Cities Key Themes 2026: Growing divergence

The divergence in economic performance between service-oriented and industrial cities is set to continue in 2026, as trade restrictions, increasing competition in higher value-added industries, and elevated AI investment push cities onto different growth paths. Service-oriented cities are outperforming their industrial counterparts, both within and across countries. As such, we have identified four key themes for the year ahead.

1. Tariff-induced downturn will drag into 2026. Industrial hubs have held up better than expected. Front-loading and trade diversion softened the initial shock of tariffs, but mainly by spreading the impact over time. The result is a gradual deceleration rather than a sudden hit. This was evident in US industrial cities, as well as in exporting regions such as China’s eastern seaboard and Germany’s industrial heartland.
2. China’s move up the value-added chain is reorganising global trade. Export-led cities in developed economies are increasingly confronting China’s rise in advanced manufacturing. Alongside tariffs and higher energy costs, at least in Europe, industrial cities enter 2026 with weak fundamentals and a worrying outlook.
3. AI progress will not lead to widespread growth, yet. Tech-heavy cities in China and the US are growing rapidly as developers race to enhance AI capabilities. Manufacturing hubs equipped to produce specialised chips and hardware will also post strong growth and buck wider industrial trends. For now, however, broader benefits will remain muted.
4. Housing will be at the centre of economic discourse. In China, downward corrections in house prices look likely to continue throughout the year. In Europe and North America, meanwhile, rising property prices, particularly in major cities, are exacerbating the region’s affordability problem and depressing consumer spend.

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