A few days ago ICANN approved 95 new generic top-level domains (gTLDs). Among these were the first ever city-name TLDs - .hamburg and .cologne. I initially read about this in an article by Dennis Tippe (in German), which made me think seriously about the implications these TLDs could potentially have on local SEO.
It is well-known that one of the main ways for search engines to determine the relevancy of particular website to particular country is by looking at the TLD. For instance, it is relatively certain that the domain joeshairsalon.ca is owned by a Canadian person/business and most probably caters to Canadian audience. Here is an interesting video of what Matt Cutts says about TLDs and how they help Google understand the relevancy of the domain to particular language or region:
Here is another video answer by Matt Cutts on how Google would be treating the new TLDs:
Additionally, Google themselves have been applying for a number of TLDs and one of the main reasons (in their own words) is improving user experience.
Therefore, it is fair to think that Geo-TLDs, and specifically city-name TLDs might have major effect on a site’s rankings in future. Why in future? Because as Matt says in the second video above, Google will have to first learn how to treat these TLDs, which might take some time.
An interesting check in the current application status database of new gTLDs of ICANN shows that there are a number of other city-name TLDs pending approval, such as: