Philadelphia is at the vanguard of a movement that is luring creative businesses to cities, according to a new report by the Washington, D.C.-based Brookings Institution. 

For decades, most cutting-edge companies snubbed urban areas and set up shop at isolated campuses in the suburbs, said Brookings Institution vice president Bruce Katz in his paper, "The Rise of Innovation Districts: A New Geography of Innovation in America." 

That has changed recently, as young employees have clamored for accessible workplaces and employers have demanded more collaboration. Many inventive companies are now choosing to move to "innovation districts" in cities, which feature a mix of universities, startups, business incubators, retail stores and housing.

Philadelphia's innovation district is located in the University City area, where nonprofits such as the University of Pennsylvania, the University City Science Center and Drexel University thrive alongside private firms including First Round Capital.

"We identified seven examples in our paper of districts to watch, and University City in Philadelphia, we think, has enormous potential, only a portion of which has been realized," said Katz.

Katz said University City is noteworthy because it has an iconic presence, several transit options, and a good track record of attracting entrepreneurs. He said the trick will be improving the employment prospects of low-income residents who live nearby.

"Philadelphia's challenge — that will be quite similar to the challenge in many other cities in the U.S. — is not just to grow more innovative jobs," he said, "but to grow better jobs and help upgrade the education and skills of residents in surrounding neighborhoods so they can participate in the growth."

Katz said the city's schools can help by teaching more technical skills.