03How can cities respond to this?
Attracting investment is not just about having favourable fundamentals. A city’s reputation amongst investors greatly impacts its likelihood of attracting investment. Given the many potential UK and global cities to invest in, and the huge amount of information necessary to assess them all in-depth, investors must select a shortlist to investigate fully.
A positive reputation, track record for successful investment and a high profile amongst investors will greatly influence the likelihood a city appears on this shortlist.
Given this, how can cities maximise their desirability as an investment location? This section provides practical recommendations for cities developing their approach to attracting private-sector investment.
To entice investors, a city should focus on:
1 Use expert resources
- Ensure the city has access to investment expertise
- Conduct each activity at most appropriate scale
2 Knowing the city’s offer and audience
- Assess the city as an investor would
- Create a city vision that communicates its ambitions
3 Building networks to sell the city
- Proactively reach out to the industry
- Build relationships
- Provide investors with the information they need
4 Closing the deal
- Be flexible and willing to step in
1. Use expert resources
Ensure the city has access to private-sector investment expertise
Think like an investor
It is crucial a city’s approach is based on a robust understanding of how investors think and behave. An appreciation of each investor’s timescales, risk and scale appetite, and return expectations is essential, as well as knowledge of current trends in the investment market and how it is evolving over time. Investors value teams who speak their language and understand their ambitions. This gives them confidence in the team’s abilities, encouraging them to work with them and making it easier to do so.
Box 5: Risks posed by an investment
The risks an investor is exposed to strongly impact the attractiveness of an investment. The appetite for risk varies by investor, but all consider the following four risks:12
- Financial – is the risk and return equation suitably attractive?
- Operational – can commitments be delivered once the investment is underway?
- External – for example, will public support for investment and growth decline? Will Brexit halt the city’s economic growth?
- Reputational – is the investor’s public profile likely to suffer? How supportive will the city be in mitigating the impact of unforeseen circumstances?
This expertise can be achieved by recruiting from the private sector and those who have worked directly with investors, as Southampton did when creating a team to deliver their VIP developments (see Box 6), or by providing staff with specialist training. The expertise does not need to be in house. Cities can borrow this from the private sector, through partnerships, consultancy or pro bono work.
“Having the right resources is key to attracting investment. Cities with outward looking civic leadership, supported by commercially-minded economic development and investment teams will be the most successful – they think and speak in the same way as the private sector.”
David Partridge, Argent
Identify target investors
Promotional material can then be individualised to provide the precise information required to assess the opportunity’s potential. Sites can be prepared for investors, and designed to have the right scale and balance of risk and return, for example by combining multiple sites.
Conduct each activity at the most appropriate scale
Collaborate with neighbouring areas or like-minded cities
Developing a relationship with a current city centre investor or promoting a specific site to a small group of targeted investors can be done by the city. But other activities, such as hosting events, may be best carried out on a wider scale.
Joining forces can provide extra resources for promotional and outreach activities, such as Northern Powerhouse and West Midlands trade missions to meet international investors. A city region or collection of cities contains many more sites and may have a more distinctive, higher-profile reputation than an individual city. Some investors may want to make large investments or see a wide range of options, so this increased scale suits them. Setting each scheme within a broader portfolio means investors can be introduced to other opportunities they might not otherwise have been aware of.
Make the most of existing geographies and networks
Use combined authorities, city regions, LEPs and city networks such as Core Cities, when a larger scale is desirable. Part of Greater Manchester’s success is in part attributed to its decision to make transport infrastructure, economic development and land use decisions at a combined authority level.13 Many cities attend MIPIM as part of a wider group. This year, for example, Leeds and Sheffield promoted their city regions, whilst Scotland’s seven cities joined forces to promote themselves, using the Scottish Cities Alliance as the tool.
“Cities need to consider the scale of opportunity they can offer the market and think about joining together if they want to attract larger investors.”
John Tatham, GVA
2. Know the city’s offer and audience
Assess the city as an investor would
Know how the city is viewed by investors
To gain this insight, cities should assess their place against the four priority characteristics listed in the last section, just as an investor would do when considering a potential opportunity. This enables a realistic identification and communication of the city’s strengths and weaknesses.
“There is a lot of competition so cities have to work hard to stand out. Being authentic is key – work out your uniqueness and shout about it, loudly!”
Angela Barnicle, Leeds City Council
Table 3: Assessing a city’s attractiveness against each investor priority
Promote the city’s strengths to investors
To ensure the city’s positive characteristics are known, information and promotional material should focus on these, using facts and data to evidence the claims. This will strengthen the city’s reputation, and is much more effective than devising a brand or slogan. Use the private sector as ambassadors of the city, choosing specialist firms to showcase the city’s expertise in specific industries.
Whilst improving all four traits should be a long-term goal, this is not immediately feasible. One may have a fast-growing economy but an unstable leadership with inconsistent policy. Another will attract investors with its distinctive global reputation, but deter them with a restrictive planning system. Cities should focus on improving those factors within their control, not be distracted by those outside their influence.
Design the city’s vision to communicate its ambitions
A vision sets out what the city wants to become. By having a clear goal, the city can determine exactly what investment is required to achieve this, and set about ensuring this is secured.
Demonstrate the city is pro-investment
The vision needs to show investment is critical to the city’s future and for achieving its vision. Investors use the vision to understand how the city will evolve, and consider how this will impact the success of their investment. And knowing their contribution to the evolution of the city is desired and relied upon will encourage them to invest.
Showcase the city’s best qualities
Rather than starting from scratch, building on the city’s best characteristics will make it easier to successfully realise the vision. An investor should be able to read the vision and know the city’s economic, social and cultural characteristics. Crucially though, to be convincing, it must be an honest portrayal of the city’s strengths and weaknesses and be backed by sufficient resources to achieve it.
Ensure public support
A range of stakeholders, both within and outside the city, must be engaged in the design of the vision to ensure it has wide-spread support. This was the approach taken by Edinburgh, involving businesses, residents and organisations in the design of the 2050 City Vision.14 A vision shared by all will come up against much less resistance, and so be more likely to be achieved than one the public dislike and so investors will feel confidence in investing.
Have a detailed plan to deliver the vision with a clear pipeline of opportunities
By setting out the investments required to realise the vision, this plan can act as an investment prospectus, with the inclusion of a development pipeline to provide vital information on each proposed development. This will demonstrate the city is serious about turning the vision into reality. For example, Birmingham has used their Big City Plan to present the investment required to achieve their city vision and have generated international profile, including interest from sovereign wealth fund investors drawn to the city’s ambition.15 12
For some cities a vision at city–region scale is more suitable, providing the scale investors are looking for. If the future of a city is highly interlinked to that of another city or area it makes sense to collaborate. Many are already doing this, such as Leeds City Region, Sheffield City Region and Glasgow City Region.17 The six new combined authorities with elected metro mayors offer an improved ability to plan strategically and spatially across a wider area.
Case study 1: Southampton’s approach to attracting investment
Over the past two decades Southampton’s approach to attracting investment has been bolstered by proactively seeking investors and strategically planning the exact developments required to achieve the city vision.
Southampton has focused on raising the profile of the city amongst investors and agents, developing relationships within the industry and ensuring it has a pro-investment reputation. Hosting events, often in partnership with commercial property agents or publications like Estates Gazette, and speaking at national events like MIPIM have been important features of the city’s engagement with the development industry. The launch of the City Masterplan to 200 investors and agents in 2012 was the beginning of this campaign.
The City Council’s work has been based upon an understanding of what developers, investors and occupiers are looking for, their decision-making processes, and their perceptions of Southampton.
The Masterplan and City Centre Action Plan have provided investors with certainty over the city’s future evolution, and information about each of the VIPs (very important projects)18 19. These projects have acted as catalysts for further investment by raising the profile of the city. Critical to their successful implementation was the appointment of a team of five development surveyors with the experience to engage with the private sector to bring forward large scale commercial projects.
The City Council has adopted a ‘one team approach’ providing developers and their advisors with a clear route into the Council, and ensuring consistent messages are communicated to the commercial world. This approach embraces planning, property, transport, economic development and skills, and gives access to all levels including the city leadership.
To date this proactive approach has already secured almost £2 billion of city centre investment plus a further £1 billion of investment across the remainder of the city.
3. Build networks to sell the city21
Proactively reach out to the industry
Many cities declare themselves ‘open for business’ and willing to meet with investors. This assumes investors will come to them, limiting the reach of their city.
Relationships are core to the investment industry and who you know matters
To attract investment a city should make itself known and front-of-mind. Face-to-face meetings and personal relationships with a city are highly valued by investors. Target investors should be approached with information on the opportunities they best suit and the offer of a personal meeting. The city’s leadership must be accessible to investors, acting as a champion for the city, relaying its vision and demonstrating they are aware of and invested in each deal.
Case study 2: Luton’s approach to attracting investment
In 2016 Luton launched their investment framework, in a bid to raise the profile of the city and attract private sector investors and developers to the city.22 To fund the outreach they brought together their key developers, such as Henryboot Developments and Luton 2020, to form the Think Luton Partnership.
This relationship with the private sector also enabled the city to use developers as the main promoters of the city’s opportunities. At a series of events – including a launch event in London’s St Pancras Renaissance Hotel – private sector firms took the lead in showcasing their investments in Luton and highlighting the city’s attractions. Consistency of message was achieved by always focusing on the city’s unique selling points, its fast connections to London and internationally via its airport, and its cultural and social diversity.
The city’s ‘red carpet service’ – a specialised support service from the economic development team, including accelerated building development through a personal planning officer and access to the city’s leadership – ensures developers find the city easy to work with.
The city has seen a real change in the way it is perceived, and has received much more interest in its opportunities. Whereas in the past they had to reach out to the industry, now investors often come to them. Relationships between the city and London property agents have significantly improved, thanks to the city’s ability to demonstrate evidence of its pro-investment approach.
Design the outreach to suit the city’s investment needs
Outreach is not all about shouting the loudest. General outreach to promote the city may suit large cities offering a wide-range of investment opportunities. Smaller cities with more constrained resources and more specific opportunities may not suit this approach. Instead, activity can be more focused by contacting targeted investors or specific segments of the industry or by using private-sector resources, as Derby does with its bondholder scheme.
Use events and the specialised press to raise the profile of the city
Events, such as MIPIM, allow cities both to meet investors, and their advisors, and to raise the city’s profile. Speaking roles and promotional stands are useful tools for starting conversations with the industry. Not attending can send a signal that the city does not prioritise investment. But this type of outreach should not be prioritised over creating personal relationships as investors value these more highly than general profile building.
Collaborate with other cities to borrow scale and prestige when seeking international investment
Overseas investors tend to be less familiar with UK cities outside London, and often favour large-scale opportunities. A regional offering can offer them greater choice and a higher profile area. This collaboration can be formalised to a lesser or greater extent, depending on what they are designed to deliver. The Northern Powerhouse is an example of this collaboration, achieving greater profile by covering a wide region.24
Use private sector champions to promote the city
The role of the city leadership is to plan and coordinate this. A Leeds tech entrepreneur led the recent Northern Powerhouse mission to San Francisco. Outside the UK, cities such as Barcelona and Brisbane use local businesses to promote them internationally.21
Developing relationships is the most important part of outreach. Investors are increasingly looking for long-term relationships with cities as this lowers risk and makes cost predictable.
“Cities should also consider the ‘value add’ that investors can bring in terms of advice and skills in dealing with risk and creating value. To take advantage of that, cities need good relationships with the advisory and investor market to use this advice to shape opportunities early on.”
John Tatham, GVA
Keep in touch by providing investors with up-to-date information on the city’s opportunities
A one-off meeting is easily forgotten so following up with specific information related to the conversation ensures the city remains front-of-mind and demonstrates the city understood the investor’s aims. A consistent point of contact – as offered by Southampton’s one team approach (see Case study 1) or Luton’s red carpet service (see Case study 2) – is key to building strong relationships, preventing delay and duplication and allowing a more personal connection to develop.
Target existing investors in the city
Existing investors depend upon a city’s future success. Cities can leverage this dependence by offering current investors additional opportunities, highlighting how these will further improve the city and so benefit their initial investment. Investors often favour re-investing in a city over a new location as they are familiar with the practicalities of investing there and it reduces the costs of researching others and forming new relationships.
To further embed investors in cities, cities should engage key investors in the design of city plans, treating them as a stakeholder and partner, as this will increase their confidence in the city’s future performance and highlight potential opportunities for re-investment.
Focus on intermediaries as well as investors
Third parties – agents, advisors, specialised press – influence investor decisions. They have wide networks of contacts and the expertise to know which investors will desire each opportunity, so can help cities structure and communicate their offering to investors.
Cities should also work closely with central government. The Department of International Trade (DIT) regularly showcases the UK’s larger opportunities (over £100 million) to international investors, such as a £5 billion North of England portfolio shown to Chinese investors last year.26 To fully utilise this resource, cities should ensure they regularly share information on their sites with DIT.
“Newcastle has worked closely with DIT to promote our strategic employment sites, ensure they are attractive propositions and engage foreign investors. DIT came forward with an opportunity for Newcastle to pitch at No10 in October and at MIPIM in March – a direct result of the relationships stakeholders have built, and confidence in Newcastle’s track record in securing investment and getting developments out of the ground.” Catherine Walker, Invest Newcastle
Case study 3: Blackburn’s approach to attracting investment
To improve its ability to attract investors, Blackburn with Darwen Council has focused on ensuring they are easy to work with and that investors and developers are aware of their opportunities.
The Growth Team – which works in partnership with Capita – offers developers the option of a premium planning service. For an additional charge this gives support throughout the process provided by a senior planner, making it easier and faster for the investor. In addition, by ensuring cases are only brought to the planning committee where necessary, they have increased their response speed and are now exceeding national planning performance targets.
To give the political leadership oversight of progress and to prioritise investments and developments, a Growth Board was created. Comprising both political and executive leadership teams, this Board steers decisions for each important site and means the pipeline has political buy-in early on.
Blackburn has also sought to increase its profile amongst investors, such as by hosting investor and developer days and providing these targeted invitees with information about opportunities.
In the past the Council has had to work hard to attract investors and developers but now they are experiencing increased interest, which they attribute to this improved developer-friendly approach. For example, national house builders, developers and investors, with no previous links to the place are showing interest, their curiosity sparked by other investments they see such as Legal & General and pension funds investing in the Cathedral Quarter development.
Provide investors with the information they need
Ultimately, investors can only assess a city’s attractiveness if they have sufficient information about its characteristics and opportunities, so it is crucial this information is easy to find and use.
“Transparency is really important. Without information investors and developers cannot make decisions, so the city doesn’t get onto the longlist never mind the all-important shortlist.”
Angela Barnicle, Leeds City Council
Have the city’s development pipeline ready for investors
The details of specific opportunities are just as important as the city’s vision and strategy, and the city will lose credibility if these details are not ready to share during outreach activities.
Publish data and intelligence about the city in an accessible and user-friendly format
Investors and their agents require this data to accurately estimate the potential return of each opportunity. The easier the data is to find the more likely they will consider the city. Many local-level statistics are available from the ONS and other national data providers but require analysis to interpret. Publishing economic indicators, such as average income or the share of the workforce with a degree, saves investors time. Where a city has a long-term relationship with an investor, it can provide them with bespoke information and data to suit their ambitions.
“We publish economic analysis online and provide investors with bespoke information. Beyond providing relevant information, this also sends a good signal to investors, showing that we are pro-active and attentive to their needs.”
Anna Rose, Milton Keynes
4. Close the deal
Be flexible and willing to step in
Interest from the private sector will be limited where propositions offer insufficient returns, or have levels of risk and scale which do not match investors’ appetites. Initial interest may also be reduced by unforeseen events, such as a negative shock to the national economy. In these circumstances, cities need to step in to facilitate investment.
Case study 4: Coventry’s approach to attracting investment
To secure private sector investment, Coventry City Council is an example of a city taking an active role in many developments, using their networks and resources to ensure their viability.
The city has focused on:
- Improving planning to ensure it is fast and reliable
- Stepping in to facilitate investment where financing or securing land was difficult for the private sector
Having previously been ranked 288th out of over 300 councils for the speed of their planning process, Coventry greatly improved the responsiveness of their planning processes and have been ranked 1st for the past five years. The pace and reliability of the planning response (promised in less than 13 weeks) reduces investors’ risks and costs and signals the city prioritises growth.
Coventry played a key role in facilitating Jaguar Land Rover’s (JLR) development of its headquarters. JLR sought 60 acres of additional land but was unable to secure this at an appropriate price from the owner. Given the benefits to the city of realising these ambitions, such as the creation of 6,000 new jobs, the city council stepped in, working with JLR and the land owner to successfully negotiate the sale of the land in only nine days. In turn, this triggered an additional 60 acre investment by JLR. Although in this instance a business was acquiring and developing the land, the same techniques apply for cities working with commercial property developers.
Box 6: Facilitating alternative property investments
In recent years investors have become increasingly interested in commercial property outside the traditional sectors of office, industrial and retail.13 Some common examples are: the private rented sector (PRS), student housing, hotels and healthcare. Growth in the PRS sector has been most pronounced in Manchester, London and other large urban areas.
These alternative investments tend to offer have lower transactions volumes, they can be counter-cyclical, and there is less market information available for them.30 This combination of characteristics mean they provide higher returns and are often used to diversify portfolios.
For cities, the popularity of these investments requires attention and consideration should be given to whether more of these investments can be facilitated. But their characteristics can cause challenges, for example it can be difficult to secure financing.
Coventry City Council stepped in to enable a new student accommodation development to take place in the city centre in 2014.28 Given the higher risks of this alternative investment the developer was struggling to secure bank financing. The city offered them a long-term mortgage instead, but as a lender of last choice and with an interest rate that rose substantially each year. Knowing they had found a willing lender gave the bank sufficient confidence to prompt them to undercut the council’s offer and finance the development, which delivered 550 student rooms.
To close the deal cities may need to become involved in the investment. Cities have a variety of tools to do this, including:32
- Direct loan – When financing is unavailable, the public sector can loan funds to the private sector to enable investment. The West Midlands Combined Authority’s Collective Investment Fund is an example of this, lending £3.7 million to a developer to facilitate two developments in Coventry city centre.33
- De-risk – Where risks are preventing investment, these can be reduced either by providing guarantees or by addressing the cause of risk. For example, a city can reduce planning risk by offering accelerated planning, or guaranteed minimum turnaround times, for priority developments (for example see Case study 4). Re-structuring developments, such as adapting the schedule of development to create an acceptable cash flow for the developer, can reduce risk.
- Co-investment – Where the public sector matches private sector monies, or provides public assets. Joint ventures between cities and investors are another example of co-investment, working in partnership to secure the necessary assets and funds for successful investments.
Create a more competitive business environment
This will increase occupier demand for investment. Cities can offer smaller interventions including tax reductions, such as Birmingham’s use of Enterprise Zones in its city centre.
But too much involvement from the public sector can deter investors
Though public intervention often makes a positive and necessary contribution, limited private sector interest in a location can cause concern, signalling it may be difficult for the private sector to act alone. It is therefore important cities only step in where absolutely necessary, and take steps to demonstrate the existing private sector investment and interest in the city.