The Ground Floor

Room to Grow in Hong Kong

This post was written for the Ground Floor by C.Y. Leung, chairman Asia Pacific of the Urban Land Institute.

Editor's Note: This article was adapted from an opinion piece originally written by Leung in his role as Patron Chair of Hong Kong’s Climate Change Business Forum for the South China Morning Post, which published on April 2, 2010.

It has become clear that the climate is changing faster than humans are changing to adapt or prevent it. That must change. For Hong Kong to retain its place as an economic and cultural leader, we need to think strategically and act practically. We can start with buildings. Hong Kong buildings consume almost all the electricity generated for the special administrative region--a full 89 percent. Thus our opportunity for reductions in the real estate sector is enormous.

With oil prices fluctuating broadly, and coal bearing costly environmental and climate concerns, our best bet is to increase energy efficiency.

Unfortunately, it's easier to design an energy-efficient building from scratch than to retrofit an old one. Our existing stock of millions of square feet of real estate thus defines our challenge.

The barriers to investing in energy-efficient buildings are well rehearsed:

• Regulations made in times when smart-building designs were unheard of;
• Poorly planned buildings are not conducive to easy upgrades;
• Inadequate information--without smart meters, it's hard to know where and when excess energy is being consumed;
• A lack of urgency among building owners, users and professionals;
• Fragmented incentives or even disincentives for designers, developers and managers to invest in sustainable features;
• Absence of financing or incentives to make a positive return on investments over the medium and long term;
• Lack of a price signal to motivate energy efficiency; and
• A mindset of waiting for others to act instead of embracing opportunity--slowing both adoption of existing technologies and the development of new ones.

But the solutions are equally well known. After all, property development is one of Hong Kong's key competencies. In fact, while other cities struggle to reduce emissions in their transportation sector, Hong Kong can focus on what we do best and become a world leader in retrofitting buildings. But to achieve our targets, we need better collaboration between the business sector and government.

The Urban Land Institute has been engaged in sustainable development issues for many years. ULI’s recent Retrofitting Office Buildings to be Energy Efficient book is a great tool to jump-start our efforts.  ULI’s Energy Exchange website is a new tool to share individual case study examples which represent industry best practices for owners and public officials alike. Across ULI, members are exploring ways to work with the public sector to innovate professional practices and find new ways of structuring finance tools to significantly scale-up the building retrofit marketplace. Working together with government will bring better results to this effort in two ways.

First, Hong Kong needs a regulatory regime that both requires and motivates better energy efficiency. The government's proposed new building energy-efficiency standards could play an even more important role, if they were upgraded to current best international practice.

Second, government procurement can lead market evolution. Carbon should be weighted as a positive design element that commands payment--from embodied carbon in building materials and greenhouse-gas emission during construction to energy efficiency in building operations. These energy efficiency factors must be quantified in a way that can be integrated into ongoing business activities so that the private marketplace can give them a monetary value.

Markets, like people, need to be informed, motivated, and occasionally inspired. A trusted building-rating scheme would provide important information on buildings' actual energy efficiency.

Smart meters, displaying energy use by function and time of day, could demonstrate how energy is being used--or wasted--thus motivate owners and tenants to achieve potential savings. Incentive schemes that help identify and cofinance upgrades would pair nicely with a regulatory regime that imposed credible, transparent, and increasingly stringent standards.

Government and market players together should work to reverse the "circle of blame" that has designers, contractors, developers, financiers, owners, and tenants all unwilling to make investments in energy efficiency because they cannot reap the rewards.

This leads us to the last necessary ingredient: inspiration. Other great world cities have been inspired by a carbon "stretch goal," and have united as business and civil society groups to achieve it. We have proven to the world many times over that Hong Kong can compete on the vast global stage; let’s do it in energy efficiency as well!

In December, I called for Hong Kong to establish a carbon target as part of an overall vision for a green, low-carbon future of our own making. This call is now being echoed by business and nonprofit groups throughout the city. That echo deserves an answer.

It has been said that the best time to plant a tree is 100 years ago. The second best time is now. We need to plant both trees and the seeds of a low-carbon, smart-energy economy. Only then can we ensure prosperity for our children.

Compact Communities - Is Density Incompatible With Safety?

Reducing the carbon footprint of metropolitan areas will require making them more compact in order to reduce driving or vehicle miles traveled (VMTs). Forgive me for saying this (density being a four letter word) but this will require increasing the density of existing communities and building new ones with appropriate density. 

So what are the best ways to design compact, densely populated, walkable communities which are attractive, safe and lively? One thing clearly needed is enough housing so people live in the community; this is what creates the "24/7" communities which have been shown to be most successful over time. What are the best ways to do this while reducing crime and enhancing public safety?

Shanghai and Beijing Boom

This post was written by The Ground Floor contributor and ULI senior research director for Asia, Michael Pawlukiewicz.

I recently had the pleasure to lead a group of ULI delegates on a study tour of Shanghai and Beijing. We visited the Bund and Jin Mao Tower in Shanghai as well as the Forbidden City, Tiananmen Square and the Great Wall in Beijing. Our appreciation of cultural and historic features of these great cities was enhanced by going to see several new development sites, experiencing the energy on the streets and learning from experts what it is like to do business in China.

Both Shanghai and Beijing are going through extraordinary development booms fueled by lots of available capital and the eagerness of many global companies to get in on the business opportunities in China. Responding to delegates' questions about the business environment, David Hand an expat who works for Jones Lang LaSalle in Beijing said: "You look at China and perceive a risky, autocratic, communist government; we who work here in China see a stable, predictable government."

A Tree Grows in Tokyo

Working in one of the largest cities in the world (the largest, if you count the entire urban area; 11th or 12th if you're just talking about the 8.5 million people living within the city's boundaries), Tokyo developers are hard-pressed to incorporate large quantities of urban space into their new developments. However, the Tokyo Midtown project in the city's Roppongi District (profiled in the April issue of Urban Land) has bucked that trend, dedicating half of the ten-acre site to public open space, including parks, plazas, promenades, and streetscapes. EDAW, the global landscape architecture powerhouse that designed the project's open spaces, has now put together an interesting slideshow of the ideas that drove the design of Tokyo Midtown. Check it out -- the visuals are stunning.

More From China: Transportation Solutions

This post was written by The Ground Floor contributor and ULI Senior Resident Fellow, Robert Dunphy.

The best transportation solution is being there.

The scale of Shanghai, one of the world's largest regions, is immense, and their plans are appropriately mind boggling. World Cities Forum participants heard a briefing on the latest plan for the year 2000 by Wan Jian, deputy director of the Shanghai Bureau of Planning at a Wednesday program in Pudong. International connections are world class, with the recent development of a new deepwater port intended to serve five to six generations of tankers, a new airport designed for 70 million travelers, as well as improvements to the older one to handle 45 million people. The surface network includes national and regional motorways, urban streets, and an ambitious expansion of the existing subway from four lines to 11, stretching to almost 1,000 kilometers.

The underlying development plan, called the 1-9-6-6 plan calls for one city, about nine new cities of greater than 300,000 people each, 60 smaller towns, and 600 villages. The idea is that these new satellite cities would include specialized industry -- universities, shipping/aerospace, and so on, to offer a degree of self containment, a lesson learned from the failings of other countries' new towns, where residents needed to commute back to the central city. In this way, a resident of this subregion could work in the same sector, as well as have most of the daily retail and services available. That is one effective way to deal with what could otherwise be impending traffic meltdown.

Will it work? It's an intriguing question for a government and public used to following orders. If all goes well, perhaps there will be a degree of parity, with university professors living in their zone, and aerospace engineers in theirs. What if a professor decides to join an aerospace firm's research group, or someone's spouse needs to go elsewhere? My observations suggest that as the ratio of jobs to resident labor force approaches two, about 40% of residents stay in their same zone. Because the needs of travelers are fairly complex, it is tough to pin them down. If they succeed in Shanghai, there could be some great lessons for better organizing travel patterns in Europe and the Americas. As one of the speakers pointed out, the needs are so challenging that it is "like a bird in a cage -- when you can't change the cage you have to change the bird".

China: "No Longer Emerging"

Participants at ULI's World Cities Forum concurred that China has evolved beyond "emerging market" status in the global investment community, reports ULI Senior Resident Fellow Steve Blank. Below are some insights from Blank on a discussion at the forum today in Shanghai:

"Panelists were uniform in their agreement that China is no longer an 'emerging market;' it has arrived on the investment scene. That is not to say there is no premium for investing in China. It's just that the risk premium has become much smaller. It is more than a little surprising as to how quickly China has transformed itself from an emerging market to an established one."

Forum participants provided the following figures for benchmark returns on property investments in China, with the riskiest offering the greatest rewards:

• Core investments: 8% to 12%
• Value added investments: 12% to 18%
• Opportunistic investments: 18% to 25%+

"While on a relative value basis these returns are at a premium to those of older, more stabailized markets in the U.S. and Western Europe, the relative premium for investing in China has rapidly decreased over a very short time period," Blank notes.

A maturing market with ample opportunities, to be sure. Check back for more thoughts from the World Cities Forum this week.

This Just In...From the World Cities Forum

"A country without a past is like a man without a memory." So writes ULI Senior Resident Fellow Ed McMahon, noting the alarming rate at which historical buildings in Shanghai are being torn down and replaced with new high-rises. McMahon is one of 100-plus participants at ULI's second World Cities Forum, being held this week in Shanghai. Below, he shares some insights on development in the city and surrounding area during a tour just prior to the event:

"Shanghai really blows the mind: 20 million people, 6,000 skyscrapers (all built in the last 25 years). On the positive side, they [private- and public-sector officials involved in land development] are building new housing, roads and other infrastructure -- all on a scale that Americans can't even imagine.  Yesterday, I went on a tour to the historic city of Suzhou and afterward visited a "new city" of 600,000 people, built in about five years. Everything here is on a mammoth scale and the drive to transform China is occurring at breathtaking speed. 

China's Housing Boom

China's 20 somethings are finding it possible to purchase their own homes and, in fact, according to an article in yesterday's Wall Street Journal, "Property Owners Feel Right at Home in China" (subscription req'd), "China's rates of homeownership are as high as 80 percent in the cities, according to estimates-topping U.S. homeownership rates of about 69 percent."

Pretty astounding considering that prior to housing reform in 1985, "privately owned homes accounted for less than 17 percent of urban housing stock," according to the article. And, a proposed law expected to be passed this Friday will "clarify existing regulations governing property ownership" symbolically creating private-property rights in a country still headed by the Communist Party. Under the Communist system, the state owns all land and currently allows 70-year leses, but "the new law appears to allow leases on land to be extended forever, meaning families could potentially pass on property to their children," according to the article.

While there is speculation in the Chinese real estate market, the article states that "around 80 percent of purchasers are buying for their own use." 

China's real-estate boom provides many opportunities for real estate investment which is why Shanghai was chosen as the site of this year's World Cities Forum, April 17-19. 

Challenging the World Order

Did you think you had the current world order set? Asia will lead with its fast-growing and exciting economies; the U.S. will remain strong and steady while Europe will lag as expected from the "Old World"?

Will Hutton, chief executive, The Work Foundation and former editor of U.K. newspaper The Observer, challenged this conventional wisdom with a provocative address at the ULI conference in Paris this week.

The growth of Asia, he said, was attractive but had profound problems which will limit its potential such as the risk of political instability in India and China. Meanwhile, U.S. growth was unsustainable with the country in denial about its problems such as personal debt levels which could leave the country unable to drive the economy forward through consumer spending.

Finally, Europe, he predicted will be a safe and growing haven helped by Germany, which has been "written off as the place not to be and it may just be the place to be."

One of the underlying trends of this analysis was what Hutton termed "enlightenment infrastructure," which represented an economies' approach to factors such as entrepreneurship, competition, research and development, and education.

China, for example, remained a "party state" and capitalism would have difficulty overriding a culture which would struggle to adjust to an era of entrepreneurship and competition when one third of enterprise remained state owned.

This compared to some European models where the competitive spirit was high, commitment was good to education and research and development was ripe to grow. In Germany, the low consumer indebtedness means that there was scope for a sustained consumer boom. However, Europe still had drawbacks such as low population growth and over regulated financial systems.

The U.S. had strong enlightenment infrastructure but in some cases this was starting to undermine its success. For example, merger activity represented 10% of GDP which bought about a "fear in middle class America" as restructuring and redundancy fears hung over the population.