How do developers and investors think about infrastructure?

Transaction News April 2014

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Now in its eighth year, Infrastructure 2014: Shaping the Competitive City is published annually by the Urban Land Institute and EY. Based on a survey of approximately 440 top public and real estate leaders from around the world, the report assesses the role of infrastructure in supporting and attracting metropolitan real estate investment and supporting urban prosperity.

“Australia is seen as a global leader in the way public and private sector organisations come together to deliver infrastructure. As our cities’ infrastructure groans under the weight of strong population growth, it is incumbent upon both the private and public sectors to continue to innovate in the financing and delivery of infrastructure,”
David Larocca, EY Oceania Infrastructure Leader.

Key findings

1: Top drivers of real estate: infrastructure, consumer demand

Infrastructure quality emerged in our survey as the top factor driving where real estate development happens, leading the list of eight possible forces shaping real estate investment.

Consumer demand was the top driver for the private sector, with 90 percent of private sector leaders ranking it a top consideration or very important. A skilled workforce was more likely to be seen as important by the public sector (89 percent) than the private sector (64 percent).

2: Highest infrastructure priority: improved public transit

Upgrades to public transit systems— including bus and fixed-rail systems— emerged from the survey as a strong priority for future investment.

Transportation-related infrastructure held the top three priority spots, with 71 percent ranking investments in road and bridge infrastructure as a high priority, and 63 percent looking for improved pedestrian infrastructure.

3: Top trend shaping cities: public willingness to pay for infrastructure

The public’s willingness and ability to pay for infrastructure were seen by survey respondents as the most important factor shaping the future of infrastructure and real estate over the next decade. A combined total of 82 percent of respondents said that the public’s willingness to pay for infrastructure will have a dramatic or significant impact.

This finding points to the need for infrastructure proponents to make a strong, forward-looking case for infrastructure.

4: Top infrastructure funding source: cooperation between developers and government

Cooperation between developers and local government was identified by three-quarters of respondents as the most significant funding approach for new infrastructure over the next decade.

Strategies that require collaboration between real estate and civic leaders — including value-capture — also topped the list of likely infrastructure funding sources.

More traditional options, such as income and property taxes and contributions from federal and state governments, were rated as less significant.

5: Key concern: long-term operations and maintenance

Our survey shows that both public and private leaders are concerned about how long-term operations and maintenance of infrastructure are resourced.

Overall, 30 percent of survey respondents said that long-term operations and maintenance are usually neglected, with 72 percent saying that operations and maintenance costs were considered some of the time or not at all.


Reflecting on findings: Australia’s perspective

The survey results are consistent with the view of public and real estate leaders locally, David Larocca, EY Oceania Infrastructure Leader says:

“The results of the survey are no surprise to us. In Australia, we are seeing governments at both the Federal and State level being aligned in the way they are pushing forward with infrastructure – they are seeing the need to increase investment, are looking to the private sector to help them do this, and are also looking at innovative ways for the private sector to operate infrastructure assets that have traditionally been operated by government. This presents an unprecedented opportunity for the private sector in this market. ”

Looking ahead, it will be vital for both private and public sectors to continue to cooperate in the financing and delivery of infrastructure for our capital cities in order to boost productivity, continue to attract metropolitan real estate investment, and support urban prosperity.

For more information, download the report Infrastructure 2014: Shaping the Competitive City