'Surprises' ahead - How AI and Net Zero will transform three Scottish cities by 2050

Utilities and communications are set to power the economic growth of Scotland’s three largest cities over the next 25 years, according to new research.

The two key sectors will dominate the growth of Aberdeen, Edinburgh and Glasgow in the period running up to 2050, buoyed by the transition to net zero and an anticipated surge in the use of artificial intelligence (AI), the study by commercial property consultancy Knight Frank suggests.

The firm’s “UK Cities DNA” series of reports found that the utilities sector, including electricity, gas and renewables, will see the biggest growth in percentage terms from now up until 2050 in Aberdeen - second across the UK behind Manchester, at 126 per cent. “Information and communications” is predicted to be the second highest growth area in Aberdeen at 87 per cent.

AI and Net Zero are predicted to transform the fortune's of Scotland's three largest cities | Canva

Edinburgh will see predicted growth in the utilities sector of 111 per cent, closely followed by information and communications at 108 per cent. Meanwhile, information and communications is forecast to be the leading growth area in Glasgow at 113 per cent, with utilities the second highest growing economic contributor, with a forecast expansion rate of 104 per cent.

Despite the rapid growth of the information and communications sector, the finance and insurance industry will remain the “bedrock” of Edinburgh’s economy, the research notes, a status it has retained since 1991. While the sector’s share of local gross value added (GVA) - a measure of net economic contribution - is expected to fall from 24.1 per cent to 21.5 per cent over the period, the Scottish capital will remain the UK’s largest financial centre outside of London and grow by £2.2 billion in value – the second largest economic growth in absolute terms, closely behind property, at £2.3bn.

Knight Frank said the make-up of Glasgow’s economy will see one of the biggest shifts of any city in the UK. While construction was the biggest sector in 1991, accounting for 17.1 per cent of the local economy, last year the largest contributor to Glasgow’s economy was human health and social work, at 12.1 per cent. By 2050, the information and communications sector is expected to account for some 13 per cent of GVA, making it the city’s most valuable industry.

AI technology | Kannapat - stock.adobe.com

Although the utilities and information and communications sectors are predicted to grow most in Aberdeen, health and social work is set to represent the city’s largest industry on a GVA basis by 2050, accounting for 13.6 per cent and adding £397 million in economic value over the next quarter-century. Health and social work includes the Granite City’s burgeoning life sciences sector, as well as health and social services provision, which will need to grow to support an ageing population, the study notes.

Alasdair Steele, head of Scotland commercial at Knight Frank, said: “There are likely to be some surprises for Scotland’s three largest cities in the economic forecasts set out in our UK Cities DNA reports. While there is some change, there are important constants too, all of which should be reflected in long-term decisions made about the three unique cities in question.

“Edinburgh has become known as a tech hub, but the finance and insurance sector is predicted to remain the foundation of the city’s economy over the next 25 years - even though the info & comms industry will deliver substantial growth. By contrast, the sector is expected to be the biggest in Glasgow, adding £2.5bn of GVA in that time; and Aberdeen will see significant growth in its health and social work industry.”

Edinburgh (seen here illuminated for St Andrews Day 2020) has a bright future, not just with technology and AI, according to Knight Frank, but with established industries like the financial services sector too. | PA

He added: “To support and deliver the opportunities each of these industries represents for each city, their respective property stock needs to reflect their individual requirements. Within that, there will be opportunities to add new types of space and repurpose existing buildings to nurture the DNA of Aberdeen, Edinburgh, and Glasgow as their economies evolve over the next quarter century.”

Recent research by Knight Frank suggested that a “decisive” general election result and greater interest rate stability had boosted investment in Scottish commercial property.

The firm’s analysis of Real Capital Analytics (RCA) data found that there were £1.21 billion-worth of investment deals in the first nine months of 2024. While the figure was marginally down on the £1.26bn recorded during the same period in 2023, it marked a significant improvement on the 19 per cent year-on-year gap seen during the first half of 2024.

The research noted that investment in Scottish commercial property had firmed up in the third quarter, as interest rates began to ease and a “decisive election result” provided more certainty over future policy direction.

Figures released earlier this year showed that Scotland attracted a record number of inward investment projects last year to retain its top spot outside of London. A bumper 124 projects categorised as foreign direct investment (FDI) were secured by Scotland in 2023, an increase of about 13 per cent on the previous year, according to EY’s annual Scotland Attractiveness Survey.

In terms of what overseas investors have been buying into, utility supply, including the likes of offshore wind, was the leading sector for Scotland’s FDI, with 40 projects secured last year, up sharply on the 22 projects in 2022, and the highest recorded by any sector in any year of the past decade north of the Border. Utility supply was followed by digital technology, business services, and transport & logistics, with each of those sectors securing 14 projects during 2023.