Unlikely Boomtowns

Great cities like London, New York and Tokyo loom large in our imaginations. They are the places people still associate with fortune, fame and the future. They can dominate national economies, and politics. The last half century has been their era, as the number of cities with more than 10 million people grew from two to 20, as now famous names like Rio, Mexico City and Mumbai joined the list. But with all respect to the many science-fiction novelists who have envisioned a future of increasingly dominant urban giants, their day is over. The typical growth rate of the population within a megacity has slowed from more than 8 percent in the '80s to less than half that over the last five years, and their number is expected to stagnate in the next quarter century. Instead, the coming years will belong to a smaller, far humbler relation--the Second City.

Within a year or so, more people will live in cities than in the countryside for the first time in human history: the 21st century will be an urban one. But increasingly, the urban core itself is downsizing. Already, half the city dwellers in the world live in metropolises with

Less than half-a-million residents. Second Cities--from exurbs to regional hubs, resort towns to provincial capitals--are booming. Between 2000 and 2015, the world's smallest cities (with under 500,000 people) will grow by 23 percent, while the next smallest (1 million to 5 million people) will grow by 27 percent. This trend is the result of seismic shifts, including the global real-estate bubble; increasing international migration; cheaper transport; new technologies, and the fact that the baby-boom generation is reaching retirement age.

This rise of Second Cities is dramatically illustrated by our top-10 list, which encompasses the fastest-growing cities in each of the world's 10 most important economies (following stories). Based on an advance copy of the latest U.N. forecasts for all cities with populations greater than 750,000, the list includes only two major capitals--Moscow and London, which continue to outpace smaller rivals for unique national reasons. All the rest are aspiring middleweights like Toulouse, Munich and Las Vegas, or former unknowns like Florianópolis (Brazil), Ghaziabad (India), Goyang (South Korea) and Fukuoka (Japan), which may not remain unknown for much longer. Boomtowns breed ambitious city fathers, so it's hardly surprising that Toulouse is competing with Paris to host the 2016 Summer Olympics, or that Fukuoka is challenging Tokyo for the same honor.

There are several megatrends that get lost on a top-10 list, however. One is the concentration of fast-growing cities in emerging economies: of the top 150 fastest-growing cities in this size class, the most by far, 55, are in China, followed by an intense boomlet of 12 in Indonesia, and 10 in India. In the developed world, while none make the top 150, metropolises in the United States are growing much faster than those of Europe and Japan. This is due in part to the fact that overall population is declining in those places, but it drives home the relative dynamism of the Asian and American superpowers. The growth cities of the United States and China are growing faster than 2 percent, leading a pack of small cities, while those in Europe are growing at maybe half a percent, and are typically the rare exceptions in nations where most cities are shrinking.

In a way, the emergence of Second Cities has flowed naturally (if unexpectedly) from the earlier success of the megacities. In the 1990s, megalopolises boomed as global markets did. This was particularly true in metropolitan areas with high-tech or "knowledge based" industries like finance--witness the renaissance of New York and London, and the explosion of growth in Shanghai or Hong Kong. Bonuses got bigger, bankers got richer and real-estate prices in the world's most-sought-after cities soared. The result has been the creation of what demographer William Frey of the Washington-based Brookings Institution calls "gated regions"--places like New York, London, Tokyo--in which both the city and many of the surrounding suburbs have become unaffordable for all but the very wealthy.

One reaction to this phenomenon is further sprawl--high prices in the urban core and traditional suburbs drive people to distant exurbs with extreme commutes into big cities. As Frey notes, in the major U.S. metropolitan areas, average commuting times have doubled to about 90 minutes over the last 15 years, making once rural places like Pike County, Pennsylvania, viable dormitories for workers employed in New York. "It's hard to believe, but a place like Las Vegas is now actually a kind of suburb of Los Angeles," says Frey, noting that there are plenty of people who make the six-hour one-way drive a few times a week. And while the extreme commute is a longstanding tradition in Japan, it is spreading to Europe. Brighton, a once seedy beach resort about an hour by train from the capital, is now "London by the Sea," populated by arts and media types. House prices have boomed lately, and the city is now on its way to getting the requisite Frank Gehry landmark building (a futuristic residential tower and sports complex) to herald its success.

Why does one town become a booming Second City while another fails? The answer hinges on whether a community has the wherewithal to exploit the forces pushing people and businesses out of the megacities. One key is excellent transport links, especially to the biggest commercial hubs. Though barely a decade old, Goyang is South Korea's fastest-growing city in part because it is 30 minutes by subway from Seoul. Burgeoning IT hubs outside Delhi like Gurgaon and Noida, for which Ghaziabad serves as a new bedroom community, all sit on good roads into the capital.

Europe's cheap airlines have given new life to any number of provincial capitals, from Glasgow to Bologna. Estate agents estimate that a new Ryanair or easyJet link to a given city can immediately raise property prices in the area by 30 percent or more. In Asia, the number of cheap, short flights between cities is also growing.

Another growth driver for Second Cities is the decentralization of work, driven in large part by new technologies. While more financial deals are done now in big capitals like New York and London than ever before, it's also clear that plenty of jobs in booming service industries like banking, entertainment and high tech are flowing to places like Dubai, Las Vegas, Tallinn, Dalian and Cape Town, all of which international real-estate services firm Jones Lang LaSalle names as "Rising Urban Stars." These places have not only improved their Internet backbones, but often have tech parks and universities that turn out the kinds of talent that populates growth industries.

Consider Montpellier, France, a case study in urban decentralization. Until the 1980s, it was a big Mediterranean village, but one with a strong university, many lovely villas and an IBM manufacturing base. Once the high-speed trains were built, Parisians began pouring in for weekend breaks. Some bought houses, creating a critical mass of middle-class professionals who began taking advantage of flexible working arrangements to do three days in Paris, and two down south. Soon, big companies began looking at the area; a number of medical-technology and electronics firms came to town, and IBM put more investment into service businesses there. To cater to the incoming professionals, the city began building amenities: an opera, a tram line to discourage cars in the city center. The result, says French urban-planning expert Nacima Baron, is that "the city is now full of cosmopolitan businessmen. It's an entirely new town, a new society."

Today it's easier for Second Cities to build self-sustaining economies, independent of megacities, as firms and workers look to avoid the problems of major urban centers. "Economically, after a city reaches a certain size, its productivity starts to fall," notes Mario Pezzini, head of the regional-competitiveness division of the OECD in Paris. He puts the tipping point at about 6 million people, after which real estate costs, travel times, and the occasional chaos (witness the recent Paris riots) "create a situation in which the center of the city may be a great place, but only for the rich, and the outlying areas become harder to live and work in."

Meanwhile, the democratization of the good life--even small towns now have good sourdough bread, international newspapers--means that people no longer have to choose between the culture and chaos of the big city, or the ease and boredom of everything else. Pseudo-European-style café culture is cropping up in American towns like West Palm Beach, and European minicities like Groningen, in the Netherlands, draw millions of tourists with Philippe Starck-designed museums and renovated downtowns. Retiring baby boomers are giving new life (and money) to a host of sun-belt cities in the United States, as well as many Provençal and Tuscan towns.

Immigrants play a big role, too. In places like Las Vegas, they're morphing from cheap labor to a new middle class reshaping the character of the city. In the U.K., hundreds of thousands of Eastern European immigrants have helped galvanize the capital and smaller northern and coastal cities, where workers in agriculture, construction and lower-level service jobs are sorely needed. Ultimately, they are expected to take their earnings home, where they are likely to seek property not in Prague or Warsaw, but in less-expensive Brno or Cracow. That's a big reason Jones Lang LaSalle expects the 60 Central and Eastern European cities with 500,000 or more people to be among the hottest places for corporate relocation in the next few years.

All this means, of course, that second cities won't stay small. Indeed, some countries are actively promoting their growth. China's Go West campaign encourages investment in smaller inland cities. Italy is trying to create tourist hubs of towns close to each other with different yet complementary cultural activities. "The worst-case scenario is that we end up with some national version of New Jersey--an inefficient sprawl with no center," says Frey of Brookings. Already, one has to wonder if all the marketing pressure for Second Cities to pay for iconic buildings or to re-create mock versions of New York's SoHo is a productive use of capital. If one of the biggest drawing cards for Second Cities is unique local flavor, why ape the best-known megacities? Devolution of policymaking power is leaving many lesser cities more free than ever to shape their destinies. To Vegas, Toulouse and company: this is your era. Don't blow it.