In the aftermath of the COVID-19 pandemic, many of our towns and cities face unprecedented challenges of inequality and urban decline. The good news is that we are also seeing a sea-change in the attitude of the private sector in helping to tackle these problems, embracing the role it can play in driving transformational urban regeneration.

The pandemic has accentuated the difficulties faced by many urban neighbourhoods. Online shopping, increased flexible working, shortages of affordable housing, rising crime and the ravages of inflation are all taking their toll. Inequality has increased, as many segments of society hardest hit by COVID-19 restrictions are those most affected by a weakening economy.

For communities that were struggling before, the challenges have become greater. The real estate sector is typically quick to respond to redevelopment opportunities where the commercial and financial case for investment is straightforward, but this is rarely the case where problems are more entrenched.

Growing focus on social value

What’s changing is that alongside the long overdue focus on tackling climate change, the private sector is now meaningfully embracing the wider environmental, social and governance (ESG) agenda. The increasing prominence of social value considerations in corporate thinking is changing the viability equation for urban regeneration projects. 

Rather than just focusing on the “output” of a completed building, they are interested in driving the social value “outcomes” a successful project can help deliver. This comes at an opportune time given increasing pressure on local government finances, with capital projects at risk from rising finance and construction costs.

Nuveen Real Estate recently announced the establishment of a global impact investing programme aiming for $15 billion in real estate assets under management (AUM) by 2026. In the UK, Schroders Capital recently launched a place-based impact investment strategy with the specific objective of addressing social deprivation and inequality as well as delivering a financial return, with investments targeted at affordable homes, workplaces and mixed-use town centre re-purposing projects.

Similarly, financial services group Legal & General will invest £4 billion into urban regeneration and housing development in the UK’s West Midlands region by 2031. These announcements form part of a widespread trend in the global growth of impact investing, a market that has grown by over 60% since 2020 alone to be worth $1.2 trillion in AUM by 2022.

Mobilizing investor capital to do good

Private sector interest in place-based public-private partnerships or “PPP” is being driven by their ability to unlock large scale development and investment projects that are simply not possible without public authority involvement. The perception can be that such partnerships are simply about persuading the private sector to pay for public works, but this overlooks what government involvement brings to the table.

The public sector often contributes land or other assets to the partnership and can sometimes borrow at advantageous rates to increase the funding available. As well as contributing to the financing, public involvement helps de-risk projects and can stimulate additional private sector investment from sources beyond the principal development partner.

Source: World Economic Forum
Author: Mark Edward Rose