NEW research from the Urban Land Institute (ULI) and the Coalition for Urban Transitions, supported by a consortium of leading global real estate investors and managers with over $300 billion in assets, shows that well-designed, compact cities are better for investors as well as citizens and the environment.

Entitled Supporting Smart Urban Development: Successful investing in density, the report finds that cities with “good density”— dense development that is thoughtfully designed to promote a high quality of life — may be more resilient and prosperous in the long term. According to the report, these cities are more likely to provide higher risk-adjusted real estate investment returns than cities without “good density”. It marks the first-ever study attempting to quantify the impact of quality of place on real estate investment returns.

The report was launched at CBRE Global Investors by a group of supporters who comprise some of the world’s leading global real estate investors and managers: Bouwinvest Real Estate Investors, Capco, CBRE Global Investors, Grosvenor, LaSalle Investment Management, M&G Real Estate, PGGM, Redevco, and Union Investment. McKinsey and Company also contributed to the report as a project advisor. In addition to launching the report, these companies have released a statement committing to champion further understanding of the opportunities and benefits of well-managed and well-serviced densification.

Based on a quantitative analysis of 63 global cities, the report finds that cities with characteristics of “good density” are associated with higher returns, capital values, and levels of investment for commercial real estate. It identifies six measurable characteristics associated with “good density”: clustering structure (land use patterns within cities and regions), economic and employment infrastructure (availability of investment, jobs, and talent), built infrastructure (physical density and mixture of uses), green and blue infrastructure, public transport infrastructure, and good governance.

“The research underlines the importance of accommodating the growing demand for space in cities in a sustainable way and the need for the private and the public sector to work together,” said Tinka Kleine, senior director private real estate at PGGM. “As a long-term global investor, PGGM feels a strong commitment to play a part in this and we are looking forward to explore the possibilities with existing and new partners.”

“The findings from the report highlight that investor attitudes to measuring density need to change,” said Simon Chinn, senior analyst at Grosvenor. “Density encompasses more than just the number of people living or working within a defined area. It has to account for key characteristics of urban form such as clustering patterns, mixed-use planning, amenity offer, and transport infrastructure, which collectively play a role in creating the right kind of density for cities.”

The research demonstrates the impact of several characteristics of livable and low-carbon cities — including compact urban form, walkability, and open space — on investment returns. The report suggests that this kind of development can not only help solve pressing employment, economic, inequality, and climate issues, but can also boost a city’s ability to attract international capital for real estate investment.

“This research underpins the approach taken by a growing number of investors to not only focus on the risk and return characteristics of the asset to be invested in, but also to quantify the key elements that contribute to the overall quality of the district,” said Lisette van Doorn, CEO of ULI Europe. “The benefit of this approach is two-fold: it leads to better risk-adjusted returns for real estate portfolios as well as a positive social and environmental impact as more and more investors are incorporating these elements in their investment strategies.”

“This evidence shows, if done right, long-term real estate investors, people and the environment don’t have to be in conflict over efforts to put cities onto a low-carbon and more equal path. On the contrary, national and local governments and well-informed real estate investors can find common cause in promoting improved public transport, cycling and walking, protecting public parks and reducing energy waste in cities” said Nick Godfrey, Director of the Coalition for Urban Transitions.

The research was conducted by experts at the University of Reading led by Professor Kathy Pain of the Department of Real Estate and Planning, Henley Business School. On behalf of ULI, independent research consultant Dr. Margarethe Theseira managed the research project and edited this report.

The Urban Land Institute is a non-profit education and research institute supported by its members. Its mission is to provide leadership in the responsible use of land and in creating and sustaining thriving communities worldwide. Established in 1936, the institute has over 40,000 members worldwide representing all aspects of land use and development disciplines. ULI has over 3,000 members in Europe across 14 National Council country networks.

The Coalition for Urban Transitions is a major global initiative to support national governments to take action for economic productivity, climate safety and inclusion by transforming the development path of cities.

The Coalition is a special initiative of the New Climate Economy and is a rapidly growing collaboration between over 40 research institutes, city networks, intergovernmental organizations, investors, infrastructure providers, strategic advisory companies and NGOs to provide the best evidence, cutting edge policy ideas and analysis for national governments, particularly in rapidly urbanizing countries, looking to step up to the challenge.

It is jointly hosted and managed by the World Resources Institute (WRI) Ross Center for Sustainable Cities in Washington DC and the C40 Cities Climate Leadership Group in London. The initiative is funded with UK Aid from the UK government, however the views expressed do not necessarily reflect the UK government’s official policies. — SG