 

Data centres dedicated to AI applications could hit as much as 80-100kW per rack, a tremendous ramp up from the current average deployment of 10kW per rack¹⁰. The increased heat generation will result in a shift away from traditional air cooling towards various types of liquid cooling. Moreover, increasingly tough sustainability performance regulations and reporting requirements are making power and water efficiency paramount. There is a need for AI infrastructure to be carbon neutral.

“While demand for data centres will increase substantially, power densities, grid access and cooling technology will evolve further, heightening location risks and obsolescence,” Koh adds.

In terms of locational criteria, markets with availability of power (particularly renewable energy), competitive energy pricing, cheaper land, and accommodative government policies are poised to benefit.

“There have been several recent data centre developments taking place in Japan’s regional cities such as Hokkaido and Kitakyushu in the Fukuoka Prefecture, for example,” Koh explains. “Different data centres models have varying locational considerations. While edge data centres will continue to grow near major cities to be close to the end-users, it is likely that the expansion of hyperscale data centres will be more widely distributed.”

At the same time, demand for advanced chips is likely to lift exports and growth for large fabricators in countries such as Taiwan and South Korea. Indeed, South Korean companies have been absolute leaders in supplying HBM chips, which are critical for AI servers.

To keep up with this rapidly changing environment, we believe real estate investors need to keep their finger on the pulse of this ever-evolving digital innovation.

Since the advent of artificial intelligence all those years ago, it has conjured visions of a transformed world – some for the better, others for the worse. But although there are many unknowns on the horizon, one thing seems certain: AI is here to stay, and it has the potential to drastically transform urban environments across the globe.