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Sustainability

‘Better, not bigger’ is the maxim for intelligent urban regeneration

Published 25 May 2021 in Sustainability • 9 min read

Creating a vibrant urban ecosystem – an inclusive, diverse and lively community where people want to live and put down roots– requires a gradual shift of focus from built-environment investment to socio-economic output.  

Real estate needs a revolution. And it isn’t just the lasting effects of COVID-19 that have prompted the need for a radical change in how we approach the industry. 

With an estimated global value of US$280 trillion in 2017, real estate – including construction and infrastructure – is the largest asset class and generates 13% of the world’s GDP. Buildings are responsible for 35% of global energy consumption, 38% of global C02 emissions and use 50% of the world’s extracted resources 

Urban areas are social and economic ecosystems where the majority of human interactions take place. “Hard” urban assets – physical infrastructure, facilities, technologies and buildings – as well as “soft” – intangible aspects such as values, culture, accessibility to quality public services, inclusiveness and community vitality – greatly affect our lives. 

From impacting our health and behavior to influencing the competitiveness of local businesses, they can determine the destiny of entire communities. 

 

When the past is the future 

In the last few decades, cities have pushed to revitalize distressed communities and regenerate abandoned sites. Barcelona, for example, successfully transformed a large part of the obsolete Poblenou industrial area into the [email protected]” innovation district, one of the city’s most sought-after mixed-use areas for technological infrastructure, shared workspaces, restaurants, and arts and entertainment. 

Yet despite its profound relevance for humanity, the real estate sector has historically underperformed on most dimensions and is increasingly out of sync with changing needs. Technological developments, new entrants with innovative business models and a growing pressure for action to address social and environmental problems are simultaneously challenging the sector. 

COVID-19 has also pushed a revaluation of the industry, highlighting weaknesses, accelerating global trends, and increasing the demand for sustainable, safe, healthy, inclusive and resilient urban communities. The pandemic has acted as catalyst for green awareness and highlighted the need to address cities’ unresolved social and environmental problems. 

With new funding in place – the US alone has budgeted US$1.9 trillion for an economic recovery plan allocating US$350 billion directly to cities and states – the aim is not so much to foster a return to normality, but rather to initiate the transition to more liveable, sustainable and prosperous urban models. 

Across the pond, Paris wants to implement the “15-minute” city model, in which every daily necessity is quickly reached on foot or by bicycle, with consequent benefits for the environment and quality of life. Among other initiatives, an investment of 250 million euro is planned to transform the Champs-Elysées into an extraordinary green park. 

But it is not only cities that are evolving. Towns and villages are upgrading their internet infrastructure and marketing their unique climate, natural landscape, safety, authenticity and quality of life to attract visitors and digital or remote workers. Ventimiglia, population 25,000, on the Ligurian coast, has embarked on a public-private 200 million euro urban regeneration program that will transform it into a savvy international destination. Estimations show it will generate an economic benefit of 3.5 times the investment amount and up to 300 new jobs.  

Outdoor spaces have new value for communities and businesses, and many cities across the globe have taken action by pedestrianizing streets, widening sidewalks and repurposing parks and parking areas to create bike lanes. New York, building on the success of the “High Line”, will transform part of the Manhattan-bound side of the Brooklyn Bridge into a bicycle lane and pedestrian-only promenade area. In some cities, public-private partnerships have been forged to transform schoolyards into parks open to the public outside of school hours. 

Embracing ESG principles and shifting the mindset from input (investment) to output (benefits), urban regeneration can contribute to job creation and attract capital to improve quality of life. Yet today, developers are too focused on the physical component – bricks and mortar – instead of social and economic output.  

Rather than simply creating square meters, intelligent urban regeneration can create opportunities – for people, for organizations and for society. But in order to expand these key drivers for social and economic progress, and sustainability, developers must learn new skills that harness the power of innovation and digitalization.  

 

Real estate should be a component of an ecosystem  

As hopes for post-pandemic economic recovery gather momentum, the challenge is to seize the opportunity to regenerate cities with fresh eyes, making them deliberately more green, human and inclusive, with constructed assets that serve communities and businesses in a sustainable way. 

But this requires redefining the scope of work for developers and changing their mindset. From pure creators of space, developers can evolve into proactive providers of flexible, strategic resources or services. The next step in this evolutionary process could be a truly progressive approach where a developer is able to create both hard and soft urban assets to improve overall quality of life. 

In this way, offices and industrial properties could be transformed from an operational necessity into a strategic resource. This could contribute to increased competitiveness of tenants, boost business growth, and generate both new jobs and demand for services. Public urban areas would have the potential to evolve from aseptic functional spaces to active places. This strong identity and atmosphere would help consolidate positive social values, instil a sense of belonging and create vital communities. 

Urban regeneration and real estate development initiatives can further evolve in the scale of value-creation potential if they are able to trigger and sustain social and economic transformations over time. This evolution, driven by the search for “exponential” value creation, requires an equally profound evolution of the real estate operators. 

To pursue these ambitious goals, developers have to learn new skills and reimagine their business models to include a range of post-development added-value services – in analogy to the after-sales services for industrial products – to sustain the effectiveness, quality and attractiveness of their products as the external context changes over time.

 

Embrace innovation to achieve these high-purpose objectives  


A “new” approach to real estate development could be founded on the following principles: 

  1. Accelerate technology transfer by adopting an “open architecture” mindset based on decentralization, information networks, collaborations and processes. Developers should acquire a deeper understanding of the markets in which they operate, and foster the ability to select the best solutions and integrate them into an optimized system. 
  2. Invest in research and development, focusing attention on stakeholder experience, with the aim of creating new formats, services and products perfectly aligned with expectations or even able to generate new markets and new demand. COVID-19 and emerging technologies are pushing the sector forward to build better, healthier and greener urban areas. 
  3. Embrace flexibility and resiliency across all phases and dimensions of real estate products to ensure sustainability. Perhaps the best option for “hedging” real estate development projects against the volatility of the loss of capital is to create products that adapt over time as conditions change. COVID-19 is driving demand for more multi-functional outdoor areas, homes and public spaces that offer several use options that respond to changing needs. The “1000 Cities Act Now” is a global program that aims to ensure pandemic recovery plans also bolster climate resilience, for example.  
  4. Acknowledge the importance of high-quality architecture and engineering intended as the ability to create a durable, contemporary built environment that meets demand, that guarantees full occupation of space, equipped with efficient systems and technologies at low running costs. Quality architecture creates place identity, reinforcing its vocation in harmony with nature, and serves users and local communities.  
  5. Forge extraordinary partnerships to position projects, access chosen markets, secure demand and reduce commercial risk before the development starts, rather than investing resources on forecasts and hypothetical scenarios. “Vertical” partnerships should be created to integrate the supply chain, avoid conflicts, share risks, industrialize processes, amplify competitive advantage and improve productivity. “Horizontal” partnerships are needed across public institutions, the local community and private sector to build consensus, facilitate the planning process and share responsibility for key public infrastructure. 

 

Where there is a will, there is a way 

Today, 55% of the world’s population lives in urban areas. UN forecasts show that the combined effect of urbanization and population growth could add another 2.5 billion people to urban areas by 2050, and that ground-breaking innovation is urgently needed in cities, where the battle for sustainable development will be won or lost. The World Green Building Council estimates that to keep global warming below 1.5°C, every building on the planet should be net-zero carbon by 2050 – yet currently less than 1% of the global building stock meets this target. 

Therefore, developers need to innovate and transform to stay relevant, minimize negative externalities and contribute to society. Institutions need to update policies and regulations in sync with technological developments and needs to address social and environmental problems. Investors can support the transition by paying greater attention to projects that deliver tangible ESG outcomes.  

Cities and towns should concentrate on their unique heritage, culture and traditions, moving away from unrealistic goals surrounding capital-intensive infrastructure and projects. This also demands that communities and citizens change wasteful habits and embrace sustainable behaviors.  

While difficult, this can indeed be done: residents of the Danish island of Bornholm reacted strongly when fish stocks crashed in the 1990s and the effects of climate change became evident. By installing wind turbines and biomass plants, the island was transformed into a circular economy community, creating new jobs in the process. Bornholm now holds the title of “Europe’s most sustainable island” and plans to become CO2 neutral by 2025, waste-free by 2032 and a zero-emission community by 2035.  

With approaches like these, the built environment can be a means to an end – just one of the ingredients needed to achieve superior returns – and not simply an end in and of itself. 

Authors

Marco Dall'Orso

Urban regeneration expert with over 20 years of C-level experience

Marco Dall’Orso is an urban regeneration expert with over 20 years of C-level experience with leading real estate development and asset management organizations. He holds a civil engineering degree from the University of Genoa, a Master’s of Science from Imperial College and an MBA from IMD in Lausanne. His most recent book, Urban regeneration and real estate development – turning real estate assets into engines for sustainable social economic progress, is published by Springer. 

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