July 12, 2012
The challenge for cities is to remain consistently attractive and bring forward enough investment opportunity to sustain market interest.
Our theme for the next few weeks is about the attractiveness of cities to investors.
Back in March 2012, during MIPIM, we reviewed Jones Lang LaSalle’s global investment report. It showed that just 30 cities attract 50% of all of the mobile investment capital in the world. For these 30 cities, the challenge concerns how to compete for the big prizes, remain consistently attractive, and bring forward enough investment opportunity to sustain market interest and remain open. For these cities, the challenge is ‘supply side constraints’ in costs and congestion, infrastructure, land use planning and the availability and assembly of sites of enough scale. The problem is not attracting investors, but facilitating investment efficiently, spreading the locations of investment away from the congested core to other quarters, and coming up with something new at the right times.
Outside the top 30, the challenges are rather different. For the 250 major European cities, and the other 2000 world wide that are not in the top tier, the quest is to either get into the top 30, or to find a way to develop an investment regime that utilizes other sources of capital.
Capital investment is essential for cities. The process of adjusting to changes in population, commerce and trade, infrastructure requirements, technology, utilities and energy systems, all require investment. Land uses change radically with changes in other drivers, but transforming land uses is capital intensive. Cities are only adaptable to change to the extent that they can generate the investment capital required to facilitate renewal and modernisation. In the current climate, the potential sources of investment have changed radically since 5 years ago. This year’s Mayors’ Think Tank at MIPIM tackled the issue of infrastructure investment, with several Mayors and city leaders lamenting the absence of tools to tap into new sources of capital. Put simply, in most of the west of the north, bank finance and public grants and transfers that were common place 5 years ago, have all but dried up. Cities that seek investment today must find ways to attract capital markets through bond issues and other forms of structured finance, or become a locus for pension and sovereign wealth funds, or develop joint ventures using public land as equity, or create special investment funds with development banks, and build other incentives to attract investment.
The agenda has shifted decisively towards how cities can attract investors that are highly mobile and have almost an infinite choice about where they invest, and over what time frame. This shift heralds a new phase of innovation in how cities construct investment opportunities and engage with the market. Over the next weeks we will review some of the new tools and approaches that are being trialed by cities across Europe.