What trends will influence urban policy in the coming years

Cities are increasingly transforming, also due to the pandemic. What priorities do the authorities of business centers and agglomerations adhere to in the development of projects, attraction of investments and competition for talents?

Fight for investors

The economic success of cities depends on many factors. Now, due to the pandemic, the fiscal capacity of many of them has suffered for three main reasons:

Therefore, the question arises of how cities can continue their investment policy and implement large projects. After all, an actively developing city with excellent infrastructure will be more successful in the fight against other agglomerations for attracting private investment and talent.

The largest global business centers (eg London, Paris, New York, Singapore) often clash for investors who choose which city is the best place to implement their program. No less acute is the struggle for talents, especially for young people, representatives of generations Y and Z, who choose where life is more attractive in terms of their values.

The business strategies of successful cities can be conditionally divided into two groups according to the types of policies applied by local authorities:

1. Established regulations

City policy can be based on the following pillars:

• Clearly defined control systemswhich the authorities strictly follow. They allow investors to make informed decisions on investments in a particular project. An example is London, which until the 2000s carried out a reform of municipal government. Prior to this, the British capital was divided into 33 districts, each of which had its own leadership, which solved exclusively local problems. In 1999-2000, the authorities decided to return the post of mayor of the city, abolished in 1986, and create the administration of “Greater London” for issues related to the development of the entire agglomeration in the field of transport, residential development and the implementation of infrastructure programs. This helped to more purposefully solve the problem of attracting private investors to such projects.
• fiscal opportunities. We are talking about cities that have significant funds from the collected taxes, which allows them to implement ambitious projects. Examples are Shanghai and other large agglomerations that have benefited from the reform carried out by the central government to develop fiscal federalism. In them, significant shares of large tax revenues, such as VAT (50%) or sales tax, now go directly to city budgets. Shanghai, for example, launched a public-private partnership program with the funds received, issued municipal bonds, and so on. This made it possible to implement important infrastructure projects for the city.
• Flexible optimization of land use rulesresponding quickly to changes in demand. For example, a similar approach is used in Tokyo: a flexible urban planning system does not limit development in a particular area to one or two functional areas. Also in the center of the Japanese capital, the height restriction has been lifted. Unlike many other cities, Tokyo developers have no restrictions on converting a former industrial building into apartments. The authorities of the capital of Japan are actively promoting the regeneration of areas near major transport hubs by developers. Ultimately, the city wins, in which new city blocks and centers of gravity are created.

As for Moscow’s policy, the task of creating a strong fiscal base is probably irrelevant for it. The urban planning policy of the capital is quite flexible and allows developers to implement projects of varying complexity and versatility. But despite the simplification of agreements and approaches to interaction with business, representatives of the city authorities do not often listen to the opinion of entrepreneurs and make changes to the legislation.

2. Soft mechanisms of interaction with business

Cities in this group are characterized by:

• well defined long term policy, allowing potential investors to plan activities with a lower level of risk. For example, Denver’s long-term policy to transform the city from a manufacturing to a technology and financial center allowed it to increase the flow of investment, as investors clearly understood the city’s policy priorities. Under the auspices of the city development agency, a platform for dialogue between universities and business was created. At the same time, the city actively promotes the ideas voiced at it. All this has yielded a unique result: over the past 20 years, the structure of the Denver economy has significantly changed towards innovative and service companies.
• Proactive attitude towards business relationsin particular with small and medium-sized companies. Cities that actively engage in dialogue and build their policies, including with start-ups, can count on returns in the medium term, since such companies together can give a powerful impetus to the development of the city’s economy and attract investors who specialize specifically in new companies and business opportunities. incubators. For example, the city authorities of Indian Bangalore for a long time did not have the capacity and competence both to collect local taxes and to plan and implement municipal programs. Therefore, private business took the initiative, as a result of which systems for collecting property tax and accounting for municipal expenses were created and implemented. Everyone benefited from this: the authorities got stable cash flows and the opportunity to implement free economic zone projects for IT companies; simplified and systematized land use rules; e-city system was created. All this made it much easier for new companies to enter the market, and also simplified the work of developers.
• Brand and city history, enhancing its attractiveness for investors in the presence of appropriate policies. Thus, Melbourne has always sought to attract talent, but the geographical location of Australia has complicated this task. The city authorities used its history to create the image of a multicultural center with a large number of objects of culture and art, comfortable living, with an attractive and calm lifestyle. The city also actively implemented technologies in city management and its infrastructure. Therefore, today the city has a reputation as a global innovation and cultural center.
• Consensus and Policy Continuity — when, despite a changing political party winning the municipal elections, the city’s policy continues to be implemented in the same vein. Such an example are cities in Germany that do not change the general policy of the city in the field of taxation and city regulation, even if the other party wins as a result of municipal elections.

The fight for talent

Another important point in city policy is how to attract talent that will help grow the city’s economy. Cities, like companies, are successful thanks to the involvement of professionals. At the same time, the coronavirus pandemic has accelerated some of the main trends that originated long before it. There are three main trends in the interaction between cities and residents that will determine the development of successful megacities in the medium term.

1. Digitization and automation

In order for a modern city to successfully manage its resources and interact with businesses and residents, it needs to widely use digital platforms that automate processes. And here Moscow is ahead of many European centers in terms of the technologies used and the scale of the use of digital services in various aspects of the life of the city and its residents.

2. Glocalization

On the one hand, there is a growing demand for a local offer of certain services and goods: people want to see them within walking distance from their place of residence or work. At the same time, expectations regarding the type of obligatory food outlets and services provided in the place of residence have increased.

On the other hand, there is a trend towards the globalization of supply on the part of both manufacturers and service providers. It allows them to save on costs, since many modern goods and services require significant investments in technology to be promoted and sold. Without scaling operations to many countries, companies will not be able to survive. At the same time, we are seeing a ubiquitous opening of farm and other brick-and-mortar stores, and in support of our tech thesis, farmers are increasingly choosing online platforms over brick-and-mortar stores to successfully sell their products.

3. Environmental sustainability

The need for the widespread use of environmentally friendly solutions and technologies, including at the city level, is especially high among generations Y and Z, since the trend towards a more careful attitude to the environment received an impetus for development precisely in the last two decades, when people who were born in the late XX – early XXI centuries.

Sustainability refers not only to the use and disposal of products and technologies, but also to lifestyle. There are many more people in their 20s and 30s who follow the concept of a healthy lifestyle. If we look at the data of surveys conducted among young people in European cities and in Moscow, we will see almost no difference in attitudes towards the environmental agenda. However, our country still lags behind many European countries in terms of environmentally friendly waste processing, the use of electric transport, including for personal purposes. Therefore, young people in Moscow often look for opportunities to implement the principles of a conscious attitude to nature – people under the age of 30 are more likely to separate waste collection and disposal, often at their own expense, minimize the use of plastic in their lives, and so on.

Cities that actively implement such approaches in their strategies have a higher youth appeal and are more likely to attract private investors for large-scale projects and transformation.

The impact of trends on the real estate market

Developers and investors should keep in mind that due to the global economic and social changes that have taken place in recent years, it will be necessary to adapt to changing demand. For example, during the pandemic, the demand for retail space has decreased. Everyone in the big segments of the trade is now using online ordering. As a result, many retail outlets now require a restart. Some illiquid premises should be converted into offices or co-working spaces, while others could be used for urban logistics or dark stores.

The value (cost of land) will also change in different areas due to changes in the profitability of projects. This, in turn, affects the projected financial flows of projects.

The demand for objects of various purposes has already changed significantly, which has led to changes in the profitability of objects. Thus, due to the change in consumer habits, the demand for warehouses and various intracity logistics facilities (fulfillment centers, last mile warehouses, dark stores) is growing. The demand for data centers has also grown significantly – and this is a global trend. They are in demand by financial institutions, gaming companies, online retailers, and other online platforms – those who need fast and efficient data exchange.

For tenants and operators working with commercial real estate, the changes were multidirectional, and in the next two to three years we expect the following trends:

• Offices face uncertainty and the need to find short-term accommodation solutions;
• In trade and logistics, the priority is in the location of objects near consumers, inside residential areas. The emergence of new types of operators with their own technological requirements is also expected. Warehouse real estate in general feels very good, and this trend will continue in the medium term;
• The hotel is facing a difficult to predict recovery period, since it is still unclear when we will finally return to the old way of life, and whether all restrictions on the movement of people, including at the international level, will be lifted.

For users and consumers, the following main trends can be distinguished:

• Greater priority of the local offer and reduction of the time for receiving services and goods;
• Change in traffic flows between districts;
• Changes in the work schedule: the priority for the hybrid model is remotely / in the office.