Green Business

Eco-Cities: Building a Comeback?


The global recession put a damper on what are known as eco-cities, or big real estate developments that dramatically cut carbon emissions. The most notable delay has affected a major project planned for Dongtan, outside Shanghai. But with the recession easing and oil prices rising, plans to build such ultragreen model cities seem to be reviving.

Well-known projects such as the government-funded Masdar city in Abu Dhabi and Amsterdam's "smart city" are continuing. Meanwhile a host of other efforts from Finland to Arizona are in the works, many with a mix of government and private funding.

In July, for example, the first tenant moved into Eco City Hamburg-Harburg, just outside the German city of Hamburg. The project, developed by the global design firm tecArchitecture and engineering firm ARUP, is branded as a "sustainable creative-industrial environment." Its aim is to bring "large-scale industry and creative startups together in one cooperative and eco-friendly business community," its Web site says. Spaces range from studios to large warehouse and production facilities, which will house offices, hotels, retail spaces, and restaurants. Harburg is funded by private equity with some government loan assistance. Developers have already shelled out €25 million of the €120 million projected cost.

Like all eco-cities, Hamburg-Harburg trumpets its green credentials. Once the site of a comb factory, the 10-building mini-city is projected to reduce energy consumption by about 30%. Forthcoming buildings feature two large wind turbines atop high-rise towers that will generate more than 10% of the complex's power. Rent is about 25% below the average for central Hamburg, and the commute to the city takes just 20 minutes.

A Q2 Rebound in Cleantech Investment The first tenant, Heidelberger Druckmaschinen (HDDG.DE), a manufacturer of printing presses, has moved in about 150 people from its sales division. In the spirit of the eco-city, Heidelberger has also opened an interactive showroom with exhibits that highlight its green printing practices. Spokesman Thomas Fichtl says the company is "pleased with our new home…. Location and cost were important considerations, but so is being green."

The question is: How many other companies will follow suit? And how viable are premium eco-cities in a global downturn? The answers depend on a lot of factors, including conditions in the broader real estate market and the durability of demand for greener buildings. The real estate market—especially the commercial side—remains troubled. But there appears to be continuing interest in green projects. Clean-technology venture investment rebounded in the second quarter of 2009 after two consecutive quarterly declines, according to Cleantech Group and Deloitte.

The uncertain environment has scared off some—but not all—private investors. "Whether [eco-cities] are a good investment depends on the investment horizon," says John Macomber, CEO of the Boston-based real estate consulting firm BuildingVision. "Those looking for return in the short run might not see opportunities. But other investors are…betting that energy prices will continue to rise and there will be more demand for the right green space."

Macomber says, however, that private investors won't pile into eco-cities unless there are clearer incentives to do so. "Models are emerging, but in a way they are utopias built by pioneers," he says. "The question is: Is this investment a luxury pet project or could it go mainstream?"

Governments Act to Spur Green Jobs Other experts express skepticism about eco-cities as investor magnets. "Researchers think that [in general] there is no direct relationship between investment in green tech and financial performance," says Oklahoma City University Business School professor James Ma, an expert in socially responsible investing. He adds: "Green investment is not cheap. It is considered an extra to begin with, while the economic crisis is shifting the focus back to job creation."

Job-creating potential has attracted the interest of governments. "In the past 12 months, legislation has caught up and [governments are] adopting the green building agenda," says Guy Battle, an engineer for London-based architecture firm Battle McCarthy and founder of consulting firm dcarbon8. "While some developers are backing off, governments are raising the bar and saying 'We have to do this.'"

Major companies are getting involved, too. IBM (IBM), for instance, is participating in a variety of eco-city-related projects in Amsterdam, Stockholm, Singapore, and elsewhere. "Worldwide, we're seeing that government is taking the role as the leader in innovation," says Rizwan Khaliq, director of IBM's global government strategies. "Private industry, while it hasn't backed off [these investments] entirely, is still in the process of figuring out if they can continue to generate revenue from these projects."

Global consulting firm Accenture (ACN) has developed its own "smart tech" department, which is focused on carbon emission-reducing initiatives. Lead strategist Simon Giles says he thinks the current environment will attract more measured private investors. "As long as projects have very clearly defined parameters and are well managed," he says, "they will attract investment."

0115_moira_herbst_bio
Herbst is a reporter for BusinessWeek.

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