Infrastructure 2014: shaping the competitive city

Top drivers of real estate: infrastructure, consumer demand

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Many factors stand out as important drivers of real estate investment. These are often thought of as “soft” issues, such as the quality of local schools or other service-oriented facilities, the existence of a skilled workforce, or the availability of regulatory incentives such as tax breaks.

But in our survey of global real estate and public leaders, infrastructure quality emerged as the top factor in driving where real estate development happens, leading the list of eight possible forces shaping real estate investment for the survey respondents overall.

When asked what they felt was the top or very important consideration when determining where real estate investments were made, the survey results showed the following:

  • 88% of survey respondents overall ranked infrastructure quality as number one
  • 91% of public leaders ranked infrastructure quality highest
  • 90% of private leaders ranked consumer demand highest, or very important
  • A skilled workforce was more likely to be seen as important by the public sector (89%) than the private sector (64%)
  • Government services—regulations, tax structure, and quality—fell in the middle of the group of influencing factors for both public and private respondents.

Global and US respondents tended to agree in their responses, although global respondents were more likely to cite government-related factors— including the regulatory environment and the quality of government—as considerations, and were less likely to be concerned about schools.

High-impact infrastructure categories

What infrastructure categories tend to matter the most, when it comes to where real estate investments happen? Survey respondents were likely to put strong telecommunications systems and connectivity; sufficient, well-maintained roads and bridges; reliable and affordable energy; and good intercity passenger connections at the top of the list.

Although public transit is in the middle of the list of the infrastructure factors that influence where real estate investments happen, transit was a key investment priority for survey respondents.

Some interviewees noted that while infrastructure is essential, high-quality systems are also largely assumed to be in place, especially in urban areas. Water, electricity, telecommunications, and other services are part of the package of infrastructure elements that well-functioning cities provide. Differentiators then become proximity to transport, especially high-quality transit, good roads and bridges, and, for some real estate sectors, airport and passenger connections.

The infrastructure equation

What explains the emphasis on infrastructure? On the public side, there is a strong understanding of the extent to which the provision of infrastructure can be used to support greater densities.

On the private side, the calculation is aimed more at the bottom line. Developers have seen how good infrastructure can support property values. What’s more, developers today are more likely to have to pay the costs of infrastructure improvements associated with their proposed projects.

EY – drivers of real estate investments