Transit-oriented developments are a growing trend in the real estate and infrastructure market.
By Christina Beja, Josh Colle, Julia Stefanishina and Atul Krishan
Aimed at improving quality of life in urban and suburban centres, transit-oriented developments (TODs) support the formation of mixed-use communities by locating residential, business and recreational amenities within walking distance of new and existing transit nodes.
When people have easier access to public transit, it significantly reduces their reliance on driving. The result is connected, complete and sustainable communities that improve residents’ quality of life.
Infrastructure and real estate spaces are becoming more integrated all the time. This convergence drives new questions market players are trying to tackle now. How can station safety standards be met when technically there is no station? How are future land values estimated? How can financing for TOD projects be unlocked if real estate and infrastructure investors have different risk appetites and payback horizons?
These questions become even more complex once technology development comes into play. As described in EY’s recent CREtech report, build-world tech saw US$75b venture capital investment from 2015 to 2019, which suggests that the real estate and infrastructure sector has a strong appetite for innovation.
Once started, technology-led disruption of built space will have profound impacts on future TOD projects. This has the potential to fundamentally shift human behavior around the built environment, while at the same time giving unprecedented access to all the data necessary to maximize the social and commercial benefits of TODs.
According to the Centre for Urban Research & Land Development, in Ontario alone there are currently 200 major existing or planned transit nodes — subway stations, light rail lines and bus stations where passengers shift to another form of mobility.
To better understand the Canadian TOD market, EY conducted a survey of major TOD players in the public and private sectors in Ontario, Alberta and British Columbia.
We found that all respondents are actively exploring, planning or already fully engaged in TOD projects, and there is expected growth in planning.
The public and private sector respondents in our study agree that project success for TODs is the creation of better communities with an optimal mix of uses, improved public transit and increased transit ridership.
And the future of TODs certainly looks promising. TOD market segment growth is expected to increase by at least 30% in the next five years.
In light of this robust growth potential, organizations in both sectors are currently building their TOD capabilities.
Public sector respondents are exploring lessons learned from other jurisdictions and defining TOD policies and strategies for their respective organizations. They also see an opportunity to pivot to a more active developer or investor role in the future, compared to their role as landowners, in which they’ve traditionally been more passive.
Both public and private sector respondents believe that either private real estate developers or municipalities should be the instigators of TOD projects, rather than provincial governments or infrastructure players such as transit and airport authorities. But current laws, regulations and policies aren’t adequately set up to support TOD project approvals and developments, making this a key area for improvement. Red tape is another key barrier — our survey respondents identified land assembly, zoning and approvals policy, and navigating governments as the main hurdles to successful TOD implementation.
In addition, respondents identified their limited comfort or familiarity with available land value capture tools and funding mechanisms. The most common funding mechanisms in the market are development charges and the sale or lease of provincial and municipal lands. A deeper understanding of the available funding and financing tools — plus an open dialogue between public and private sector players around their competing and aligned expectations — could benefit both sides and result in hybrid real estate and infrastructure deals.