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Leveraging infrastructure investment to maximise value

By Andrew Graham


Infrastructure provides the physical foundations for the efficient and effective functioning of cities and their economic productivity. We often think of infrastructure in terms of the immediate and direct impact of transport, including roads, rail and airports. However, infrastructure also includes organisational structures and facilities which support the efficient provision of services such as schools, universities and hospitals, in addition to civic utilities such as communication, gas, sewer and water and therefore occurs throughout a metropolitan area. Thus, if property investors can contemplate the need and timing of infrastructure investment, they can position themselves to capitalise on the benefits and property value created.

We advise the following six tips to set property investors on the path to maximising property value through infrastructure projects.

 

Identify the need

 

The need for infrastructure investment is often driven by economic or social inefficiencies. Identifying the cause of these inefficiencies provides a platform for further investigation. Inefficiency can often be measured in cost. Therefore, it is important to identify alternative infrastructure solutions in order to reduce the broad costs of doing business or accessing services.

Often, the need is experienced in broad terms such as the standard of service provision and cost of services. In some cases, for example, rising electricity prices have indirectly increased the value of land near gas pipelines or renewable energy projects as occupiers seek to mitigate the risk of energy costs through co-location with alternative energy sources and pricing drivers.

 

Identify the level of investment commitment

 

To identify the level of public sector commitment needed for infrastructure development, investors need to first understand the associated political cycle. Short-term political cycles, for example, can result in some projects being committed to or delivered in future terms or even rescinded at a later date due to feasibility outcomes, economic conditions, or political change. Therefore, understanding the potential risk of a project not proceeding is imperative if investors want to anticipate property price growth.

Policy and Budget documents are a useful resource to understand the level of public sector commitment to infrastructure projects as they usually set out where monies are reserved for planning and investigation and ultimately delivery. The planning and investigation stages provide insight for speculation as to the location and potential benefits of the project. Once a commitment on delivery and timing has been announced those locations most likely to directly benefit from the project will also broadly experience property price growth as well.

 

Identify stakeholders and beneficiaries

 

Often there is a direct correlation between the benefits that infrastructure development creates and property prices. One such example is the Cross River Rail project which, post completion, will free capacity on existing rail networks allowing for the increased provision of services to existing stations as well as increased frequency of express trains to the urban fringe. This in turn will increase the standard of services and reduce travel times, particularly to areas at the urban periphery. Flow on effects will positively impact house prices in those locations as improved access to the rail network will entice home buyers to the area.


For other metropolitan rail infrastructure projects, benefits may also include prevailing planning policy outcomes, more support for increased densities and alternative uses for transport nodes. However, infrastructure projects benefit different users in different ways. Those asset classes most likely to benefit represent the greatest potential value growth. For example, the development of a new school provides opportunity to other social infrastructure asset classes based on demographic concentration and activity such as childcare, medical and allied health services.

Add value to your property during the planning and development stage

 

Adding value to your property while infrastructure is being planned and delivered can save time and costs on project delivery and allow investors to witness the benefits accrued from the infrastructure’s operation. Adding value to property can be undertaken in a number of ways, some of which may include gaining a development approval over the land, securing tenant pre-commitments, repositioning an asset to leverage the benefit, or repositioning tenancies to maximise benefit.


The optimal time to undertake value-adding activities is during the planning and development stage because during this phase the premises are ready for market as the infrastructure is upon completion or completed.

 

Execute your exit strategy


Analysis of various infrastructure projects globally indicates maximum property price growth is gained soon after the operation or opening of the project. It is therefore optimal to launch stock or sell the asset commensurate within this time with a targeted exit strategy between 12 and 18 months after completion. Another factor to consider is the availability of market evidence to support the maximum price point.

 

Next steps


We advise our clients to review their assets in its current state as soon as possible and to consider what pre-existing infrastructure exists around your asset and what plans are in place for future development in the short, medium and long-term. When it comes to planning, make sure you identify delivery dates to help backdate and set key project milestones in relation to repositioning works. Most importantly, seek professional advice and consultation to identify and implement appropriate strategies to receive the greatest benefits from market uplift.

 

For more information on how to maximise the potential of property through infrastructure via real property intelligence please contact one of Colliers Strategic Advisory experts today.


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