Are 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.

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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 ($35 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 3 percent. Forthcoming buildings feature two large wind turbines atop high-rise towers that will generate more than 10 percent of the complex's power. Rent is about 25 percent below the average for central Hamburg, and the commute to the city takes just 20 minutes.

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The first tenant, Heidelberger Druckmaschinen, 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."

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