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Home Leaders reveal confidence The complex landscape Flexibility and resilience are the keys to success Disruption brings opportunity
Construction costs of building cities
Working from home/ evolving work habits
Technology deployments & futureproofing them
Legal frameworks and regulatory change
City liveability
Securing planning consents
ESG factors
Public funding and government budgets
Private funding, finance and investment
Economy / recessionary pressures
Covid-19 / concern over health in cities
42%
31%
30%
29%
26%
25%
24%
21%
19%
12%
Top challenges facing city project leaders
of respondents chose factors other than the direct impact of Covid-19 as the greatest uncertainty facing their city projects
80%
Despite the events of this year, senior executives are already looking beyond the pandemic. 80% of respondents said that factors other than the direct impact of Covid-19 represented the greatest uncertainty facing their city projects. But the landscape is complex, with multiple factors driving change. The global recession (39%) and the pandemic (36%) were the first and third most important factors driving change. Technological innovation, the second most important factor (38%), underpins much of the change respondents are seeing, from the digitalisation of infrastructure to the growth in remote working. Technology will be a key enabler if we are to achieve the adaptability and resilience that our future cities require.
Although city projects have a lot to contend with, we believe that the medium- and long-term effects of many short-term changes brought about by the pandemic have been overestimated and will level out. This is why it is important for governments and the private sector to take a longer term view of cities.
Adoption of technology and innovation in isolation will not lead to sustainable benefits. It is only when technology and innovation integrate with overall strategy, and align with people’s needs, that genuine and lasting change occurs.”
PETER JONES, TECHNOLOGY PARTNER, HERBERT SMITH FREEHILLS
We are going through a prolonged external shock. This is going to have a long-term positive impact on the preparedness of most cities, governments and people. Everyone will be much more resilient.”
TIBOR SCHWARTZ, SENIOR ADVISOR, ASSET MANAGEMENT, QIC
Perhaps less surprising is that a high proportion of respondents said their existing projects are more adaptable to change now. For many, this adaptability was driven by a need to respond to a health crisis and the unprecedented interventions by government in response to that health crisis. However, it has provided an opportunity for senior executives in government and the private sector to reconsider conventional wisdom about our cities and explore new and different approaches to planning and implementing city projects. Just as the 2008 global financial crisis helped drive a wave of smart city projects around the world, so too could Covid-19. But pre-pandemic approaches and policies can and must be improved. The private sector and government must recognise each other’s challenges and work collaboratively to develop transaction structures and regulatory frameworks which are fit-for-purpose. Sophisticated players must shift risk management strategies to focus on business and project resilience. By building in resilience now, there is potential for city projects to realise a “resilience dividend” when faced with future disruptive events.
The shock of the pandemic and global recession is far-reaching. But beyond this, the disruption presents an opportunity for project leaders and their teams to adapt and innovate to ensure that our cities can continue to prosper despite the unprecedented challenges. The shift towards home working and reduced commuting patterns has led many citizens to reconsider where they want to live and what they want from their neighbourhoods. The most successful cities in the future will need to have a sharp focus on these positive liveability gains. One third of respondents (33%) rated technological deficits with connectivity technologies (eg IoT and 5G) as a significant opportunity and a similar proportion of respondents (29%) placed infrastructure deficits in their top three opportunities. Unsurprisingly, senior executives see the need for new energy systems and circular economies as areas of opportunity too. But opportunities and solutions cannot be realised through siloed approaches. The most interesting and compelling city solutions will require a “convergence” of disciplines and sectors. Government also has a key role to play in embedding some of the lifestyle changes that have been witnessed during the pandemic, such as the importance of green spaces in our cities, the resurgence of local neighbourhoods and services, and more sustainable transport patterns. We can expect planning and regulatory frameworks to reinforce these positive outcomes and the private sector must work in partnership with government and local communities to design city projects to embrace these changes, rather than reverting back to business as usual principles.
Careful project selection criteria
Agile planning and regulatory frameworks that fast track high priority projects and allow projects to evolve and adapt
Selection of fit-for-purpose procurement and finance structures that meet the needs of particular projects
Mixed-use models for real estate development
Governments being open to unsolicited proposals and market-led solutions that reward innovation
Embrace technological change across all sectors as an essential enabler
Creative and collaborative approaches to risk allocation and risk sharing
Convergence of disciplines and sectors to develop and implement city project solutions
Learning from the lessons of the pandemic to embed positive changes in new city projects
Technology, digital systems and platforms
Stakeholder concerns
Inflexible planning framework
Collaborative relationship of parties
Design and development processes
Contractual documentation / commitments
Lack of internal resources
Reliance on existing infrastructure, which is not fit for purpose
Law and regulation
41%
36%
32%
27%
23%
18%
Responsiveness of government and regulators
Financing and funding
Top factors restricting projects’ future adaptability
Confidence
Almost two-thirds (64%) are confident about the future success of their current and planned city projects.
Going one step further, a similar proportion (63%) say they’re actually more confident about their city project’s success than they were before the Covid-19 pandemic.
In addition, 53% are optimistic when it comes to the future of their city projects.
64%
63%
53%
47%
44%
48%
38%
35%
34%
Central government and city authority support
Technological innovation
Access to public or private funding and finance
Health and pandemic mitigation
Multi-sector collaboration
Legislation and regulations
Citizen engagement
The need to address ESG factors
What is driving optimism?
1
2
3
4
Well-chosen city projects will generate immediate job opportunities in the short term and sustained economic growth in the long term while also delivering positive environmental, health and wellbeing outcomes. The pandemic is causing change and disruption across our cities but with change and disruption comes opportunity for those prepared to be bold and take the long view. The challenges of 2020 have not turned the private sector away from city projects. Results from our survey of senior executives involved in city projects across the globe – conducted in the midst of a global pandemic and economic turmoil – have defied popular assumptions, revealing that they are more optimistic and confident about their projects’ success than before Covid-19. In fact, they are already looking past the pandemic with very few listing Covid-19 as the biggest uncertainty facing the future of their project. The pandemic has had a devastating impact on the lives and livelihoods of so many people, but looking ahead there are some indications of positive changes that may be made in response to the health crisis. For example, our results show that senior executives found their projects to be more adaptable and flexible than before Covid-19, demonstrating how rapidly the private sector and governments have needed to adapt and evolve throughout 2020. We need to hold on to this adaptability as the pandemic hopefully subsides. Despite media speculation about the demise of cities as a result of the pandemic, the results of our survey (which was undertaken before recent announcements about a vaccine) demonstrate that optimism about cities projects is higher than before the pandemic, though challenges remain. Success will require bold leadership from government, a need to build flexibility into project structures and regulatory frameworks and pathways for the private sector to propose innovative solutions to the challenges faced by cities. We believe that successful city projects require a “convergence” of disciplines and sectors, such as smart infrastructure, energy-tech and city regeneration projects that combine property and infrastructure solutions.
Transformative city projects involve the convergence of real estate, economic and social infrastructure technology, data and energy. Silo delivery structures that fail to identify and exploit these intersections are destined to fail.”
Our data confirms that senior executives across the globe are looking to the future with confidence. Almost two-thirds (64%) of respondents were confident about the future success of their current and planned city projects, with 63% actually more confident about their city projects’ success than before Covid-19. Confidence is highest in jurisdictions that have been successful in controlling the virus — Australia coming in first with 86% of respondents saying they are confident, followed by Asia (68%). However, these results were collected before the recent announcements about vaccine development, so we would expect them to be higher across other regions if asked now. For this confidence to continue, governments must act now to fast track projects that will create jobs and generate productivity, health and wellbeing outcomes. In doing so, governments should be conscious that opportunities in relation to technology and innovation are driving optimism among senior executives.
The level of confidence and optimism is palpable amongst business leaders.”
NICHOLAS CARNEY, INFRASTRUCTURE PARTNER, HERBERT SMITH FREEHILLS
The time is now for governments and the private sector to come together to invest in our cities.
What is a city project?
When we talk about city projects in this report, we mean significant projects that are delivered in existing cities or which involve the development of new cities. These involve more than just “smart” city principles. Delivery of city projects requires coordinated expertise across the real estate, infrastructure, technology and energy sectors.
Examples of city projects include:
New city or “greenfield” projects (eg NEOM in Saudi Arabia and Western Sydney Aerotropolis in Australia)
Urban regeneration projects (eg the Canada Water Masterplan in London, England and the Grand Paris regeneration project in France)
City-shaping infrastructure projects (eg High Speed 2 in England and Melbourne Metro in Australia)
Smart city and digital infrastructure projects (eg 5G rollout)
1. Ritchie, H. (2018). Urbanization. OurWorldInData. https://ourworldindata.org/urbanization 2. GlobalData (2019). Dubai, London and New York are 2019’s ‘Construction Mega Cities’. https://www.globaldata.com/dubai-london-and-new-york-are-2019s-construction-mega-cities/
Since the end of the Second World War, the growth of cities has been relentless. In 1950, less than a third of the world’s population lived in towns and cities. According to UN estimates, 2007 marked the first year in history that more people in the world lived in urban than in rural areas. The urban population was predicted to reach 68% by 2050 – more than doubling in the space of a century. At the start of 2020, global investment in city projects was reaching new heights. The world’s biggest spending cities were investing in over 8,200 projects in 2019, with a combined project pipeline of US$5.3 trillion. Then the global pandemic hit, followed closely by economic recession: government, business and public focus shifted to combatting the immediate health, social and economic crises. So what has been the impact to city projects that were planned during this time and in the not so distant future? To find out, we surveyed 450 senior executives across the globe who are involved in city projects. Survey respondents included c-suites and heads of projects, policy, strategy, investment, sustainability, smart cities, data and cyber, across the infrastructure, technology, real estate, telecommunications, government, energy and transport sectors. The pandemic is still a critical issue in many parts of the world. Notwithstanding recent vaccine announcements, we haven’t conquered Covid-19 yet by any means. There remains a high degree of uncertainty as to how the future will unfold. But the results of our survey tell a story – one of optimism and confidence and a readiness to invest in our cities for the future.
Despite media speculation about the decline of cities as a result of the Covid-19 pandemic, the results of our survey demonstrate that cities will continue to be the primary focus for future investment and growth; and that there remains a deep well of confidence and optimism in the future of our cities.”
MATTHEW WHITE, REAL ESTATE PARTNER, HERBERT SMITH FREEHILLS
MATTHEW WHITE, PARTNER
NICHOLAS CARNEY, PARTNER
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Welcome
Executive summary
Leaders reveal confidence
The complex landscape
Flexibility and resilience are the keys to success
Disruption brings opportunity
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02 / 05
Senior executives are confident and optimistic about the future. However, if confidence is to continue, government support is required and businesses must innovate through technology and go beyond their traditional boundaries.
The crisis highlighted technology deficits and the lack of digital connectivity for some communities – but this also points to the future opportunities.”
Miriam Everett, Partner, Herbert Smith Freehills
2020 has been a challenging year and much has been written about the impact that Covid-19 will have on cities, but confidence and optimism remain strong amongst senior executives involved with city projects. Almost two-thirds (63%) of respondents in our recent survey are actually more confident about their city project’s success than they were before the pandemic. Confidence is highest in jurisdictions that have been successful in controlling the virus — Australia coming in first with 86% of respondents saying they are confident, followed by Asia (68%). However, these results were collected before the recent vaccine announcements, so we would expect them to be higher across other regions if asked now.
Drivers of optimism
The factors driving optimism are varied, but are led by public sector support, which nearly half (48%) of respondents placed in their top three. In that context, it is noteworthy that we are already starting to see governments shape long-term recovery strategies which create immediate job opportunities and encourage investment in infrastructure, energy, real estate and technology. The UK Government has announced a £4 billion “green industrial revolution” to tackle climate change, create new jobs, decarbonise home energy consumption and ban the sale of diesel and petrol vehicles by 2030. In budgets handed down in the last few months, Australian governments (federal and four of the states) have allocated over A$260 billion to infrastructure investment over the next four years – including an increase of over A$50 billion—most of which will be spent in cities. Meanwhile mayors of C40 cities (a network of the world’s megacities) are discussing huge public investment to create a “new normal” for city economies, focusing on building sustainable, inclusive, safe and resilient cities. Governments can also rely on record-low interest rates to invest in productive and sustainable city projects.
Technological innovation and access to finance also appear in the top three factors driving optimism. The pandemic is forcing the private sector and cities to accelerate their digitalisation roadmap to both meet the immediate needs of services in demand during lockdown, but also to contribute to a more connected and sustainable society in the future. The result is already a very different landscape with greater opportunities made possible through digital solutions. Multi-sector collaboration is also driving optimism, with one in three senior executives placing this in their top three. Long-term solutions to transform cities will likely require convergence so we believe this to be one of the greatest opportunities for project leaders to harness.
3. C40 Cities (2020). Global Mayors Covid-19 Recovery Task Force. https://www.c40.org/other/covid-task-force
Acces to public or private funding and finance
No
Yes
Poll
To transform cities, projects and solutions will require convergence of sectors. Do your city projects currently involve convergence?
You answered yes.
You answered no.
%
42
31
29
30
26
25
24
21
19
12
City projects face a multitude of challenges, some of which have been caused or exacerbated by the pandemic, making the landscape ever more complex to navigate.
There are many significant factors impacting city projects and forcing change, reinforcing the importance of flexibility to project success. The global recession (39%) and pandemic (36%) were placed as the first and third most important factors driving change. Technological innovation, the second most important factor (38%), underpins much of the change respondents are seeing, from the digitalisation of infrastructure to the growth in remote working — technology is a key enabler in driving adaptability and resilience in our cities. Using technology to capture more data, for instance, offers incredible potential. Capturing the correct information means city projects can use it to manage resources more efficiently, as well as predict and cope with demand. It’s about using city infrastructure, transport networks and utilities in a smarter way.
Drivers of a changing landscape
Technology innovation is an enabler in cities. The problem is that you need to see a return on investment (ROI). Transport, buildings and people movement offer an ROI. If you don’t see an ROI it is difficult as a vendor to get involved with projects.”
KEVIN BLOCH, FOUNDER, BLOCH ADVISORY, EX-CTO OF CISCO AUSTRALIA AND NEW ZEALAND
Government funding and budgets is the fourth most important factor driving change (30%). Given governments’ focus on the pandemic for the past six months, budgets are incredibly stretched and will be an ongoing challenge for those balancing budgets and those seeking funding. Remote working is also having a domino effect, impacting the redesign of city spaces and buildings as well as changes to travel patterns affecting fare revenues. Environmental, social and corporate governance factors remain a significant driver of change (24%), and given the outcome of the recent US election we are likely to see this continue to remain a priority — and one that can significantly impact the private sector’s social licence to operate (whether they are granted acceptance by the public based on their operations and what they stand for).
Most important drivers of change
Shifts in demographics
Responding to pandemic and health related events
The need for investors to deploy capital
Changing patterns of travel into and around cities
Urbanisation and population flux
Redefining city spaces with more working from home/more e-commerce
ESG: environment, social and corporate governance issues
Global economic recession and local economic slowdown
39%
22%
17%
What stands in the way?
Despite the events of 2020, senior executives are looking beyond the pandemic, with 80% of respondents stating that factors other than the direct impact of Covid-19 represent the greatest uncertainty facing their city projects. The immediate issues that city projects are facing, apart from the pandemic and recession, revolve around funding and finance. In fact, 60% of respondents placed either private or public funding in their top three challenges. The structure of government procuring agencies is relevant here. National governments and large state or regional governments with broad taxation powers have a greater capacity to borrow to invest in new city projects than city or municipal governments that are more reliant on passenger fare revenue or property taxes. Accordingly, we are seeing US cities and states seeking federal bailouts, while in the UK, Transport for London was forced to negotiate a £1.8 billion settlement from central government following a 70% drop in passenger numbers and revenue as a result of the pandemic.
Technology deployments and futureproofing them
03 / 05
Until these matters are resolved, it will be difficult for cash-strapped city or municipal government agencies to invest in new projects. The private sector needs to encourage different levels of governments to overcome these barriers so that investment can be unlocked. The Australian Government’s asset recycling program between 2014–19 provides an innovative example of how a national government can incentivise state or municipal governments to recycle capital by selling existing infrastructure assets to fund new projects. While the pandemic continues to cause challenges far and wide, we believe that with arrival of one or more vaccines, some of the medium-term predictions about the impact of Covid-19 on cities have been overestimated and will level out over time. This is why it is important for governments and the private sector to take a longer term view of cities.
Coronavirus / concern over health in cities
Is the collection and analysis of data an important feature of your city project?
The pandemic has shown that society can’t anticipate every eventuality, highlighting the importance of agile and flexible contractual and regulatory frameworks and a collaborative approach to solving problems.
On top of the increasing confidence of city project success, 74% of our survey respondents say their project has become more adaptable compared to six months ago. This demonstrates how rapidly the private sector and governments have needed to adapt and evolve throughout 2020. Although some of this has no doubt been supported by the adoption of technology, there are other examples of adaptability — for instance there is growing evidence that landlords are offering more flexible models for the delivery of office space, whilst retailers are developing new experiential retail destinations and repurposing underperforming assets into new residential estates or logistics hubs.
Right now, navigating uncertainty by building flexibility into city projects is vital to achieving success beyond the pandemic. This means challenging business-as-usual models, embracing innovative planning and real estate structures and establishing improved trust between the public and private sectors and local communities.”
Given the importance of adaptability to the success of your projects, have you considered how you can build more flexibility into your contracts?
Project adaptability compared to before the pandemic
40%
Much more adaptable
A little more adaptable
City resilience dividend
Risk management has long focused on business continuity, but prior to the pandemic we began to see a shift among sophisticated players toward business and project resilience. Continuity is about keeping the lights on; resilience is keeping the lights on and also positioning for growth when disruption subsides. Following the pandemic, resilience will become the standard. City project resilience needs to be built in at an early stage — for example, putting IT systems in the cloud, cyber surveillance and risk sharing structures. If this occurs, city projects will be better able to weather adverse events and reap rewards over and above their investment.
By building in resilience now, there is potential for city projects to realise a “resilience dividend” when faced with future disruptive events.
Governments can’t solve all of the problems by themselves – innovative and resilient solutions will require significant private sector input and initiative.”
STRONG FINANCIAL UNDERPINNING
LEADERSHIP AND STRATEGY
BACKING FROM GOVERNMENT
USER CHARGES / CUSTOMERS
SUPPORT FROM SOCIETY
ANSWERING ENVIRONMENTAL NEEDS
ADAPTABILITY BUILT-IN TO PROJECT DESIGN
FLEXIBLE PLANNING / REGULATORY FRAMEWORK
TECHNOLOGY, DIGITAL SYSTEMS, AND PLATFORMS
58%
49%
45%
28%
37%
52%
04 / 05
Urban schemes aren’t always designed to be as adaptable as they now need to be — they involve complex, long-term and often cumbersome structures, especially if they are delivering regeneration, new infrastructure, mobility solutions or utilities. But the pandemic has shown it is both possible and worth the effort to tackle this inflexibility: building in more adaptability means city projects will have the resilience to cope with unexpected events and other long-term stresses. We have seen some early examples of planning structures becoming more nimble with fast-track planning approvals in New South Wales, Australia and changes to the Use Classes Order in the UK to support a wider range of town centre uses. Funding and finance models will also need to evolve with the times — innovation and collaboration are essential to this. Prior to the pandemic we saw a shift in the UK away from privately financed initiatives (PFI – also known as public-private partnerships (PPPs or P3) in other jurisdictions), with alternative models under consideration, as evidenced by the UK government’s consultation on a regulated asset base (RAB) financing model for nuclear projects. In Australia, there has been a recent focus on collaborative contracting principles on major projects with the New South Wales Government adopting a 10 point commitment to greater collaboration with the construction sector. Both examples reflect some of the challenges inherent in fixed price contracts and a desire for more flexibility in structures, which is consistent with our survey results.
The regulated asset base model (RAB) first emerged in the UK and is associated with the successful privatisation and subsequent sustained investment in UK network businesses and other utility businesses (eg water, electricity, gas, etc). Typically RAB has been used for operating businesses with an established asset base, with the PPP model traditionally used for new build infrastructure projects. Thames Tideway Tunnel has recently demonstrated that the RAB model can work in a greenfield infrastructure context.
What is the RAB model?
Addressing the key factors that determine resilience is vital. Resilience can take many forms, whether it involves building back with ESG factors in mind, more flexible-use real estate, embracing circular economy principles or rethinking urban infrastructure to support local communities and reduced travel patterns. In the wake of the pandemic, with less public money available and the need to create jobs, cities will be asking how they can develop better quality projects with less time, money and effort. Private sector solutions through market-led and unsolicited proposals should be actively encouraged, but such schemes must be reformed to reward innovation not just incumbency.
Main factors underpinning resilience
4. Hammond, G. and Eley, J. (2020). Empty high streets reach beyond retail for survival. Financial Times. https://www.ft.com/content/cb543a4d-faca-4d8d-9b3f-e505ffbea369 5. Tabary, Z. (2020). Cities reboot: Will adapting to Covid-19 change urban life for good? Reuters. https://www.reuters.com/article/us-health-coronavirus-cities-insight-trf-idUSKBN27E0O2 6. Department for Business, Energy & Industrial Strategy (2019). Regulated Asset Base (RAB) model for nuclear. UK Government. https://www.gov.uk/government/consultations/regulated-asset-base-rab-model-for-nuclear 7. Infrastructure NSW (2018). A ten point commitment to the construction sector. NSW Government. https://www.infrastructure.nsw.gov.au/media/1649/10-point-commitment-to-the-construction-industry-final-002.pdf
Reliance on existing infrastructure, which is not fit-for-purpose
5
6
7
05 / 05
Technological deficits with new connectivity
Liveability concerns (i.e. public transport, affordable housing or open spaces)
The infrastructure deficit
Need for new energy systems
A need for circular economy approaches
Improved logistics networks
Health concerns and inequalities
Population pressures
Shift in demographics
Climate change adaptation and mitigation
Deficit in end-to-end transport options
Social inequalities
33%
15%
Biggest areas of opportunity for city projects
The markets are very disrupted right now: there is an awful lot of change. But with that disruption come all sorts of opportunities. We may not know what they are today, but disruption tends to foster opportunity.”
ROBERT EVANS, JOINT MANAGING PARTNER, ARGENT LLP
One third of respondents (33%) rated the need for greater investment in connectivity technologies (eg IoT and 5G) as a significant opportunity. This tallies with market data, which predicts a US$1 trillion investment gap by 2040 specifically for telecoms. Given the global shift to remote working, the demand to fill this gap is even higher now than it was before 2020. With the Global Infrastructure Hub estimating that US$94 trillion is required in infrastructure investment by 2040 and only US$79 trillion likely to be available, it is unsurprising that the infrastructure deficit also ranked highly as an opportunity. The pandemic could create an opportunity for cities that have been struggling with congestion to play catch up. With less demand on public transport and roads in the short term, there will be an opportunity to carry out upgrades and augmentations. For projects that will increase the productive capacity of a city, it makes sense for governments to borrow to fund the projects, while embracing structures that can attract private investment and finance. To do this, governments will need to carefully consider project selection and potential new sources of funding, including value capture.
The need for new energy systems ranks equal to the need for circular economies (28%) as a significant opportunity. Given the criticality of sector convergence to circular economy strategies, we believe that transformational success will only be achieved where project leaders can identify and synthesise opportunities across sectors rather than working within the confines of outdated industry structures.
Our cities produce 70% of global emissions, and by 2045 the worlds urban population will increase 1.5 times to six billion. Given the net zero 2050 targets now in place in many major economies, we can expect a revolution in the energy systems used to power cities, and there will be plenty of opportunities for energy, infrastructure and technology companies.”
Our cities produce
of global emissions
70%
LEWIS MCDONALD, GLOBAL HEAD OF ENERGY, HERBERT SMITH FREEHILLS
95%
Bridging the gaps
95% of urban expansion in the next decades will take place in the developing world
8. Global Infrastructure Outlook (2020). Investment forecasts: Telecommunications. https://outlook.gihub.org/sectors/telecommunication 9. Global Infrastructure Hub (2020). Forecasting infrastructure investment needs and gaps. https://outlook.gihub.org/ 10. United Nations (2020). Sustainable development Goal 11: Make cities inclusive, safe, resilient and sustainable. https://www.un.org/sustainabledevelopment/cities/ 11. The World Bank (2020). Urban Development. https://www.worldbank.org/en/topic/urbandevelopment/overview 12. United Nations (2020). Sustainable development Goal 11: Make cities inclusive, safe, resilient and sustainable. https://www.un.org/sustainabledevelopment/cities/ 13. United Nations (2020). Make cities and human settlements inclusive, safe, resilient and sustainable. https://unstats.un.org/sdgs/report/2020/goal-11/ 14. Statista (2020). Statistics and market data about the internet. https://www.statista.com/markets/424/internet/ 15. United Nations (2020). Sustainable development Goal 13: Take urgent action to combat climate change and its impacts. https://www.un.org/sustainabledevelopment/climate-change/
Only half the world’s urban population has convenient access to public transport
Almost 4.57 billion people were active internet users as of July 2020, but it only encompasses 59% of the global population
DEMOGRAPHICS
INFRASTRUCTURE
TECHNOLOGY
Cities account for 60% of global GDP, but 70% of global carbon emissions, making decarbonisation alongside development an urgent sustainability priority
CLIMATE CHANGE
50%
We are particularly optimistic about city infrastructure because it is of essential value. What this pandemic has shown is that this category of investment is highly valued by investors in times of uncertainty. It has specific relevance over the long term.”
The disruption of 2020 presents hurdles, but for those able to think creatively, it is also an exciting turning point for the future of our cities.
Despite some alarmist speculation about the demise of cities, we believe that urbanisation will continue and the popularity of cities will not decline as a result of the pandemic. But the shift towards home working and reduced commuting patterns has led many citizens to reconsider where they want to live and what they want from their neighbourhoods. The pandemic has seen communities strengthened, local economies boosted and the value of open spaces increased. The most successful cities in the future will therefore need to have a sharp focus on these positive liveability gains. Planning policies and real estate delivery models must embrace these factors by placing them at the heart of future city masterplans in order for communities to thrive.
8
9
10
11
13
14
15
Has the shift towards home working and reduced commuting patterns impacted your city project?
One third of respondents (33%) rated the need for greater investment in connectivity technologies (eg IoT and 5G) as a significant opportunity. This tallies with market data, which predicts a US$1 trillion investment gap by 2040 specifically for telecoms8. Given the global shift to remote working, the demand to fill this gap is even higher now than it was before 2020. With the Global Infrastructure Hub estimating that US$94 trillion is required in infrastructure investment by 2040 and only US$79 trillion likely to be available9, it is unsurprising that the infrastructure deficit also ranked highly as an opportunity. The pandemic could create an opportunity for cities that have been struggling with congestion to play catch up. With less demand on public transport and roads in the short term, there will be an opportunity to carry out upgrades and augmentations. For projects that will increase the productive capacity of a city, it makes sense for governments to borrow to fund the projects, while embracing structures that can attract private investment and finance. To do this, governments will need to carefully consider project selection and potential new sources of funding, including value capture.
Our cities produce 70% of global emissions10, and by 2045 the worlds urban population will increase 1.5 times to six billion11. Given the net zero 2050 targets now in place in many major economies, we can expect a revolution in the energy systems used to power cities, and there will be plenty of opportunities for energy, infrastructure and technology companies.”
95% of urban expansion in the next decades will take place in the developing world4
Only half the world’s urban population has convenient access to public transport5
Almost 4.57 billion people were active internet users as of July 2020, but it only encompasses 59% of the global population6
Cities account for 60% of global GDP, but 70% of global carbon emissions, making decarbonisation alongside development an urgent sustainability priority7
2020 has been a challenging year and much has been written about the impact that Covid-19 will have on cities, but confidence and optimism remain strong amongst senior executives involved with city projects. Almost two-thirds (63%) of respondents in our recent survey are actually more confident about their city project’s success than they were before the pandemic. Confidence is highest in jurisdictions that have been successful in controlling the virus—Australia coming in first with 86% of respondents saying they are confident, followed by Asia (68%). However, these results were collected before the recent vaccine announcements, so we would expect them to be higher across other regions if asked now.
PETER JONES, PARTNER, HERBERT SMITH FREEHILLS
The factors driving optimism are varied, but are led by public sector support, which nearly half (48%) of respondents placed in their top three. In that context, it is noteworthy that we are already starting to see governments shape long-term recovery strategies which create immediate job opportunities and encourage investment in infrastructure, energy, real estate and technology. The UK Government has announced a £4 billion “green industrial revolution” to tackle climate change, create new jobs, decarbonise home energy consumption and ban the sale of diesel and petrol vehicles by 2030. In budgets handed down in the last few months, Australian governments (federal and three of the states – New South Wales, South Australia and Western Australia) have allocated approximately A$200.5 billion to infrastructure investment over the next four years – including an increase of A$41.3 billion—most of which will be spent in cities. Meanwhile mayors of C40 cities (a network of the world’s megacities) are discussing huge public investment to create a “new normal” for city economies3, focusing on building sustainable, inclusive, safe and resilient cities. Governments can also rely on record-low interest rates to invest in productive and sustainable city projects.
3. C40 Cities (2020). Global Mayors Covid-19 Recovery Task Force. https://www.c40.org/other/covid-task-force 4. United Nations (2020). Sustainable development Goal 11: Make cities inclusive, safe, resilient and sustainable. https://www.un.org/sustainabledevelopment/cities/ 5. United Nations (2020). Make cities and human settlements inclusive, safe, resilient and sustainable. https://unstats.un.org/sdgs/report/2020/goal-11/ 6. Statista (2020). Statistics and market data about the internet. https://www.statista.com/markets/424/internet/ 7. United Nations (2020). Sustainable development Goal 13: Take urgent action to combat climate change and its impacts. https://www.un.org/sustainabledevelopment/climate-change/
BUSINESSES STAND READY TO HELP GOVERNMENTS UNLOCK CITY INVESTMENT
Future cities
Since the end of the Second World War, the growth of cities has been relentless. In 1950, less than a third of the world’s population lived in towns and cities. According to UN estimates, 2007 marked the first year in history that more people in the world lived in urban than in rural areas. The urban population was predicted to reach 68% by 20501 – more than doubling in the space of a century. At the start of 2020, global investment in city projects was reaching new heights. The world’s biggest spending cities were investing in over 8,200 projects in 2019, with a combined project pipeline of US$5.3 trillion2. Then the global pandemic hit, followed closely by economic recession: government, business and public focus shifted to combatting the immediate health, social and economic crises. So what has been the impact to city projects that were planned during this time and in the not so distant future? To find out, we surveyed 450 senior executives across the globe who are involved in city projects. Survey respondents included c-suites and heads of projects, policy, strategy, investment, sustainability, smart cities, data and cyber, across the infrastructure, technology, real estate, telecommunications, government, energy and transport sectors. The pandemic is still a critical issue in many parts of the world. Notwithstanding recent vaccine announcements, we haven’t conquered Covid-19 yet by any means. There remains a high degree of uncertainty as to how the future will unfold. But the results of our survey tell a story – one of optimism and confidence and a readiness to invest in our cities for the future.
Despite media speculation about the decline of cities as a result of the coronavirus pandemic, the results of our survey demonstrate that cities will continue to be the primary focus for future investment and growth; and that there remains a deep well of confidence and optimism in the future of our cities.”
Urban regeneration projects (eg the Canada Water Masterplan in London, England and the Grand Paris)
Our data confirms that senior executives across the globe are looking to the future with confidence. Almost two-thirds (64%) of respondents were confident about the future success of their current and planned city projects, with 63% actually more confident about their city projects’ success than before Covid-19. Confidence is highest in jurisdictions that have been successful in controlling the virus—Australia coming in first with 86% of respondents saying they are confident, followed by Asia (68%). However, these results were collected before the recent announcements about vaccine development, so we would expect them to be higher across other regions if asked now. For this confidence to continue, governments must act now to fast track projects that will create jobs and generate productivity, health and wellbeing outcomes. In doing so, governments should be conscious that opportunities in relation to technology and innovation are driving optimism among senior executives.
In addition, 53% are either very or somewhat optimistic when it comes to the future of their city projects.
The perfect storm
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