Day 1 highlights
Is the world on the brink of a new economic era, prompted by historically high levels of populism and wealth disparity? Is the global economy locked into low growth, while carrying risks from a strong dollar, rising interest rates and currency volatility? And how will we cope as productivity fails to keep pace with a shrinking working age population in the developed economies? These were just some of the globally significant challenges put to 700 participants on the first day of the Annual Summit of the World Built Environment Forum in Shanghai.
One approach is to invest heavily in infrastructure, as China is doing through the One Belt, One Road (OBOR) initiative, widely seen as a revival of the Silk Road, or as Professor Wang Wen put it “an ancient solution to a very modern problem”. Participants welcomed the opportunities for the Belt and Road to increase trade and help emerging economies develop further.
Dr Zhu Min delivering the Summit Address
The Belt and Road would rely on a pipeline of projects that investors were willing to finance; however, summit speakers were concerned that current approaches to investment risk were inadequate. They called for greater transparency, risk allocation, regular risk reviews, effective governance and a culture of risk management. For example, it was too easy for state-owned enterprises to assume that the state would underwrite losses. The Asian Infrastructure Investment Bank (AIIB) — the leading source of finding for OBOR — had adopted guiding principles of “lean, clean and green”. Increasingly the Chinese Government saw OBOR as a “Green Silk Road” with low carbon technology, a means of competitive edge and a foundation stone of Chinese diplomacy.
Sun Weijia, COSC; Sir Danny Alexander, AIIB; and Chris Birdsong, Atkins participating in the One Belt One Road plenary session
Within ten years there will be 500 cities with more than one million inhabitants, accounting for 80% of all carbon emissions. Cities can expect to undergo three forms of change: technology, behavioural and urban evolution. They will need to compete to attract talent and investment, as hubs for technology, travel and services/industry. Successful cities would be cohesive, resilient and have a vibrant employment market. The best would meet citizens’ demands to be “liveable” rather than merely habitable, including affordability, agility, amenity, security and opportunity.
Real estate would have to adapt to a future workforce that is more distributed and flexible, and to companies wanting to work more collaboratively and innovatively.
There will be greater focus on strategic management of built assets, with running costs accounting for 85% of a building’s total cost. This would mean new skills for facility management professionals and a need to bridge the gap between technologists and managers.
Day 2 highlights
Day two of the World Built Environment Forum Annual Summit in Shanghai saw the focus shift from geopolitics and macro trends towards cities that are resilient and smart, as well as the market dynamics driving investment into China and the factors drawing Chinese capital abroad.
Half of the world’s infrastructure expected to be in place by 2070 has not yet been built. But the world will have changed dramatically by then, so we need to understand now what the future infrastructure needs will be, and how to build infrastructure that is itself resilient while adding to a city’s overall resilience.
Participants heard case studies from Semarang (Indonesia), Bangkok and Yiwu (China) on how cities could become resilient against long term socio-economic trends, natural disasters and a changing climate. The key first step was to appoint a Chief Resilience Officer who needed to be a masterful connector, strategic adviser, broker and talented engager of communities. Today there are fewer than 70 CROs worldwide, but we are likely to need tens of thousands.
What makes a city smart?
Speakers argued that a focus on big data was not always helpful. Cities needed good quality information: accessible, reliable and relevant. Nor should technology lead the development of smart cities – rather it should enhance them. Nonetheless data and technology were key components, requiring responsible handling, common standards and rigour.
A developer and owner perspective
Participants then turned their focus towards the Chinese real estate market. Tier one cities were experiencing tremendous demand, rapid change and shortage of Grade A office space. Growth in Tier two was expected to accelerate, with Tier three and four cities increasingly competing on the basis of quality of life. In commercial property, panellists noted demand growth for advanced manufacturing sites and service providers.
Chinese commercial property had grown 300-400% over 10 years, with average growth of 16% since the post-GFC stimulus.
Commercial space was adapting to occupiers’ flexible working practices, and new landlord models, with non-rental revenue streams were beginning to emerge. There was a noticeable shift towards mixed-use developments and planning buildings with consideration for the local context and impacts on community spaces.
Chinese investors look outwards
Chinese investors were gaining confidence through better understanding of domestic and foreign markets, more sophisticated risk profiling and more professional financial management. Foreign markets offered scope to spread risk, diversify portfolios, hedge against foreign exchange movements and to invest at scale: US/ New York, London and Australia were especially attractive. Chinese investors also valued historic ties, a shared culture and mutual understanding such as with Malaysia.
Chinese investors were prepared to enter higher risk markets for a good return on investment, but sought to mitigate the risks through consistent standards for valuation, cost modelling and project management.
While foreign governments wanted to attract Chinese investment in order to create jobs, and economic development, there were concerns about the potential impact of capital controls.