Investing in Place

What makes a city a safe place to invest?  Investors depend on reliable locales to lower risk for their development prospects, but what are the criteria that distinguish a dynamic, global city from its less-appealing neighbor?

  1. Economic Certainty.  Confidence in a city’s growth prospects is a major indicator for real estate investors.  The availability of resources, in the form of people, ongoing commerce, land, and capital, also drives development.  Diversity of industrial and commercial concerns distributes the economic load, creating a more flexible network and generating the drive for innovation.
  2. Political Stability. Wild swings in elections affect development predictably, but in unpredictable ways.  Significant policy changes in domestic and foreign affairs can lead to contingent regulations, and a wave of populism creates uncertainty, not opportunity.  Evaluating the potential for terrorism plays a major role in selecting sites for investment.
  3. Geographic Stability. Climate change will have an increasing effect on the metrics of development.  The potential for interruption and losses during the service life of a project due to severe weather and flooding will affect the pro forma and the ability to raise capital for a project.  Cities may reduce these risks by taking collective action through restricting development in low-lying areas or providing structural protections; otherwise, investors may be responsible for constructing individual defences.  Adaptation costs will increase to deal with climate risks. Cities may increase density in some areas and reduce population in others, which will affect transit links, infrastructure, and other services.
  4. Technological Continuity. Access to fast and uninterrupted data and communication is essential for a dynamic city.  This is critical, not just in the office, but throughout the city, in order to recruit the next generation workforce.
  5. Quality of Life. A vibrant location will offer entertainment choices, green space, a short commute, street life, leisure amenities, great food. In the workplace, creating collaborative space that people want to work in will ensure that employee productivity remains high.  Investment in social infrastructure and healthy alternatives to automobile commutes are indicators of liveability.
  6. Cities with a wide range of housing types and availability are preferable to those with extremely high property values or limited choices.  The availability of good sites for development/redevelopment, reasonable construction costs, and low cost capital – these contribute to affordable rents, purchases, and investments.
  7. Cities cannot be locked in to systems that are inefficient, unreliable, or polluting.  Flexible infrastructure is decentralized, renewable, and has capacity to expand.  Flexible land use and zoning restrictions encourage compact, complete, and connected neighborhoods so that daily needs can be met without a car.
  8. Power of the Collective. Reliable investments leverage the combined effect of many smaller projects to attract more development.  Cities act as aggregators by working block by block to promote the right mix of uses, densities, and tenants to support the neighborhood and benefit from a ripple effect.

The ULI just published Emerging Trends in Real Estate 2017 with HafenCity on the cover, a place which has embraced climate adaptation and innovation.  It sets the new standard for cities looking toward the future and creating a predictable platform for investment.