Social value is the key to unlocking urban transformation

In the context of urban transformation, Mark Edward Rose, Chair and Chief Executive Officer of Avison Young, emphasizes the importance of social value in the built environment. Published by the World Economic Forum (WEF), the article outlines the challenges and opportunities that arise in the aftermath of the COVID-19 pandemic, particularly regarding urban inequality and decline. As towns and cities face unprecedented pressures, private sector engagement has increased significantly, with a focus on driving transformational urban regeneration efforts.

The pandemic has heightened existing urban challenges, including rising inequality, shifts towards online shopping, flexible work arrangements, and housing shortages. Communities that were already struggling have found their situations exacerbated, making it crucial for the real estate sector to pivot towards impactful redevelopment strategies. Traditionally, the sector has shown greater interest in straightforward investment opportunities; however, the current climate necessitates a broader approach that encompasses social value considerations alongside profit.

Recent trends indicate a growing focus on social value within the private sector, which is vital for urban regeneration projects. Companies are now prioritizing the social outcomes of their initiatives rather than merely the completion of buildings. This shift coincides with increasing pressures on local government budgets and rising construction costs, making it essential to demonstrate the wider community benefits of projects. For example, Nuveen Real Estate aims to manage $15 billion in impact investments by 2026, while Legal & General plans to invest £4 billion in urban regeneration in the UK's West Midlands by 2031.

Public-private partnerships (PPPs) are instrumental in mobilizing investor capital for large-scale urban development projects. These collaborations allow for the combination of public assets and financial backing with private sector efficiency and innovation. Public entities can contribute land and access favorable borrowing rates, which can de-risk projects and attract additional private investment. Despite the potential benefits, there are challenges in aligning risks and returns between public and private stakeholders.

Three primary challenges hinder urban transformation efforts. First, the time required to deliver projects can be affected by changing political landscapes, risking government support. Second, while social benefits are increasingly recognized, private companies still require a commercial return, complicating the risk-sharing arrangement. Lastly, accurately capturing non-financial social value, such as improvements in health and community integration, remains difficult but essential for project success.

Addressing these challenges requires tailored solutions, as each regeneration project is unique. An expanding range of partnership structures is emerging to facilitate investment in urban regeneration. Avison Young is collaborating with the WEF to build a taskforce aimed at optimizing local governments' approaches to partner effectively with the private sector. This initiative aims to foster social value outcomes that are critical for addressing the pressing challenges faced by urban communities across Europe.