Bangalore, India’s third largest city, last year beat out Shanghai in venture capital funding for the first time.

The city has long been regarded as India’s Silicon Valley and the hub for many of the country’s big tech firms. But the surge in investment — a 162% year-on-year growth in new capital, according to Crunchbase — signaled a broader shift among investors, who are diverting attention from more typical innovation and talent hotspots.

“Innovation-oriented industries and availability of talent will be key growth drivers for the next cycle of urban and real estate recovery,” says Carol Hodgson, Global Research Director at JLL. “There is a strong link between innovation, talent ecosystems and real estate performance.”

Bangalore was one of nine cities dubbed “emerging innovators” in JLL’s Innovation Geographies report. While major U.S. and European cities, along with rising Asia Pacific powerhouses, dominate the list of top cities for innovation, cities like Chengdu, Delhi, Guangzhou, and Hyderabad are catching the eye of global companies looking to expand, and real estate investors diversifying beyond established innovation hubs.

Despite having supportive infrastructure and operating conditions, the “emerging innovators” still need to resolve a relatively low talent concentration that could impede growth and, in turn, deter both companies and capital investors, the JLL report says.

They are not only competing with established innovation hubs for talent, but also smaller cities with conducive environments for innovation.

“Before the pandemic, talent-rich secondary cities were already attracting people and companies with their affordability and high quality of life,” says Hodgson.

The pandemic further accelerated the trend in certain countries. Large companies in the U.S. such as Tesla have moved their headquarters to lower-cost, more business-friendly cities.

Likewise, in India, cities like Bangalore and Hyderabad experienced a reverse exodus of talent across different sectors to smaller Tier-II cities including Ahmedabad and Coimbatore during the pandemic, according to management and strategy consulting firm Zinnov.

While attracting talent may help emerging cities close the gap with established innovation hubs, striking a balance between talent concentration and innovation will be most critical, according to Hodgson.

“As cities emerge from a difficult couple of years, those with a critical mass of people, broad mix of industries and major universities are best positioned to continue to attract talent and companies,” she says.