The quality of infrastructure systems—including transportation, utilities, and telecommunications—is the most important factor influencing real estate investment and development decisions in cities around the world, according to a survey of public sector and private sector leaders conducted by the Urban Land Institute and EY. The findings are included in the Infrastructure 2014: Shaping the Competitive City report, released this week at ULI’s 2014 Spring Meeting in Vancouver, British Columbia.
The survey, conducted in January 2014, reflects the opinions of 241 public sector officials and 202 senior-level real estate executives (developers, investors, lenders, and advisers) based in large and medium-sized cities across the globe, with concentrations in the United States, Europe, and the Asia Pacific region.
Eighty-eight percent of respondents rated infrastructure quality as the top factor influencing real estate investment and development. Strong telecommunications systems (including high-speed internet capability) led the list, along with good roads and bridges and reliable and affordable energy. Demographic forces, including consumer demand and workforce skills, were other top considerations determining real estate investment locations.
The survey findings highlight the critical role that infrastructure plays in guiding real estate activity and economic development, and reinforces the need for close coordination between land use planning and infrastructure planning, says ULI Chief Executive Officer Patrick L. Phillips. “This survey indicates a growing awareness among the public and private sectors of the importance of investments in a variety of transportation systems, including ‘active’ transportation that offers an alternative to constant car use,” he says. “We have entered a new era that requires new approaches to funding and building infrastructure to support the creation of communities that are healthier, more livable, economically prosperous, and environmentally sustainable.”
Howard Roth, EY’s global real estate leader, adds, “Helping stakeholders better understand the importance of developing and maintaining infrastructure, and providing a clear vision of what those infrastructure investments can accomplish, is critical.”
Other key findings from the survey include the following:
• Public transit led the list of infrastructure investment priorities. Seventy-eight percent of survey respondents said public transit systems, including bus and rail, should receive top priority for infrastructure improvements, followed by roads and bridges (71 percent) and pedestrian facilities (63 percent).
• Investment priority rankings tended to be the inverse of quality perceptions, with only 48 percent of survey respondents ranking public transit as “good” or “very good” in quality, and with 51 percent saying sidewalks and pedestrian facilities were good or very good.
• Roads and bridges received modest quality marks, with 60 percent of respondents rating them good or very good. (By contrast, 90 percent of respondents said health care facilities were good or very good, placing these facilities at the top of the quality list.)
The public’s willingness to pay for infrastructure was ranked as the top factor shaping both infrastructure and real estate development over the next ten years, followed by consumer demand for compact, walkable development, and the prevalence of families with children. The cost and availability of energy and the use of innovative pricing systems to fund, manage, and operate infrastructure ranked slightly lower.
Three-quarters of respondents identified cooperation between developers and local governments as the most significant funding approach for new infrastructure. Other strategies that require collaboration between real estate and civic leaders—including value capture and negotiated exactions—also top the list of likely infrastructure funding sources. However, despite the high ratings for these strategies, the report notes that they are limited in their ability to fund infrastructure at a systematic level, and they are not effective in all contexts. All funding strategies offered in the survey—including contributions from federal and state governments—received relatively strong responses, suggesting the need for a range of funding options. Malcolm Bairstow, EY’s global infrastructure and construction leader, comments, “Real estate and civic leaders must work together to find more creative and collaborative ways to articulate benefits and overcome funding challenges on infrastructure developments, as this is critical to stimulating long-term economic development.”
The survey also shows skepticism among respondents about the level of preparation by local governments regarding the long-term operations and maintenance of infrastructure. Only 25 percent of survey respondents overall said that long-term operations and maintenance were usually an integrated part of decision making. Private sector leaders were especially likely to be concerned about this topic, with 18 percent saying that adequate provision is usually made, compared with 32 percent of public sector leaders.
Infrastructure 2014: Shaping the Competitive City includes an interview with Gabe Klein, a senior visiting fellow for ULI who is also a former transportation chief for the cities of Washington, D.C., and Chicago. Klein, who is known for spearheading efforts to make cities less car-centric and more pedestrian-friendly, discussed what’s ahead for innovations in urban transportation, including increasing use of “soft” transit options (such as bike lanes) as a supplement to traditional transit systems such as heavy rail or bus lines. “The investment by cities in cycling infrastructure, wider sidewalks, and streetscapes has reinvigorated urban economies by creating a sense of place, and essentially putting back in place what made cities attractive to residents in the first place,” Klein says.
Infrastructure 2014 also includes three case studies of infrastructure investments that have catalyzed economic growth:
• London’s Olympic Park, cited as an example of building infrastructure for permanence. The infrastructure built for the 2012 Summer Olympics in London was designed to benefit the surrounding neighborhoods for decades to come. As a result, areas near the site have experienced more multifamily housing development than nearly anywhere else in the U.K.
• The Biscayne Bay Tunnel Project in Miami, an example of a strategic investment in port connections. The city is expanding access to its port through a public/private partnership that is building tunnels to link the main interstate highway directly to the port. The improved truck access is aimed at reducing congestion on downtown surface streets and boosting the competitiveness of the port in anticipation of the Panama Canal expansion.
• The Hong Kong transit system, designed specifically to link real estate and transit. Planning and designing the system around this linkage, along with the development of land around transit stations, has resulted in superior transit service, compact land use patterns throughout Hong Kong, and profitability for the system.