How investors can benefit from urban renewal

3 min read

As our population grows, the redevelopment of our cities is becoming more important than ever.

As a result, this growing trend presents a great opportunity for investors to capitalise on.

Over half of the current population lives in urban areas[1]  and by 2045, the world's population living in cities will increase by 1.5 times, to 6 billion. That’s roughly two-thirds of all people on the planet living in cities![2]

But while urban growth is an important driver for the economy, managing it is a very different story. 

City leaders will now have to move quickly to renew urban areas, providing basic services, infrastructure, and affordable housing for their expanding populations – something that savvy investors can capitalise on.

Why is urban renewal important?

The simple answer: it makes our cities liveable.

Urban renewal recreates neighbourhoods and communities left behind due to demographic and economic change, by bringing back character and a sense of place.

Dilapidated areas can be reinvigorated through land, building and infrastructure development which allows cities to further their growth.

Investment into transport links can improve residents’ mobility and in turn reduce car-dependency, improving air quality and reducing the rate of sedentary lifestyle diseases.[3]

Property development in otherwise underused areas can also help to solve the challenge of high housing costs, which prevent individuals and families from living in inner-city areas.[4]

Urban renewal planning can also be aimed at fostering the creative industries to attract businesses and skilled workers from other knowledge-intensive industries. It can also incorporate historical, geographical and ecological factors such as “green infrastructure,” the green spaces and water systems that are part of the urban environment.

All of these factors can help to improve the liveability of a city, the vibrancy of communities and economic growth.

What are the implications for investors?

Both public and private organisations are likely to invest significantly into property and infrastructure, offering real opportunity for investors to capitalise on infrastructure and property funds.

Companies who are actively building or managing these cities of the future, especially those listed on the stock exchange, may also offer good investment opportunities.

Investing in green energy solutions, both existing and in development, is worth considering too. By taking a share in these projects, you can reap the benefits of an urbanised economy.

What are the investment options?

Infrastructure funds

Infrastructure funds invest in utilities, transportation, schools and other projects which are core to our communities. They also invest in significant projects that support community growth over many years.

It therefore provides an opportunity to diversify your portfolio as it is generally uncorrelated with equity.

Furthermore, since infrastructure is a basic need of every community, it is generally unaffected by the economic cycle. However, investment returns can be influenced by the risks of the project itself, such as operational risks, and government regulatory risks. Examples might include legislation risk surrounding water infrastructure, or the inability to predict how much energy will be created at a solar farm.

Investing in property funds

There are many listed or unlisted property funds to invest in, which can give you a share of residential and commercial property to diversify your portfolio.

It's important to be aware that there are some risks associated with investing in bricks and mortar. Property prices can be volatile and the asset class itself is highly illiquid (you can’t pull your investment out quickly).

Publically listed companies

In addition to investing in infrastructure and property funds, you may also want to consider investing in the publicly listed companies.

These investments serve an important purpose as urban populations continue to grow.

Here’s some to name a few.

Lend Lease has $55.9 billion of urban renewal projects

Property, infrastructure and construction company, Lendlease (ASX code: LLC)[5] for instance, is a global leader in major urban renewal projects with $55.9 billion of developments in the pipeline.  Their strategy targets 17 of the world’s gateway cities in Australia, Asia, Europe and North America, and currently consists of 18 major urbanisation projects in ten major gateway cities including Sydney, London, and Singapore.

Mirvac Group is creating unique urban precincts

Development and construction company Mirvac Group (ASX code: MGR)[6] also has a strong presence in urban renewal describing their purpose as “Reimagine Urban Life.” In creating unique urban precincts and residential communities, Mirvac balances density, sustainability and quality of life, to reimagine the way that Australian city dwellers interact and utilise the spaces around them.

Goodman Group is transforming industrial precincts

Industrial property owner and developer Goodman Group (ASX code: GMG)[7] is also deeply involved in urban renewal projects. Recognising that land supply is constrained in many cities, they’ve found opportunities to transform industrial precincts for broader use.

Urban renewal projects in development

There are a number of significant urban renewal projects currently in development in Australia. While you can't invest direct in these directly, you can invest in the funds that do, as mentioned above. 

Melbourne: $30 billion Fisherman’s Bend project

Melbourne has bedded down the Docklands/Victoria Harbour project, and now has the $30 billion Fisherman’s Bend project[8] underway – the largest urban renewal project in the country.  Fisherman’s Bend covers around 480 hectares of former industrial land south-west of Melbourne's CBD, which is being transformed into a vibrant inner-city precinct, with hotels, businesses, housing and a new engineering campus of Melbourne University.

Sydney: $6 billion-plus Barangaroo precinct

Sydney has the $6 billion-plus Barangaroo precinct[9], which is as an office, residential retail, cultural and dining hub nestled between Sydney Harbour and the western fringe of the CBD. The precinct features a six-hectare recreated original Sydney Harbour headland built as an entirely Australian native garden. According to the New South Wales Government’s Barangaroo Delivery Authority, Barangaroo will support more than 24,000 permanent jobs, provide a home to 3,500 residents and contribute some $2 billion each year to the NSW economy.

Brisbane: $2.9 billion redevelopment

Brisbane has undergone several decades of urban renewal since the 1988 World Expo, which now sees the South Bank leisure precinct playing host to playgrounds, picnic lawns, event venues, urban beaches, paddling pools and cafes.

The Queensland capital is still in development, with its latest project, Showground Hill[10], a $2.9 billion residential, commercial and retail redevelopment based around the city’s Showgrounds.

Perth: $5.2 billion CityLink redevelopment

Perth has the $5.2 billion CityLink redevelopment[11], which aims to reconnect the CBD with Northbridge for the first time in more than 100 years, while Adelaide’s flagship project is the $300 million West Franklin urban village development in the City West[12].

Bottom line: for investors, rising population growth and the need to recreate cities that can support it, will present real opportunities to take advantage of.

There are a many ways you can get involved in both direct and indirect infrastructure and property investments – whether it be in or outside your super.

[1] http://www.worldbank.org/en/topic/urbandevelopment
[2] http://www.worldometers.info/world-population/ - data current as at 9 October 2018
[3] http://www.who.int/hia/green_economy/giz_transport.pdf
[4] https://www.abc.net.au/news/2017-05-15/help-could-be-on-way-for-sydneys-first-homebuyers/8526284
[5] https://www.lendlease.com/-/media/llcom/investor-relations/annual-reports-and-securityholder-reviews/2018/2018-annual-report-lendlease.pdf, P.26.
[6] http://groupir.mirvac.com/icms_docs/291482_MGR_FY18_Annual_Report.pdf, P.2.
[7] https://www.goodman.com/
[8] https://www.fishermansbend.vic.gov.au/
[9] https://www.barangaroo.com/see-and-do/barangaroo/about/
{10] https://www.rna.org.au/redevelopment.aspx
[11] https://www.developwise.com.au/blog/perth-citylink-one-of-perths-biggest-urban-renewal-projects
[12] https://www.adelaidenow.com.au/business/jobs/sas-built-environs-to-build-300-million-west-franklin-development/news-story/03b5641f43d2cd1e3bb870753ac2dc19

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The article was prepared by BT - Part of Westpac Banking Corporation ABN 33 007 457 14, and is current as at 17 December 2018.

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