Innovation Hubs: What Are They and Why Are They the Best Investment Program?

 

Innovative hubs have appeared in Europe relatively recently. Still, they are already attracting technology companies that need more than just a workplace but a space where employees can realize their creative potential, communicate, collaborate with other teams, and rest and recuperate for productive work.

What are innovation hubs, and why is this our new reality?

We all remember the period of the pandemic and global lockdowns, which led to a total shift of companies to remote work and allowed us to test in practice the extent to which creative people are willing to work from home. It turned out that not everyone is ready and not all the time — in home conditions, it is difficult to focus on work tasks, there is no live communication or exchange of experience, and there is sensory deprivation — a mental condition caused by the lack of new sensory stimuli, which hurts the psyche, causing depression and other side effects. Such a condition negatively affects working capacity, labor efficiency, and especially the creativity of thought processes. 

However, the office is also outdated and uninspiring for employees of modern companies. But the need to return to workspaces remains. The ideal solution is innovative hubs based on shared consumption (sharing economy). The company rents an office in such hubs and enjoys all the benefits of shared creative space.

A hub is the best alternative to the office because this organization is not just about four walls and workplaces but about the company philosophy, creating favorable conditions for fruitful and creative work, creation of new ideas, creating a free community of specialists, conditions for their relaxation and «reloading». In a hub, an employee feels his belonging to the ecosystem and is in a comfortable and «creative flight» because the space is designed to inspire and stimulate thinking, which solves the problem of sensory deprivation. But, of course, a hub is not only about relaxation but also about a specific organized environment in which different companies come together to receive mentorship and joint development of new technologies and innovative products.

Innovation hubs typically combine resources such as co-working spaces, collaborative labs, educational programs, investment funds, consulting services, and industry connections. They provide an environment for interaction between startups, investors, entrepreneurs, researchers, government officials, and other stakeholders.

Public or private organizations, universities, or consortiums can create innovation hubs. They are usually located in areas with a high potential for innovative development, such as technology parks, science, technology parks, or innovation cities.

New technologies, products, and services can emerge through such hubs, and innovation communities and networks can form.

What is the difference between an innovation hub and an office:

• An innovation hub is usually a space created to foster innovation, collaboration, and the creation of new ideas. The primary purpose of a hub is to design, develop, and support innovative activities and startups. On the other hand, an office is a space for work where employees' workplaces are concentrated to perform professional tasks.
• An innovation hub often attracts entrepreneurs, startups, innovative companies, investors, and experts, creating an active and interactive community. It offers opportunities for networking, idea exchange, learning, and support. An office, on the other hand, can be more company- or organization-specific, with a primary focus on supporting work processes within the company.
• Hubs offer additional services and resources for startups and entrepreneurs, such as acceleration programs, consulting, investor access, and joint events. They can also provide shared workspaces, equipment, labs, and resource sharing. The office usually offers essential services such as power, Internet connectivity, and administrative support.
• Innovation hubs are often designed with a design and atmosphere that encourages creative and innovative work. They can have open spaces for collaboration, seating areas, and meeting and event spaces. Offices can be more standardized and task-oriented for a specific company.
• The hub infrastructure is more diverse and considers all the needs of employees: office space, meeting rooms, sleep pods, play and workout areas, a food court, and restrooms.
• The hub features a community of like-minded people that brings together various modern businesses in one space.

Benefits of innovative hubs for companies

In addition to the above-mentioned apparent advantages for the efficiency of employees, the hub has an inherently thought-out functionality aimed at full service for all tenants.

Renting office space in an innovative hub is much more profitable than renting a standard office because, in the second case, you will also have to invest money to equip and adapt the room to the new modern requirements for workspaces.

In addition, innovation hubs provide companies with several advantages that contribute to their growth and development:

• Communication and networking. Innovation Hubs gather entrepreneurs, startups, investors, and experts from various fields under one roof. This creates a unique network of contacts. Companies can easily find new partners, which helps them expand their business.
• Creative and stimulating environment. The hub provides all the conditions for creative thinking and the development of new technologies. Innovative companies share ideas, discuss issues and develop new problem-solving concepts together.
• Access to resources that can help companies in their development. This can include infrastructure and equipment, laboratories, technical expertise, educational programs, consulting, and management and marketing support.
• Attracting investment. Hubs typically attract the attention of investors looking for promising startups to fund, as investors can then actively monitor what is happening and assess the potential of projects.
• Training and development. The Hub offers a variety of training programs, workshops, activities, and mentoring programs for employees. This helps increase the skills, knowledge, and competencies needed for successful development and innovation.
• Government and industry support. This can include financial support, tax incentives, ease of obtaining licenses and permits, and more. Such support can make it much easier for a company to develop and help it grow.
• Using an innovation hub can be more cost-effective, especially for smaller companies and startups. Instead of investing in their office space and infrastructure, they can rent workspace in a hub at a more affordable price. In addition, the flexibility of lease terms and the availability of different workspaces (separate offices, shared workspaces, collaborative labs, etc.) allow companies to scale and adapt to changing needs.

In general, innovation hubs provide companies with opportunities to share ideas, access resources, and support, expand their network of contacts, develop their skills, and receive support from government and industry. This helps accelerate innovation, business growth, and the competitiveness of companies.

Special advantages of Cypriot hubs

Cyprus is a natural haven with low taxes and a super-privileged IP Box tax regime (rate from 2,5% to 12,5%). So whether you are interested in renting a hub or financially investing in it, you will benefit from the tax savings. 

Cyprus’s standard income tax rate is one of the lowest in the European Union — 12,5%. The IP Box regime can reduce the tax to 2,5%. To determine the preferential rate, the profits from the company’s intellectual property, software, and inventions are calculated, of which 80% are not taxed, and 20% are taxed at 12,5%. Read more about the IP Box regime and how to pay 2,5% income tax here.

In addition to taxes, hubs in Cyprus, especially in the context of innovative development, offer several special benefits to companies:

• Geographic location. Cyprus is a strategic location at the crossroads of three continents — Europe, Asia, and Africa. This makes it convenient to establish business connections within the country and with other regions. This is especially important for companies seeking an international presence and expanding their markets.
• Infrastructure and business ecosystem. The country has a well-developed infrastructure, including modern office space, technology parks, and business centers. In addition, the island has an active and diverse business ecosystem, including innovation hubs, incubators, gas pedals, and technology centers. This creates a favorable environment for the development and growth of companies.
• Government support in matters of innovation and entrepreneurship development. Financial support, grants, tax breaks, and other company incentives are provided. This includes programs to subsidize research and development costs, startup assistance programs, and grant opportunities for specific projects and initiatives.
• Rapid access to resources. The Cypriot government strives to create a favorable environment for innovation, simplifying procedures for obtaining licenses, permits, and company registration. This allows businesses to access the necessary resources and start operations more quickly.
• Investment support. The Republic of Cyprus also actively attracts foreign investment in innovative projects and companies. For example, providing state guarantees for investments simplified procedures of entry and stay for investors, as well as support in finding partners and sources of funding.

What are the benefits of innovation hubs for investment?

Creative spaces bring in more money — this is given in today’s times because such conditions stimulate the intellectual abilities of employees. No one needs the walls themselves anymore — they must be clothed in philosophies and meanings to give people additional value.

The benefits of innovative hubs for investing in their construction:

• Growing demand. In light of the growing interest in innovation and startups, the need for innovation hubs and spaces is increasing significantly. Investing in developing innovation hubs offers an opportunity to meet this demand and attract companies and entrepreneurs who need the right infrastructure solutions.
• Attracting investment from private investors, venture capital funds, government, and other organizations. Investment in building a hub can be recovered through rent payments from the companies in the hub and through a share of the successful investments and economic growth that the innovation ecosystem generates.

Innovation Hub is the best project to invest in because:

• the expected ROI is 5 to 11% per annum;
• the investor buys shares in the company that owns the hub, not just square footage;
• only a few investors per facility, allowing you to influence the company’s decisions;
• the entry threshold is from 1,000,000. €

Supporting factors in favor of investing in hubs:

• IT industry growth on the island was 31% in 2019 and 38% in 2021;
• Cypriot resident companies are required to have an office on the island;
• IT companies need Class A office space;
• there is a lack of classic office space in Cyprus;
• the office real estate market in Cyprus in 2020-2025 will grow at a rate of 30%.

In 2021, Cyprus ranked a remarkable 18th in the FDI Intelligence ranking, which measures foreign investment performance in the newest industries. This is an impressive rise for a country that ranked only 68th the previous year. Awe-inspiring growth was shown in information technology, where investments grew by as much as 600%. Cyprus' startup ecosystem is also noteworthy, ranking 55th globally and 19th in Europe, according to the StartupBlink survey. These positions reflect the positive dynamics that the country has demonstrated year after year in developing innovation and attracting investment.

How it all began: the story of the first innovation hub

The first so-called innovation hub emerged in the early 20th century, called Bell Labs (Bell Laboratories). It was created in 1925 as a research division of Bell Telephone System (now known as AT& T) and was located in Murray Hill, New Jersey, USA.

Bell Labs was the first center where scientific and engineering research, development, and innovation were brought together in one place. It attracted many talented scientists, engineers, and inventors and gave them access to state-of-the-art equipment and resources.

It was one of the most productive innovation centers in history. Significant discoveries and inventions were made here, such as the transistor, solar cells, silicon chips, fiber optic communications, and many other technologies that significantly influenced the development of telecommunications, electronics, and information technology.

Bell Labs has left a tremendous legacy of innovation and is an example of a successful innovation hub. Its success has fostered the creation and development of other innovation hubs worldwide that have begun to focus on different industries and areas of expertise.

How did Bell Labs begin to create today’s innovative hubs?

This hub played an important role in the development of modern innovation hubs and had a significant impact on their emergence.

Bell Labs was an example of a successful model where scientists, engineers, and inventors from different disciplines worked together in one organization. This fostered a collaborative exchange of knowledge, ideas, and expertise that became the foundation for future innovation hubs.

The company was known for significant inventions and technological developments that had a global impact. This demonstrated the potential and value of innovation, spurring the development and support of other innovation hubs.

In addition, Bell Labs devoted significant resources to funding research and development. This showed the importance of investing in science and innovation and brought this approach to the attention of other organizations.

As a result of the Bell Laboratories hub’s success and its model’s recognition, other companies, universities, and states began to create their innovation hubs inspired by this example. They sought to replicate the collaboration, knowledge-sharing model, and a focus on developing new technologies and products. This process led to the emergence of modern innovation hubs around the world.

Bottom line: why is it profitable to invest in innovation hubs and how will it help protect investments in a crisis?

Investing in innovation hubs offers several benefits that can help protect your investment in times of crisis.

Growth potential. Innovation hubs focus on developing new and promising industries such as information technology, biotechnology, clean energy, etc. These industries usually have high growth potential, even during crises, because they focus on innovation, efficiency, and new market opportunities.

Portfolio diversification. Placing funds in various startups and innovative projects helps reduce risk and increase the chances of success, as exciting projects can generate significant returns, offsetting potential losses in other areas.

Support from experts and infrastructure. Innovation hubs provide access to experts, consultants, and state-of-the-art infrastructure that can help companies and startups overcome the challenges of the crisis. This can include assistance in finding new business opportunities, developing survival strategies, financial support, and other resources needed to overcome the problem.

Government support and incentives. Many governments place a high value on innovation and entrepreneurship development, especially in times of crisis when the economy requires support. This leads to the provision of various incentives and financial rewards for companies and investors actively involved in innovation projects and hubs.

Long-term outlook. Investing in innovation hubs is a strategic decision aimed at the long term. Developing innovative industries and ecosystems usually takes time, and the results can become visible in a few years. Investing in innovation hubs allows you to shape promising markets and stay ahead of the competition when the economy recovers from the crisis.

Invest in future leaders. Innovation hubs are often the birthplace of the next generation of leaders and successful companies. By investing in these hubs, you have the opportunity to support and partner with promising startups and talented entrepreneurs who can become future industry leaders and provide you with a high return on your investment.

Read more about investing in the crisis in our article. We broke down the rules of portfolio diversification, selected the safest «havens» and identified promising and long-lasting sectors of the economy and market.

Also, find out what kind of business to open in Cyprus in 2023. We have considered the most profitable directions, found out if it is necessary to open the new company or if it is better to invest in the ready business, and also have told about the current conditions of opening the company in Cyprus in 2023.

 

SPM is your most valuable contact in Cyprus.

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