7 May, 2014
There are many reasons to invest in a city. And by ‘invest’ I’m taking a wide view: this might be living, building, producing, working or, of course, actually investing capital. If you go through the different indices which rank the world’s cities in terms of ‘investment attractiveness’ or ‘competitiveness’, factors such as accountability of local government, market size, access to maritime ports, infrastructure quality, average per capita income, air quality and access to green space come up often. Resilience, on the other hand, does not. But it should.
Cities are increasingly competing for global capital, that flighty elusive bird of paradise. And global investors balance risk and potential return – the two cornerstones of investment decision making. Cities then, which can claim improved resilience, should be able to make a greater claim of reduced riskiness and therefore improved attractiveness to foreign and domestic investment.
It would seem that cities have yet to latch on to the potential of resilience to endow them with greater attractiveness in the eyes of investors. Of course, resilience brings many other benefits, but here I’m taking a more strategic, business-oriented view. In this regard, cities could learn from green building.
It used to be that green building was looked at askance
But of course, now, green building has become a staple of contemporary discourses on sustainability and urban development. When green building first got underway, in the 1970s, it was seen as an anomaly. Up until the 1990s, cities and developers struggled to get financing for green building, and struggled to realise a return on the cost of investing in green solutions. And while these challenges still exist, they have been reduced dramatically by the availability of new financial instruments for green building, better credit and recognized returns and general market acceptance of green solutions.
Over the course of the 1990s, green building really got off the ground. Now green buildings generate better rental rates than non-green buildings (PDF p. 10). Tenants are increasingly demanding some degree of ‘greenness’ – be this in energy efficiency, materials, or indoor environment. Corporate clients in particular, have latched on to the green building movement. Consequently, a number of rankings exist which seek to rate the environmental performance of cities.
One recent report, for example, finds that energy efficient commercial buildings and commercial buildings with green attributes have (PDF p.1):
- Increased resale value (2 – 17 per cent)
- Increased rental rates (5.8 – 35 per cent)
- Higher occupancy rates (0.9 – 18 per cent)
- Lower operating expenses (30 per cent)
- Higher net operating income (5.9 per cent)
- Lower capitalization rates (50 – 55 basis points)
- Productivity gains (4.8 per cent)
These are substantial commercial advantages over ‘normal’ buildings! And while some of these characteristics cannot really be linked to resilience (it is hard to see how productivity, for example, can improve with greater resilience) many could be quite easily. Resale value, rental rates and occupancy rates should all improve with resilience.
The rise of green building, and the acceptance of its business case, has been helped by the establishment over the course of the 1990s and 2000s of a number of national and global bodies for green building. These bodies, such as the US Green Building Council, effectively assess and certify the label of ‘green’ to buildings, and have, over the past 15 – 20 years been able to build a name and become recognized as trusted bodies. So much so that the certification these bodies bestow has come to be seen as highly coveted labels and effective marketing tools.
Resilient building is a value proposition for both public and private sectors
I would propose that ‘resilient building’ in 2014 is at the same point as ‘green building’ in 1994: nascent. The full economic advantages of resilient building have yet to gather acceptance in the mainstream commercial and residential property markets. Similarly, consumers, corporate and public bodies do not demand resilient building. It is not yet the case that PwC would require one of its regional headquarters to be resilient, in the way that this global firm required its London headquarters to be ‘very green’ late last year.
But this should change. Cities need to recognize the value proposition of resilience to corporate and private sectors, and begin striving towards this. Like green building, resilience generates many benefits (indeed, its primary objectives) other than attractiveness to corporate and private clients. While these primary objectives should remain central, the business case for resilience shouldn’t be overlooked.
One of the great differences, however, between green building and resilient building is that for a building to be resilient, its utilities, services and networks should also be resilient, and to an extent, its staff and users need have been adequately trained in disaster preparedness (evacuation etc.). This means that resilience is more of a whole-of-city affair, whereas green building could be viewed as more the concern of the discrete structure.
Cities can use resilience to attract investment
Cities, such as Vancouver, have managed to generate global reputations as havens of green building and green perspectives and this strategy has helped to cement the revenue streams and economic importance of these cities by offering a prized condition to investors. Vancouver, for example, is the greenest city in Canada, and second greenest in North America (second to San Francisco) (PDF p. 10). Cities which can do the same for resilience will have much to win.
Don’t get me wrong: I’m not devaluing the direct benefits of resilience to the local population in terms avoided deaths and casualties, protected houses, livelihoods and incomes. But within the public sector, the debates around urban resilience remain squarely focused on these ‘public’ benefits of resilience – and overlook the business case which cities can make.
This ought to change. City governments should understand that improving urban resilience will bring benefits to the local population in the event of disaster (lives saved, houses not destroyed etc.), as well as stimulate long-term investment. As resilience becomes more well-known, its reasonable to foresee that cities will begin to market themselves to investors based on higher offerings in terms of resilient building and systems. As always, cities that can manage to do this before the flock will reap investment rewards.
Banner photo by Piotrus
Photo 1 by stan9999
Photo 2 by DVIDS