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Future Cities – Changing Shape and Form of Real Estate

Posted by Surabhi Sheth, Real Estate research leader, Deloitte Services LP, on October 22, 2013

The evolution of cities, whether circumstantial or planned, is impacting the real estate sector. One of the driving forces in the development of new cities is the rising global urban population, which is expected to reach nearly 60 percent by 2030.1 With existing cities’ infrastructure and resources bursting at the seams, there is an urgent need to create enough cities to accommodate the growing urban population. In fact, experts estimate that global demand for new cities is likely to reach $31.9 trillion by 2030.2 Satisfying this demand will require substantial investment and planning.

But today, stretched government budgets seem unable to adequately take care of redeveloping aging real estate, let alone develop new properties, particularly on a scale as large as a city. In fact, some government-led urban planning may be losing influence on just such a large scale. Take the case of Tianducheng in China, which began development in 2007. Certainly, China is a country that has seen rapid population shifts to urban centers and its government has tried to spur development in recognition of this trend. With its Parisian-like modern architecture, this particular city was expected to accommodate 10,000 people; however, it has failed to generate adequate interest, primarily due to its location in a largely rural area. Many have written off the city, calling it a ghost town. Tianducheng is one of at least several large, lavish, yet still-empty cities in China.

A different example of urban growth can be linked to university expansion. Traditionally, establishment of educational institutions has led to a demand for real estate, often leading to an evolution of large surrounding neighborhoods and/or cities. Take the example of New York University (NYU) – as the university developed, it led to the development of other establishments, both commercial and residential, radiating from the school. Thus, a larger urban center was established beyond the original neighborhood. NYU has since emerged as one of New York City’s three largest landowners, continuously engaged in buying, selling and leasing buildings. In such instances, the role of the real estate sector is integral, as universities tend to own the land and call the shots.

The real estate sector would do well to evolve along with the cities and play a more critical role using its knowledge and expertise in the development of a city as it links into every aspect – from land acquisition to master planning, construction, finance and estate management.

Does this imply that private real estate can and should be in the driver’s seat as cities evolve?

Consider the example of the Fujisawa Sustainable Smart Town, which is being built on vacant land owned by a corporate concern in Japan’s Fujisawa city. It plans to use information, communication and technology to develop a sustainable town that will create and use innovative energy, storage and management solutions. The town will be spread over 19 hectares of land and comprise approximately 1,000 residential homes, commercial facilities and public facilities, aiming to accommodate 3,000 people with a target open date of March 2014. In this case, real estate players are expected to be involved in every phase of development, incorporating new design and eventually offering sophisticated building management services.

Clearly, the development of new cities creates more opportunities for private real estate players – owners, developers, managers and financers. It requires smart planning and adoption of new technologies to provide more efficient and sustainable offerings.

1 United Nations
2
http://panasonic.co.jp/corp/news/official.data/data.dir/en110526-3/en110526-3.html, ¥1 = $0.01 (as of 10/8/13)

 

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