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Greenfield vs. Brownfield Investments: What's the Difference?

Companies that want to expand their interests internationally generally make physical investments and purchases in another country. This is known as foreign direct investment (FDI) . They purchase, lease, or otherwise acquire assets in their host country including facilities such as plants, office space, or other types of buildings. These acquisitions may come in the form of new or existing facilities. In the business world, these investments are called greenfield and brownfield investments. But what exactly are they and how do they differ?

Read on to find out more about greenfield and brownfield investments, and the major differences between the two.

Key Takeaways

• Greenfield and brownfield investments are two types of foreign direct investment.
• With greenfield investing, a company will build its own, brand new facilities from the ground up.
• Brownfield investment happens when a company purchases or leases an existing facility.

Greenfield vs. Brownfield Investments: An Overview

As noted above, greenfield and brownfield investments are two different types of foreign direct investment. Both involve companies and production facilities in different countries. But that's primarily where the similarities between the two end.

In a greenfield investment, the parent company opens a subsidiary in another country. Instead of buying an existing facility in that country, the company begins a new venture by constructing new facilities in that country. Construction projects may include more than just a production facility. They sometimes also entail the completion of offices, accommodations for the company's staff and management, as well as distribution centers.

Brownfield investments, on the other hand, occur when an entity purchases or leases an existing facility to begin new production. Companies may consider this approach a great time and money saver since there is no need to go through the motions of building a brand new building.

Companies may need to undergo a permitting process for greenfield investments, but can skip this step with a brownfield investment.

Greenfield Investments

The term greenfield refers to buildings constructed on fields that were, literally, green. The word green is also synonymous with the word new, which may allude to new construction projects by companies. These companies are generally multinational corporations that begin a new venture from the ground up, especially in areas where there are no facilities that already exist.

There are several reasons why a company may decide to build a new facility rather than purchase or lease an existing one. The primary reason is that a new facility offers design flexibility along with the efficiency to meet the project's needs. An existing facility forces the company to make adjustments based on the present design. All capital equipment needs to be maintained. New facilities are typically much less costly to maintain than used facilities. If the company wants to advertise its new operation or attract employees , new facilities also tend to be more favorable.

There are also downsides to constructing new facilities . Building from scratch can bring more risk as well as higher costs. For example, a company may have to invest more initially when it decides to build from scratch to fulfill feasibility studies . There may also be problems with local labor, local regulation, and other hurdles that come with brand new construction projects.

Brownfield Investments

With brownfield investing, companies scout available buildings in the host country that are compatible with their business models and/or production processes. If the existing national or municipal government requires licenses or approvals, the brownfield facility may already be up to code. In cases where the facility previously supported a similar production process, brownfield investments can be a real coup for the right company.

In an environmental context, the term brownfield may refer to the fact that the land on which a facility sits may be contaminated from the previous owner's activities. This is distinct from a brownfield investment strategy.

The clear advantage of a brownfield investment strategy is that the building is already constructed, therefore reducing the start-up costs. The time devoted to construction can be avoided as well.

Brownfield investments run the risk of leading to buyer's remorse. Even if the premises had been previously used for a similar operation, it is rare that a company finds a facility with the type of capital equipment and technology to suit its purposes completely. If the property is leased, there may be limitations on what kinds of improvements can be made.

Alexandros Ragoussis. " Chapter 2: How Beneficial Are Foreign Acquisitions of Firms in Developing Countries? Evidence from Six Countries ," Page 57. Global Investment Competitiveness Report 2019/2020: Rebuilding Investor Confidence in Times of Uncertainty . The World Bank, 2020.

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By Tad McGalliard

It can be argued that one of the most innovative and successful outcomes to emerge from the past 30 years of sustainability are the policies, programs, public private partnerships, and more that have been created to help clean up and reuse brownfields.

During this time, local governments have increased their knowledge about brownfields and have begun to mainstream their cleanup and redevelopment as part of their core responsibilities. Local governments lead or support brownfields redevelopment in a number of ways, as described next.

Planning for Better Places

Local governments are incorporating brownfield redevelopment goals and objectives into their commonly used plans and strategies, including those that are focused on sustainability and livability, economic development, region-al transportation, disaster and hazard mitigation, small-area designations, parks, and recreation and open space.

The community of Russellville, Kentucky, for instance, met several goals in various plans through redevelopment of a former car dealership to create a new fire station and sports and recreation fields as well as green infrastructure.1

The award-winning Mecklenburg Livable Communities Plan (Mecklenburg County, North Carolina, http://livablemeck.com/plan/mlcp.pdf ) includes key strategies, actions, and measures focused on brownfields and vacant land (see Figure 1).

Facilitating Engagement

Tools to connect community stakeholders—residents and businesses alike—in robust engagement approaches are more widely used now for brownfields projects than ever before. While such traditional approaches as public meetings are still available, it is far easier to reach constituents through online, social media, and specialized digital approaches.

The city of Pleasant Prairie, Wisconsin, for instance, used an online platform to solicit comments for a planning process involving the redevelopment of a former drive-in theater property. The city's platform received more than 335 comments on the various plan alternatives that were proposed for the project.2

Using and Adapting Local Financing Tools

Local governments continue to suggest that some of the biggest challenges for cleaning up and reusing brownfield properties are those associated with financing. Because of their location, contamination, and other factors, many brownfield properties remain upside down—that is, the site's value is less than the cost of cleaning it up for productive reuse.

Creativity in leveraging and layering financing is often required to make the economics of a redevelopment project work. Local governments have long used financial tools for economic development and have adapted many to support local brownfields priorities.

By far the tool local governments use most widely to mitigate financial challenges is tax increment financing (TIF). The Pittsburgh Technology Center, a $104 million development project that had struggled to get off the ground, is now one of the showcase redevelopment projects in the city of Pittsburgh, Pennsylvania. In addition to various sources of local and state government funding, a $7.4 million TIF program was used to finance the remainder of the project.3

In many places, communities have established other financial approaches to foster redevelopment, including property and income tax credits or adjustments, special tax districts, loan guarantees and revolving loan funds, direct grants, and municipal bond programs.

Many local governments have worked with development financing institutions to secure new market tax credits to help propel brownfields projects forward. While not widespread, some communities have begun to look toward foundation and philanthropic organizations as possible financial partners for redevelopment projects.

A project to redevelop a municipal dump into a library in Shepherdstown, West Virginia, received several hundred thousand dollars in foundation grants to support the initiative.4

Some communities have also created public-private partnerships (P3) to meet the goals of a local project. In Owensboro, Kentucky, the city's need for a new convention center led local developers to become partners on a local riverfront brownfields project that has stimulated redevelopment across the city's core, creating a robust pace of new public and private investments.5

Exercising Nonfinancial Tools

A variety of nonfinancial tools have been adapted or developed to support brownfields development. In many places, for example, local governments offer some level of support to conduct environmental site assessments of properties.

Tampa, Florida's brownfields program offers targeted environmental site assessments.6 Other commonly used tools include infrastructure improvements to improve the value of areas, neighborhoods, and communities ripe for redevelopment; assistance with land aggregation and land banking; expedited permitting; planning, design, and engineering assistance; and density allowances.

The Value of Investing in Brownfields Redevelopment

According to recent ICMA survey data (forthcoming Brownfields and Local Governments 2018 Survey Report ), local government practitioners have these reasons to believe that their jurisdictions should invest human and financial resources in local brownfields actions:

• Protecting the environment as well as the public health of local and regional residents.

• Eliminating blight and increasing local tax bases.

• Creating jobs and economic opportunity.

• Prepping land for new commercial activities to develop.

• Creating more livable communities.

Across the U.S., thousands of brownfield properties have been redeveloped; however, there are likely hundreds of thousands more to go in large and small communities. Although precise numbers are hard to come by, most communities have some level of brownfields or redevelopment challenges.

The continued maturation of local expertise in dealing with these kinds of community issues is likely to be necessary for the foreseeable future. Local governments—in tandem with residents, elected leaders, and community organizations—have a lot at stake, and even more to gain.

The creativity, resourcefulness, and all-around management and leadership skills of the typical professional local government practitioner are just what the situation calls for . . . and reason to be hopeful about the future.

Endnotes and Resources

1 http://dca.ky.gov/Case%20Studies%20Library/CaseStudy2012RussellvilleFireStation.pdf

2 http://www.pleasantprairieonline.com/openvillagehall/index.asp?pd_url=http%3A%2F%2Fwww.peakdemocracy.com%2Fp%2F173#peak_democracy

3 https://www.cmu.edu/steinbrenner/brownfields/Case%20Studies/pdf/pittsburgh%20 technology%20center%20-%20LTV.pdf  

  https://www.epa.gov/sites/production/files/2015-11/documents/shepherdstown_ success_story.pdf

5 http://www.lanereport.com/22530/2013/07/owensboro-new-downtown-riverfront

6 https://www.tampagov.net/economic-and-urban-development/programs/brownfields-assessment-grant-program

Figure 1. Mecklenburg Livable Communities Plan.

Mecklenburg County, North Carolina, has been concerned about brownfield redevelopment goals and objectives for some time and developed a specific plan ( http://livablemeck.com/plan/mlcp.pdf ) to address them. Here's an excerpt from that plan:

• Promote the redevelopment, reuse, and rehabilitation of declining and vacant properties.

• Adjust and adopt local government policies and zoning regulations to provide flexible redevelopment of declining and vacant properties.

• Develop a temporary infill strategy, including audit of locations and countywide map to encourage infill and redevelopment.

• Preserve history through the repurposing of older structures and analyze architecture in communities to identify well-designed and culturally significant structures.

• Support developers' integration of local plans and use of other local government tools.

• Promote well-designed, artistic, and iconic structures in developed areas.

• Infill and redevelopment activity: Number of residential and commercial building permits in targeted reinvestment areas in Mecklenburg County, North Carolina.

Brownfields Conference 21 Years in the Making

For more than two decades, ICMA has partnered with the United States Environmental Protection Agency (EPA) on the National Brownfields Conference. Roughly equal in size to ICMA's own annual conference, the brownfields conference attracts several thousand registrants, more than 100 exhibitors, and offers more than 125 educational sessions, special events, and networking opportunities.

In 1996, a cross-section of stakeholders came together in Pittsburgh for the very first brownfields conference. The conference's return to Pittsburgh in December 2017 ( www.brownfields2017.org ) offers an opportunity to reflect on the maturation of the brownfields sector, as well as the continuing importance of local government policies, programs, and partnerships that support the clean-up and production of formerly used manufacturing and commercial properties.

Brownfields Roots

The period from 1965 to 2008 brought a series of national laws into existence that have basically established the framework for today's national, state, regional, and local environmental management system. During the 1960s, the Solid Waste Disposal Act and the National Environmental Policy Act were signed into legislation. In 1970, President Richard Nixon's administration founded EPA. The Clean Air Act of 1970 established regulatory requirements for air emissions from stationary and mobile sources of pollutants.

The Clean Water Act (1972), as the name suggests, set guidelines for the discharge of contaminants into U.S. waters. Other key legislation included the Endangered Species Act (1973), the Safe Drinking Water Act (1974), the Resource Conservation and Recovery Act (RCRA) (1976), the Pollution Prevention Act (1990), and the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) (1980).

CERCLA, or Superfund as it's often called, provides mechanisms to clean up uncontrolled or abandoned hazardous sites and to protect environmental and public health from toxic exposures.

As of 2017, more than 1,000 sites remain on the National Priorities List (NPL), an EPA-maintained database of the dirtiest former commercial and government (e.g., former military bases) properties across the country.

The Conundrum

A key element of Superfund established that a polluter pays principle, which opened the door for regulatory agencies to define potentially responsible parties, or PRP, that could be on the hook for cleanup costs associated with sites listed on the Superfund NPL.

In the years after Superfund authorization, local governments across the U.S. took note that lenders for real estate deals, particularly in urban areas, were increasingly risk averse to investment on formerly used properties, citing a fear of becoming a PRP.

Interpretations of the regulatory framework associated with the Superfund law suggested that all past, present, and future property owners of formerly used sites could be liable for contamination. With this mindset, many owners of various kinds of properties—even such small parcels as gas stations—abandoned their sites and declared bankruptcy rather than face the prospect of expensive lawsuits. And, because future property owners were held liable, the sites remained undesirable to developers and investors.

In the early 1990s, EPA created the national brownfields program to develop research, programming, and grant funding to help local communities overcome the challenges of potentially contaminated properties. In a significant move, the Small Business Liability Relief and Brownfields Revitalization Act (2002) amended Superfund by clarifying CERCLA liability protections and providing funds to support various state, tribal, and local partners.

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What Is A Brownfield Investment? Brownfield Investment In A Nutshell

A brownfield investment normally occurs when an organization wants to begin operating in a new country without incurring the expensive start-up costs associated with a greenfield investment. For the purposes of this article, a greenfield investment is one where a new production facility is constructed from scratch.  A brownfield investment is the lease or purchase of a pre-existing production facility in a foreign country.

Table of Contents

Understanding a brownfield investment

A brownfield investment is a form of foreign direct investment which makes use of existing infrastructure by either merging, acquiring, or leasing that infrastructure. That is, the foreign company or individual invests in a business already established in another country. For the business entering a foreign country, this approach reduces costs and shortens the time to production.

While a brownfield investment is a low-cost, developed asset, it may still require ongoing capital expenditure. Many brownfield investments are associated with considerable development or construction as part of expansionary, enhancement, or retro-fitting programs. 

Brownfield investment examples

To understand how a brownfield investment plays out in the real world, consider these examples:

The British telecommunications company acquired a majority stake in Hutchison Essar, India’s fourth-largest mobile operator. The multi-billion investment saw Vodafone gain a controlling interest in the company. In the process, Vodafone established itself in the Indian telecom market through an established player.

Tata Motors

Indian automotive manufacturer Tata Motors acquired fellow British manufacturer Jaguar in 2008. The all- cash deal, worth $2.8 billion , gave Tata the right to establish a manufacturing plant and two design centers in the United Kingdom. 

In 2006, The Walt Disney Company acquired computer animation studio Pixar in a deal worth $7.4 billion. In acquiring Pixar, Disney gained access to advanced animated movie technology. The company also inherited Pixar’s unique culture and creative team, which it admitted was responsible for “ some of the most innovative and successful films in history. ”

Advantages and disadvantages of brownfield investments

Quick access to a new market.

Since much of the infrastructure is already provided, the company can enter a foreign market in a relatively short space of time. What’s more, the existing firm may have an established network of vendors, suppliers, and distributors.

Regulatory approvals

Similarly, an existing firm with environmental or bureaucratic approvals in place means the acquiring firm can begin operations sooner and save time and money. This advantage is likely to grow over time as environmental approvals become increasingly difficult to obtain.

Skilled employees

As we saw in the Disney acquisition of Pixar, some brownfield investments allow the controlling company to benefit from a skilled and productive workforce. In fact, it may be the sole reason a company makes such an investment in the first place. 

Disadvantages

Outdated infrastructure.

There is always the risk that a brownfield investment requires a major infrastructure upgrade. In some cases, the cost of the upgrade may be comparable to the cost of a greenfield investment.

Repatriation laws

Some countries impose restrictions on how much profit can be taken back to the home country of the acquiring company.

Buyer’s remorse

No matter how good the investment appears on paper, it is unlikely the acquiring company will find a facility with the type of capital, labor, equipment, and technology that suits its needs completely. The discomfort arising from buyer’s remorse must be prepared for and accepted if the business is to succeed in a less than ideal foreign market.

Case Studies

• In 2008, the Belgian-Dutch financial services group Fortis sold its banking operations to BNP Paribas, a French international banking group, during the financial crisis. BNP Paribas was able to expand its European banking presence by leveraging the existing infrastructure of Fortis.
• In 2014, Facebook acquired the instant messaging service WhatsApp for $19 billion. By doing so, Facebook was able to tap into the vast user base of WhatsApp without starting its own messaging service from scratch.
• Air France-KLM, the French-Dutch airline holding company, acquired a stake in the troubled Italian airline Alitalia. This allowed Air France-KLM to strengthen its position in the Italian market without setting up a new airline operation in the country.
• In 2010, Kraft Foods acquired the British confectionery company Cadbury. This allowed Kraft to benefit from Cadbury’s established brand and distribution network in the UK and other parts of the world.
• In 1999, the American multinational retail corporation Walmart entered the German market by acquiring two German retail chains, Wertkauf and Interspar. This was Walmart’s attempt to leverage the existing infrastructure and stores of these chains to gain a foothold in Germany.
• Japanese pharmaceutical company Takeda acquired the Irish drug manufacturer Shire in 2018. This acquisition gave Takeda access to Shire’s range of medicines, research capabilities, and established market presence.
• British energy company BP acquired a significant share of Russia’s Rosneft, allowing BP to tap into Russia’s vast oil and gas reserves using Rosneft’s existing infrastructure.
• In 2018, the American entertainment company Comcast acquired the British television company Sky, benefiting from Sky’s established customer base and broadcast infrastructure across Europe.

Key takeaways:

• A brownfield investment is the lease or purchase of a pre-existing production facility in a foreign country. Many such investments are associated with expansionary, enhancement, or retro-fitting programs.
• An example of a brownfield investment is the Vodafone acquisition of Hutchison Essar to enter the Indian telecommunications market. Another example is Disney, which acquired Pixar to inherit its advanced computer animation studios and a team of creative designers.
• Brownfield investments may help an organization enter a new market more efficiently with regulatory approvals, infrastructure, and a skilled workforce in place. However, there is a risk the acquired infrastructure is costly to maintain or replace. Some countries also enforce restrictive profit laws.

Key Highlights

• Brownfield Investment: A brownfield investment is a form of foreign direct investment that involves utilizing existing infrastructure by merging, acquiring, or leasing an established business in a foreign country. This approach reduces start-up costs and accelerates time to production.
• Vodafone: Acquiring a majority stake in Hutchison Essar to enter the Indian telecommunications market.
• Tata Motors: Acquiring Jaguar in the UK, gaining manufacturing facilities and design centers.
• Disney: Acquiring Pixar for advanced computer animation technology and a creative team.
• Quick access to a new market with existing infrastructure and networks.
• Regulatory approvals already in place, saving time and money.
• Access to a skilled and productive workforce.
• Outdated infrastructure may require significant upgrades.
• Some countries impose restrictions on profit repatriation.
• Acquiring company may not find a facility perfectly suited to its needs, leading to buyer’s remorse.

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What are Brownfield investments?

Continuing our series on different types of foreign direct investments, this week we explore brownfield investments. What are brownfield investments and how do they differ from other types of FDI?

FDI into a host country can take many forms, including mergers and acquisitions (M&A), greenfield investment, brownfield investment and extending domestic capital. Each type of FDI brings distinctive benefits to the host countries’ growth and welfare but also poses its own unique set of risks and dangers.

Brownfield refers to investments where a company or government entity invests in an existing facility to start its operations in a foreign country. Specifically, Brownfield FDI is when an entity either invests in existing facilities and infrastructure through a merger and acquisition (M&A) deal or leases existing facilities in a foreign country to launch a new production activity – as opposed to Greenfield investments, which occur when a parent company establishes a subsidiary in a foreign country.

A brownfield investment involves scouting available buildings in the host country that fit the company’s business model and/or production process. Depending on existing national or municipal regulations, the brownfield facility may already be up to code. An investment in a brownfield site where a similar production process was previously performed can be a real coup for the right company.

The term brownfield refers to the fact that the land being invested in may be contaminated by prior activities that have taken place on the site. However, sites that are significantly contaminated, for example by extreme hazardous waste, are not considered brownfield properties. An investment in a brownfield site will provide the company with significant cost and time benefits, as the facilities are already constructed and likely up to code.

Benefits and Risks of Brownfield Investments

Any investment comes with risks and benefits. It is often the case that while brownfield investments do bring significant risk, they also offer the highest convenience to the investor and are more cost-effective than other types of FDI.

One of the largest risks associated with Brownfield investment is the “buyer’s remorse” that companies often experience afterwards. Although brownfield investments are the most cost-effective and convenient investment options, often coming with already constructed buildings that are up to code and reduced times for startup, they also bring along unique challenges that can leave the investor regretting their decision.

Despite the fact that brownfield projects often include existing equipment, it is rare for investing companies to locate a brownfield facility with the exact equipment and technology they need to carry out their operations. Often, there is also a risk of the previous equipment and technology being faulty and out of date, or the facility itself may require an upgrade, which could unexpectantly increase the investment cost. A brownfield site may also be limited in what enhancements can be made if the investing company leases it rather than buys it outright.

Despite these risks, Brownfield investments still offer major benefits to investors in comparison with other forms of FDI. A Brownfield investment, unlike a Greenfield investment, doesn’t involve the construction of new buildings, thus saving time and money.

• Companies gain quick access to a new foreign market,
• Fixed costs will be lower because of already established facilities and infrastructure
• Lower staffing and training costs, due to the presence of already-employed workers at the facility
• The facilities may include existing approvals and licenses from the government or regulators
• Initial startup costs are reduced since the facility already has the necessary equipment
• The facility or infrastructure may require major upgrades, increasing the investment cost
• Operational inefficiencies if the facility cannot be adapted to new production needs
• Scalability and expansion issues related to using already constructed facilities
• Locational constraints
• There may be unforeseen tax and regulatory issues

Brownfield Investment Trends in 2022

All forms of foreign direct investment (FDI) projects are once again on the rise, including Brownfield projects. With economies beginning to reopen, investors responded quickly, and there was a strong rebound in global FDI levels.

As we have seen, Greenfield investments saw a significant increase in projects related to Sustainable Development Goals due to a growing number of businesses becoming more aware of their sustainability performance. New environmental, social and governance (ESG) goals have become front and center for many companies, and the past year showed a significant increase in the presence of sustainability in their annual report fillings. It seems that Brownfield Investment projects are also becoming a new trend for sustainable investing.

Brownfield investments are a way for companies in the industrial and manufacturing sectors to improve the profitability of their capital assets while also meeting increasing environmental, social, and governmental (ESG) targets. Aveva, a global information technology consulting company, has released data stating that there is a 20-50% cost per ton of increased capacity on a brownfield project versus a greenfield.

Brownfield projects require significantly fewer investments than greenfield projects, which frees up capital that Aveva says could be used for digital transformation initiatives that can lead to increased profits and reduce carbon footprint. Due to these benefits, Aveva predicts that the number of brownfield projects will rise across the globe, stating that over $600 billion in brownfield and revamp investment is planned in the US over the next 5 years .

Key Markets for Brownfield Projects

It is true that brownfield projects are more prevalent in developed economies and high-income countries, but they are not the only markets where brownfield projects are on the rise. Developing countries will continue to see a rise in brownfield investments over the next few years. According to a 2022 industry outlook and forecast report released by Arizton , in the next five years, Brownfield FDI in developing countries is expected to increase by 3-4%.  The report listed Ecuador, Paraguay and the Caribbean as being the markets likely to experience the most growth from brownfield investments. The report states that while Greenfield investments led the Latin American investment market over the past year, budget constraints and poor economic conditions are expected to lead to a decline in Greenfield projects.

Over the past decade, brownfield projects have doubled as a share of FDI in developing countries; however, their prevalence is higher in countries with a higher income level and larger markets. There are many factors that influence the decision to invest in a brownfield project and a country’s level of development has been one of the main driving factors for investors. A market’s level of development reflects its attractiveness and demonstrates the presence of successful firms that will require less time and effort to bring returns. Thus, a country’s income level is a strong predictor of the volume of brownfield projects.

According to the 2019/2020 Global Investment Competitiveness Report , of the US$313 billion of brownfield investment in developing countries between 2014 and 2017, three-quarters occurred in upper-middle-income countries. Developing countries with above-average income levels tend to receive higher shares of brownfield investments. For developing countries, income level and market size are strong predictors of the intensity of “brownfield” investment.

Sector Trends

Brownfield investments are more likely to occur in sectors where the following activities are present; activities that rely on land where access is restricted (such as agriculture, mining, and real estate), activities where distribution and client networks are hard to build from scratch (such as food and beverages, wholesale and retail trade, and health services) and sectors that are highly regulated (such as financial services). However, there are exceptions, activities with strong linkages to these industries may also attract significantly greater shares of brownfield investment, Manufacturing activities with these linkages such as food processing, tobacco, or pharmaceuticals are an example of these exceptions.

There are also distinct differences between sector trends for brownfield investments and the income levels of the host country.

High-income and upper-middle-income countries are more likely to have a substantial share of brownfield investment in all the sectors mentioned above, while also adding high volumes of investment in the manufacturing sectors.

In contrast, lower-middle-income and low-income countries experience lower volumes of brownfield investment, and there is highly focused sectoral concentration. Brownfield investments tend to be made in agriculture, mining, wholesale trade, and construction. While there are sector-specific factors that drive the intensity of brownfield investments in developing countries, country-specific factors, most notably income levels, are often the stronger driving force behind investor decision-making.

The Future of Brownfield Investments

Along with sustainable FDI trends, we are also seeing government support for brownfield projects rise, something that was virtually unthinkable just a few years ago.

Most notably, earlier this year, President Joe Biden announced $21 Billion USD in new federal spending dedicated to cleaning up hundreds of brownfield sites in prime industrial locations . This funding came along with the Infrastructure Investment and Jobs Act, which will fund the infrastructure needed to access brownfield sites, increasing their value and encouraging investment.

While Brownfield investments are certainly on the rise, like all other forms of FDI, the growth trends are at risk of slowing due to factors such as continued supply chain disruptions, changing consumer demand patterns and lingering geopolitical issues.

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Brownfield Investment - Explained

What is a brownfield investment.

Written by J. Mance Gordon

Updated at April 21st, 2024

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A Brownfield investment, also known as brownfield, is when a firm or a government body buys or contracts an existing facility to launch their new activity. The alternative strategy to brownfield investment is greenfield investment where a new production unit is constructed.

Brownfield investment is one of the plans used in foreign-direct investment. Foreign direct investment is where a company or individual invests in a business established in another country. 

Pros of a Brownfield Investment

Brownfield investment has a number of advantages

• The company has the advantage of accessing a new market fast.
• The initial cost is reduced since there are an already existing facility and utilities.
• In some cases, the company can lease or buy a production unit that already has the employed workers, in this scenario, the cost of staffing and training is reduced.
• The already established facility may have existing licenses and government approvals making the starting process easier.
• The facility already has the equipment; this reduces the cost to only maintenance cost and modification cost if any.

Cons of a Brownfield Investment

• The facility and equipment may be too old which may cause a rise in maintenance cost.
• The difference in the companys culture may be a problem, especially when acquiring a company with the employed workers. The workers may be forced to embrace the new culture and policies of the new company.
• Sometimes the facilities could be located in an area that is not attractive and hard to develop.
• The expansion of the company is limited by using an already constructed building.

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Bipartisan Infrastructure Law: A Historic Investment in Brownfields

President Biden’s leadership and bipartisan Congressional action have delivered the single- largest investment in U.S. brownfields infrastructure ever.  The Bipartisan Infrastructure Law invests more than $1.5 billion through EPA’s highly successful Brownfields Program and funds over 350 programs to support planning,  construction, and operation of a variety of public infrastructure projects.  This investment in EPA’s Brownfields Program will transform countless lives and spur life-changing revitalization in communities large and small, urban and rural; all with the same desire to keep their neighborhoods healthy, sustainable and reflective of the people who call it home.

With EPA’s funding and direct technical assistance, overburdened communities can begin to address the economic, social and environmental challenges caused by brownfields and reposition these properties for investment and revitalization.

This federal infrastructure package funds 48 infrastructure programs that could be directly relevant and valuable for brownfield and community revitalization projects. Of these 48 programs, 10 are brand-new federal funding programs and 38 are existing programs that have been expanded by Bipartisan Infrastructure Law  funds. These programs total over $328 billion.

Brownfields-relevant Bipartisan Infrastructure Law programs include :

• a major increase in EPA Brownfield Grant funding ;
• substantial funding for the remediation and repurposing of mine-scarred brownfields;
• billions in additional funding for water, wastewater, stormwater, and green infrastructure, including for emerging contaminants including PFAS pollution;
• new and expanded transportation infrastructure programs;
• expansive resources for broadband infrastructure investment;
• new funding for renewable energy, energy efficiency, and clean manufacturing deployments; 
• expanded grants for pollution cleanup and resiliency projects in targeted coastal and waterfront areas;
• economic development funding for 33 states in targeted regions supported by the Appalachian Regional Commission, the Delta Regional Authority, the Denali Commission, the Northern Border Commission, and the Southwest Regional Commission. 

Federal Infrastructure Investment Programs related to Brownfields

Bipartisan Infrastructure Law Overview (pdf) (121.75 KB)

Brownfields

The Role of Brownfields in Economic Development: Turning Challenges into Opportunities

Brownfields play a pivotal but often underappreciated role in economic development. These underutilized or abandoned industrial or commercial sites, often burdened with real or perceived contamination, represent both a challenge and a significant opportunity. As demand for fully developed, “shovel-ready” sites increases, brownfields are becoming essential players in the future of urban revitalization and economic growth.

What Are Brownfields?

Brownfields are typically former industrial or commercial sites that may be contaminated due to past uses. These properties often have complex histories and environmental concerns, making them more challenging to redevelop compared to unused, undeveloped land (referred to as greenfields). Despite these obstacles, brownfields hold tremendous potential because they are often situated in strategic locations near transport infrastructure (i.e., highways and railways), and may already possess essential utilities such as water, wastewater, and energy lines. These existing assets can make them attractive targets for redevelopment once cleaned up.

Moreover, brownfields offer unique opportunities, especially in regions with limited availability of greenfield sites. Redeveloping these sites can assist in revitalizing urban areas, reduce blight, and create new economic opportunities. Additionally, brownfields can be instrumental in reducing urban sprawl by repurposing previously used land rather than expanding development into pristine environments.

Attributes of Brownfield Sites

One of the most appealing aspects of brownfield sites is their proximity to infrastructure that modern businesses need. Many brownfields have existing connections to critical utilities and transport routes. For example, many brownfields are rail-served and have access to highways, making them ideal for manufacturing or logistics operations. The presence of workforce availability in nearby urban areas further enhances their attractiveness to developers or companies looking to expand.

In many cases, the expense of building new infrastructure on greenfields makes brownfield sites more competitive when they are remediated. They offer the dual benefit of reducing urban sprawl and utilizing land that may otherwise go wasted, contributing to more sustainable land use practices.

The Economic Development Potential of Brownfields

In today’s competitive environment for attracting businesses and investment, economic development professionals are increasingly looking at brownfield sites as a solution to site shortages. In states where fully developed sites may be in limited supply, brownfields represent an alternative resource.

For instance, in Alabama, over the past decade, an increasing number of companies entering the state have turned to brownfield sites for their development projects.

Take, for example:

• The successful redevelopment of the 230-acre brownfield site in Limestone County, Alabama, which saw a $500 million capital investment and created over 200 jobs. This site, formerly part of an automotive supplier campus, is now home to a manufacturing and distribution company that represents a significant economic driver for the region;
• The transformation of a former rail car factory in Bessemer, Alabama, into a 50-acre campus now housing 600 employees in over one million square feet of manufacturing space; and
• The redevelopment of a former U.S. Army Air Corps base in Courtland, Alabama, into a 660-acre manufacturing site currently hosting a critical aerospace operation that has generated numerous jobs in the aerospace and hypersonic technologies sector.

These are just a few illustrations of the substantial job creation and economic revitalization that can come from redeveloping brownfield sites.

Challenges and Opportunities in Brownfield Redevelopment

The redevelopment of brownfields is not without its challenges. One of the most significant hurdles is the cost of environmental remediation. Cleaning up contaminated land can be expensive and time-consuming, which may serve as a deterring factor in the consideration of these sites. However, the Alabama Department of Environmental Management (“ ADEM ”) offers services and funding to support brownfield site redevelopment:

• Brownfields Redevelopment and Voluntary Cleanup Program (“ VCP ”): Provides oversight for voluntary assessment and cleanup efforts, offering significant liability protections during and after these activities. It operates as a fee-driven program.
• Alabama Land Recycling Revolving Fund Program : Offers low-interest loans to governmental entities for site remediation, with loans typically having a 10-year payback period. Applicants must own the properties to be eligible.
• Drycleaner Environmental Response Trust Fund Program: Assists in the cleanup of contaminated dry cleaner sites by reimbursing eligible parties for their cleanup costs, while ADEM oversees the process.

In addition to the above, federal funding sources are available to support brownfield redevelopment efforts. The U.S. Environmental Protection Agency (“ EPA ”) offers a variety of grants through its Brownfields Program to help communities revitalize contaminated properties. Assessment Grants provide resources for conducting brownfield inventories, planning, environmental assessments, and community outreach. Cleanup Grants are designed to fund remediation efforts for brownfield sites owned by the grant recipient. For communities that have identified specific areas with multiple brownfield sites through public engagement, Multipurpose Grants are available to support a comprehensive approach to redevelopment. Revolving Loan Fund Grants allow recipients to establish a revolving loan fund to finance cleanup activities and provide loans and subgrants to others; when loans are repaid, these funds can be re-lent, creating a sustainable source of capital for ongoing cleanup projects. Job Training Grants offer environmental training for residents in communities impacted by brownfields, ensuring local involvement in revitalization efforts. Additionally, the EPA provides funding for organizations to deliver technical assistance to help communities overcome brownfield-related challenges. These programs collectively enhance redevelopment efforts, promote economic growth, and encourage the use of leveraged resources for sustainable cleanup projects.

Related Legislation and Incentives

Legislation plays a crucial role in promoting both the development and redevelopment of sites. States like Alabama have been proactive in enacting legislation and providing incentives to support such activity. The Growing Alabama Credit, for instance, offers tax credits to companies that contribute to economic development organizations (“ EDO ”) working on approved qualifying projects. This program targets existing properties controlled by local EDOs and provides financial support for infrastructure improvements, remediation, and preparation for development.

Relatedly, Alabama’s 2023 Game Plan bills included the Site Evaluation and Economic Development Strategy Act (“ SEEDS Act ”), which was introduced to help expedite the availability of new sites for economic development. Under the SEEDS Act, grants are made available to qualifying local EDOs for site assessments and development, with the goal of developing sites to meet the needs of new and/or expanding businesses.

Another significant development is the creation of Alabama’s Brownfield Remediation Reserve Fund (an expansion of the Brownfield Redevelopment and Voluntary Cleanup Program) in early 2024, which is particularly geared towards sites that have previously been remediated through the VCP and where the cleanup standards have changed, requiring further remediation. This fund provides financial support for site remediation, reducing the financial burden on companies willing to invest in brownfields. Eligible developers can receive up to $4 million per site to aid in environmental cleanup.

Finally, under Chapter 9C of the Alabama Code, cities and counties have the power to abate non-educational sales, use, and property taxes for brownfield redevelopment projects. To qualify for these abatements, the property must be enrolled in ADEM’s VCP, and the project must have an approved cleanup plan. For new companies, there is no minimum capital investment requirement to qualify for abatements, while companies making significant additions to existing brownfield properties must invest at least 30% of the original remediation cost or $2 million.

Looking Forward

As brownfields become a more critical component of economic development strategies, continued legislative support, enhanced incentives, and funding will be essential. Brownfields represent both a challenge and an opportunity in the world of economic development. While environmental remediation can be a complex process, the potential rewards—job creation, infrastructure reuse, and sustainable growth—can be substantial. In optimal scenarios, brownfields can be transformed from neglected, contaminated sites into engines of economic revitalization. As cities across the country face land shortages and urban sprawl, the role of brownfields in shaping the future of economic development will only grow more critical.

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Brownfield Investment

What is Brownfield Investment?

Brownfield investment refers to the strategic acquisition or development of existing properties or facilities that have been previously used or have become outdated. This type of investment often involves rejuvenating underutilized or abandoned areas, such as industrial sites, commercial buildings, or urban spaces, with the aim of revitalizing the local economy and promoting sustainable growth.

Investing in brownfield redevelopment offers several advantages for businesses looking to expand their operations. Here are some key benefits:

While brownfield investment presents numerous benefits, it also comes with certain challenges that need to be addressed. Some common obstacles include:

• Limited access to capital for remediation and redevelopment
• Complex legal and regulatory requirements
• Risk assessment and management of potential environmental liabilities
• Community opposition or perceived stigma associated with contaminated sites
• Competition for prime brownfield locations

To ensure a successful brownfield investment, businesses should follow a systematic approach:

• Assessment: Conduct a thorough analysis of the site’s condition, including the environmental and economic factors, to evaluate the feasibility and potential risks.
• Planning: Develop a comprehensive redevelopment plan that outlines goals, timelines, and financial projections, considering factors such as market demand and regulatory compliance.
• Funding: Identify and secure the necessary financial resources, which may include public-private partnerships, grants, loans, or tax incentives.
• Remediation: Implement strategies to address any environmental contamination through proper cleanup and adherence to relevant guidelines and regulations.
• Redevelopment: Execute the revitalization plan, focusing on infrastructure improvements, facility construction or renovation, and marketing efforts to attract tenants or buyers.
• Community Engagement: Involve local stakeholders throughout the process, building trust, and addressing concerns while showcasing the positive impact on the community.

Several notable examples demonstrate the power of brownfield investment in driving economic growth and urban transformation:

• The High Line in New York City: Once an abandoned elevated railway, it has been transformed into a magnificent public park, attracting millions of visitors and spurring development in the surrounding areas.
• The Olympic Park in London: Formerly a heavily polluted industrial area, it underwent extensive regeneration for the 2012 Olympics, becoming an iconic symbol of sustainability and urban renewal.
• Battersea Power Station in London: The disused power station is being redeveloped into a mixed-use precinct, comprising residential, commercial, and entertainment spaces, injecting new life into the district.

Brownfield investment represents a smart choice for businesses aiming to expand while contributing to sustainable development. By breathing new life into neglected areas, businesses can enjoy cost efficiencies, gain a competitive edge, and contribute to the betterment of local communities, all while adhering to environmental principles. With the right approach and support, brownfield investment presents a win-win solution for businesses and the cities they operate in.

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Brownfield Investment

Last Updated :

21 Aug, 2024

Blog Author :

Shraddha Sureka

Edited by :

Ashish Kumar Srivastav

Reviewed by :

Dheeraj Vaidya, CFA, FRM

Table Of Contents

Brownfield Investment Definition

Brownfield investment is a form of FDI that uses the existing infrastructure by either merging, acquiring, or leasing, instead of developing a completely new one, thereby saving costs and time in production.

Generally, any foreign government or a corporation looking to invest in a foreign asset has two routes: investing through the securities market, in the form of Foreign Portfolio Investment (FPI), or through FDI. Within FDI, there are Greenfield and Brownfield modes.

In Greenfield, the investors start from scratch by obtaining land and building the plant on their own, while in Brownfield, they use an existing infrastructure either through purchase or through a merger with a local counterpart.

Table of contents

Example of brownfield investment, brownfield vs greenfield investment, recommended articles.

• Brownfield investment is a form of foreign direct investment (FDI) that involves utilizing existing infrastructure through mergers, acquisitions, or leasing rather than constructing new facilities.
• Investing in brownfield projects offers benefits such as time savings, lower labor requirements, stimulation of the local economy, environmental advantages, and opportunities for renovation and revitalization.
• Challenges of brownfield investments include adherence to local regulations, dealing with aging infrastructure, repatriation regulations, and potential costs associated with cleaning or remediation.

The Sugar Beach in Toronto, Canada, is an example of Brownfield investment in which the pre-existing parking lot of Jarvis Street Slip was converted to a beach park on Lake Ontario. The beach site was redeveloped and opened to the public in 2010 at $14 million.

The beach was redeveloped as a part of the ‘ Toronto Waterfront revitalization initiative’ by the Minister of Infrastructure and Communities so that the underutilized or abandoned industrial sites could be put to better use and generate some revenue.

Apart from leisure and recreational activities, the beach also hosts an annual movie festival hosted by the Toronto Port Authority.

Other such initiatives by the same authority have led to the development of Sherbourne Common, Simcoe Wave Deck, and Corktown Common.

• Time-saving: As the investor doesn’t need to build the infrastructure, the time taken to initiate production is reduced.
• Local Intelligence: In the case of a merger with a local company, the benefits of local knowledge add to the advantage of the investor as they don't need to do ground-level research to understand the local needs and requirements.
• Boost to the local economy: Due to the quicker initiation of production, the local economy boosts quickly from increased jobs and increased GDP
• Environmental benefits: The local environment is better as the investor helps clean up the hazardous waste of past industrial activities, which would deteriorate if left neglected. This is done in the case of the Brownfield redevelopment process, where the land previously used for some other purpose is redeveloped for a new use and helps in better aesthetics and community environment.
• Renovation: Old, dilapidated buildings get renovated, and therefore it reduces the risk of their falling apart and causing a loss of life and property.
• Local regulations: At times, when investment takes place in emerging economies, the local regulations are less liberal than those of developed economies, leading to a lack of ease in doing business.
• Outdated facility: At times, the abandoned facility has lower utility for the new product to be undertaken and, therefore, may become a hurdle to the optimum production level. It may cost almost the same to redevelop a Brownfield land as it might to make a greenfield investment.
• Repatriation laws: In the case of several emerging economies, the local repatriation laws are highly restrictive, leading to a lack of profits that can be taken back to the country of the investor, and therefore the investor requires ample avenues to utilize the profits locally. This can reduce the willingness of the investor to invest in the country.
• Cleanup Costs: Even though the cleanup of pre-existing hazardous or contaminated waste benefits the local community, the costs are borne by the investor, which is an added disadvantage. However, it is a trade-off between a complete development or redeveloping the existing facility.

• Nature of investment: In Greenfield investment ,  the investor constructs a completely new facility on a vacant plot of land, while in Brownfield investment, the existing facility is either used as it is or is redeveloped for the new production, which may be in the same industry or may require a complete change of usage
• Efficiency: As Greenfield projects are customized according to the use in which they will be put, they take care of all kinds of efficiency hazards at the planning stage. Therefore the production levels are optimum in such projects in most cases. As Brownfield projects redevelop existing facilities, there may be restrictions on the amount of redevelopment that can be done, suiting the new production requirements. Therefore this could become a hurdle to the efficiency of the project.
• Cost: Greenfield projects require greater investment as compared to the Brownfield projects as all that the investing company gets in the land, and the entire construction is newly undertaken, while in the case of Brownfield, some projects may initiate by making minor modifications to the existing facilities
• Time: Greenfield projects require greater time as compared to the Brownfield projects for the same reasons as their costs are higher
• Cleanup costs: Greenfield projects don’t incur any cleanup costs. However, the Brownfield investment site may be contaminated due to prior usage or may even have hazardous waste disposed of, which requires cleaning up, and therefore cleanup costs are incurred.
• Risk of failure: Greenfield projects have a higher risk of failure than Brownfield investments because they incur higher costs; therefore, if these projects fail, they lead to a larger loss.

Brownfield Investment is a type of Foreign Direct Investment (FDI) in which a foreign investor merges, acquires, or leases a pre-existing plant and uses the same for the production of a new product resulting in saving the time taken in building a new facility. This may be an advantage for those who may not have to modify the existing facility for their purpose greatly. Otherwise, the redevelopment may become highly costly.

The cleanup cost of contaminated regions might become one of the highest costs to the investors and a great advantage to the local community, so this needs to be considered before making such an investment.

Frequently Asked Questions (FAQs)

Potential challenges or risks associated with brownfield investments include environmental liabilities, regulatory compliance, and the presence of contaminated or outdated infrastructure. Additionally, unexpected costs may be related to site remediation, renovation, or retrofitting. Market demand and economic conditions can also impact the success of brownfield projects, as revitalizing existing infrastructure may face challenges in attracting investors or tenants.

Before engaging in a brownfield investment, due diligence should include thorough environmental assessments, site inspections, and potential legal and regulatory obligations analysis. Evaluating the market demand for the property's intended use and assessing any potential barriers or limitations is also crucial.

Brownfield investments contribute to sustainable development by promoting the reuse and redevelopment of existing infrastructure and land, which helps minimize urban sprawl and preserve greenfield sites. Revitalizing brownfield sites can rejuvenate communities, create job opportunities, and enhance local economies. It also reduces pressure on natural resources by repurposing underutilized or abandoned properties, contributing to more sustainable land use, and minimizing environmental impacts associated with new construction.

This has been a guide to Brownfield Investment and its definition. Here we discuss Brownfield Investment with the help of an example. We also discuss the difference between Brownfield and Green Investment. You may also have a look at the following articles –

• Net Investment
• Interest on Investments Types
• Vertical Merger
• Investment Securities Definition
• Quantamental

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Study guides for every class, that actually explain what's on your next test, brownfield investment, from class:.

Brownfield investment refers to the investment in previously used or contaminated land that requires cleanup or redevelopment before it can be repurposed for new activities. This type of investment is significant for multinational companies as it allows them to acquire land in strategic locations while benefiting from potential tax incentives and government support aimed at revitalizing economically depressed areas.

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5 Must Know Facts For Your Next Test

• Brownfield investments often come with lower acquisition costs compared to new land development due to the need for cleanup and redevelopment efforts.
• Governments frequently provide incentives for brownfield redevelopment to encourage economic growth and job creation in urban areas.
• Investing in brownfield sites can lead to significant environmental benefits by transforming contaminated land into productive use and reducing urban sprawl.
• Multinational companies may choose brownfield investments to leverage existing infrastructure, which can lower their overall operational costs.
• Successful brownfield redevelopment projects often involve collaboration with local communities to ensure that the new developments meet their needs and expectations.

Review Questions

• Brownfield investment differs from greenfield investment primarily in the condition of the land being developed. Brownfield sites often come with challenges such as contamination that require remediation, which can increase initial costs and timeframes. However, the benefits include potentially lower land costs and access to existing infrastructure. In contrast, greenfield investments offer a clean slate with fewer regulatory hurdles but typically at a higher price for undeveloped land. Both strategies carry unique risks and rewards depending on the context of the investment.
• Government incentives are crucial in promoting brownfield investments as they often include tax breaks, grants for cleanup efforts, and expedited permitting processes. These incentives can significantly reduce the financial burden on multinational companies looking to redevelop contaminated sites. Consequently, companies may be more inclined to pursue brownfield investments in areas where they can maximize these benefits, ultimately influencing their location choices and strategies for expansion.
• Successful brownfield investments can have transformative long-term implications for local communities and economies. By revitalizing contaminated sites, these investments can create jobs, stimulate local businesses, and increase property values. Furthermore, the environmental remediation associated with brownfield redevelopment improves public health and restores community spaces. However, it's crucial for companies to engage with local stakeholders to ensure that developments meet community needs and prevent gentrification that could displace existing residents.

Related terms

Investment made by a company or individual in one country in business interests in another country, typically by establishing business operations or acquiring assets.

Greenfield Investment : A type of foreign direct investment where a company builds its operations from the ground up on undeveloped land, rather than acquiring existing properties.

Environmental Remediation : The process of removing pollutants or contaminants from environmental media such as soil, groundwater, sediment, or surface water.

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European purpose-built student accommodation investment barometer report, contacts & related research.

The Class Foundation  in collaboration with Savills The European purpose-built student accommodation (PBSA) sector could see 70% growth in the next two to five years

Introduction

Existing investor landscape, factors impacting investors, capital availability, the esg challenge, development difficulties, regulatory impact.

The European PBSA Investment Barometer unveils the current landscape of the PBSA industry and provides a forward-looking perspective, arming decision-makers with the knowledge they need to navigate this dynamic market successfully. By harnessing the data, trends and analysis in the report, investors and other stakeholders can make well-informed decisions, capitalising on opportunities in this thriving sector.

The PBSA sector continues to grow across Europe. Activity and interest in the sector is driven by the continued rise in the number of students studying across the continent, the growth in international students, and heightened focus on the quality of living experiences.

Investors and operators play a pivotal role in shaping the future evolution of the sector, driving continuous innovation and meeting the needs of the students of tomorrow. For the second year, The Class Foundation and Savills have undertaken a survey, interviewing key market participants to understand the current state of the sector and the drivers of change in the near term. Our respondents include institutional investors, fund managers and operators. The majority are equity investors, with some having vertically integrated operating businesses as well.

• 70% – the amount by which our survey respondents expect to increase the size of their European PBSA portfolios over the next two to five years, which equates to an additional 92,500 beds and €22 billion of capital. If all of the private European PBSA increased at a similar rate over the period, then this would increase supply by more than 1.7 million beds. But this would still only raise the European provision rate to 17%, from 11% today.
• 81% of respondents are concerned about the effect of interest rate movements on their business, making it the highest-ranked issue. Investors are also concerned about construction costs, regulations and housing affordability.
• Only 13% of investors are concerned about how the availability of debt for either refinancing stabilised or recently completed assets will change over the next two to five years. However, more than 60% are concerned about the availability of equity for development.
• 25% – the average proportion of respondents’ existing portfolios that need to be brought up to higher ESG standards. The majority expect to refurbish the stock to bring it up to requirements.
• 38% of respondents report challenges acquiring both green and brownfield land, with a further c.20% reporting challenges on either brown or green. Location remains the most important factor when looking to bring forward developments, and investors remain keenly aware of costs and complexity.
• Regulation on affordability is a major concern for investors, with nine out of ten respondents agreeing that regulations on affordability make it difficult to meet target returns.

The number of operational PBSA beds continues to rise. According to Savills latest estimate, there are around two million PBSA beds across Europe, including both private and public provision, with about two-fifths owned by private operators.

The level of private provision is lower in many markets, with France, Germany, and the Netherlands all having a lower proportion of beds owned and operated by private investors. This points to significant opportunities for the continued growth of the PBSA sector, including in more mature and established markets.

Respondents to our 2024 survey included 16 investors and operators with over 132,000 beds across the continent, equating to c.16% of all private PBSA beds in Europe, with an asset value of c.€25.3 billion. The most common markets that our respondents have exposure to are the UK and Ireland (29%), South Europe (29%) and the DACH Region (17%).

Continued strong growth

The sector is expected to see continued strong growth in the next few years. Savills European Living Investor Survey 2024 earlier this year found that PBSA was ranked as the second most sought-after Living sector when respondents were asked about their future investment allocations, with 63% of investors targeting the sector. The survey also found that around a quarter of respondents expected to deploy more than €500 million each over the next three years.

This Investment Barometer survey mirrors those results from earlier in the year. Respondents expect to increase their number of PBSA beds over the next two to five years by 70%, to more than 220,000 – growing their portfolios by c.92,500 beds and deploying a further €22 billion of capital.

However, even this substantial volume of investment would only increase the current average European PBSA provision rate to 14% from 13%, assuming that student numbers remain at their current level. Even if all private owners aimed to increase their holdings by the same amount, it would only push the overall PBSA provision rate to 17%. This highlights the significant supply-demand gap that remains across the continent, and the scale of the opportunity for investors.

The most sought-after locations amongst survey respondents this year are Spain (14%), UK (14%), Netherlands (11%), Portugal (11%) and Germany (10%). Spain, Portugal and Germany have remained in the most sought-after locations from last year, while the UK and the Netherlands are new entrants. The UK has entered a new development cycle, with a significant opportunity for growth in beds in many of the largest markets fuelling investment, despite the relative maturity of the sector.

When asked about where they plan to invest within these markets, almost all of the respondents said their focus was on primary cities, the one or two cities with the largest student populations – similar to last year. However, there were a handful of respondents who said their focus was on secondary cities, the other major cities within the top five largest student populations. This points to the maturing of the sector across different markets and the confidence of investors and operators in the opportunity presented beyond the key gateway markets of London, Madrid, Paris, etc.

The economic outlook has improved and is less of a concern

Last year, investors were most concerned about the outlook for economic growth and inflation, coupled with interest rates. This was unsurprising given the gloomy backdrop and Central Bank interest rates being at the highest level in over a decade.

However, fast forward 12 months and inflation has eased, macroeconomic recessions were mostly avoided and the European Central Bank and the Bank of England have both started the rate cutting cycle. This has resulted in a dropping off in terms of concerns around economic growth and inflation, with only 13% of respondents saying they are ‘very concerned’ about their impact.

Nonetheless, the significant rise in living costs over the past 18 months, in particular food, energy and housing costs, means that financial pressures remain for many students. This likely explains why over 60% of our respondents remain concerned about housing affordability.

Furthermore, despite the improving macroeconomic outlook and recent interest rate cuts, investors remain concerned about future rate movements. It is likely the uncertainty around the pace of cuts and where rates will ultimately end up that is playing on investors’ minds.

Construction costs, affordability and regulations are of greater concern

Uncertainty around the wider economy has been replaced by concerns about construction costs, regulation and affordability. The cost of construction has risen rapidly in recent years. While cost growth has eased in recent months, to between 1% and 4% in the 12 months to Q2 2024, this follows annual double digit growth through 2022, according to Eurostat. This has put pressure on the viability and deliverability of some schemes and could curb investor’s ambitions to grow their portfolios. This also plays into investor concerns around the availability of suitable assets, which 31% of respondents said they were ‘very concerned’ about.

The strong rental growth seen across both the PBSA and wider residential sectors in recent years has also put affordability under the spotlight – especially given the wider rise in living costs. As a result, governments are increasingly looking at regulatory levers that are available to them to placate their constituents. Depending on the form they take, these regulations pose potential issues for investors and operators, which explains why close to two-fifths of respondents said they were ‘very concerned’ about the impact of regulation on their business.

Obsolescence, technology and workforce are lower down the list of concerns

Mirroring the results we saw last year, investors are less concerned about management, the workforce and digital transformation impacting their businesses. These are factors that many have been addressing in recent years and so are likely to feel that they have them in hand.

The lower level of concern around the obsolescence of their assets is probably a reflection of many of our respondents owning and operating relatively new assets, which have already been developed with future student needs and ESG features in mind.

While interest rate movements are a point of concern for investors in terms of the impact on their own business, it is positive to see that the general outlook around capital availability has improved from last year. In 2023, the majority of our respondents were ‘somewhat or very concerned’ about the availability of both equity and debt for PBSA – be it for development or stabilised assets.

However, respondents in 2024 are painting a more positive picture. For debt availability, only 13% of respondents are ‘somewhat concerned’, with at least half saying they are ‘not at all’ or ‘not very concerned’. This ties in with the broader picture of debt availability in the market, where lenders are increasingly focused on the Living sectors, which is driving up competition and weighing on the margins they are charging.

There remains more concern around the availability of equity. This is particularly the case for new development, where over half of respondents were ‘somewhat’ or ‘very concerned’.

Rising global capital in the sector

Respondents also expect to see an influx of global capital into the sector over the next two to five years. Mirroring the trends seen last year, North America is expected to lead the growth, with over three-quarters of respondents anticipating an increase in capital from the region. This is followed by the Middle East, which has overtaken Asia Pacific to take the second spot this year. We are already seeing evidence of these trends in the market, with Greystar, Blackstone, GIC, Mapletree Investments and Hines all active across Europe in the past year.

The drive towards net zero and improving environmental standards in the built environment remains near the top of the industry’s to-do list. The pace and stringency of tightening rules varies across the continent, but the direction of travel is consistent, and investors are having to grapple with what to do with stock that needs improving.

Across the respondents, the proportion of stock that needs to be brought up to ESG standards ranges from 0% to 75%, with an average of 26%. For some investors, this therefore presents a sizable challenge. When asked about what they plan to do with their stock that doesn’t meet ESG standards, the majority said that they would refurbish stock.

This is a laudable aim, will ensure that stock remains in the market and shows that investors are thinking about embodied carbon. Although, it is also perhaps indicative of the concerns raised earlier in the report about accessing stock – a challenge that was also raised by respondents to Savills European Living survey 2024 .

With that said, there is still a large minority of respondents that would look to sell assets if they aren’t up to ESG standards. This will present an opportunity for other investors to acquire aged stock and progress with a 'brown to green' strategy, refurbishing and repurposing older stock (as long as the cost of refurbishing isn’t prohibitive).

The delivery of new stock is a key challenge for the sector, and essential for its continued growth. Investors are facing difficulties in acquiring land, with close to two-fifths of respondents reporting challenges acquiring both green and brownfield land, and a further c.20% reporting challenges on either brown or green.

When considering where to develop, respondents reported that site connectivity is by far the most important factor, the same as last year.

While location remains the most important factor when looking to bring forward development, investors are also keenly aware of costs and complexity. This mirrors earlier concerns raised by respondents about the cost of development for the continued growth of their portfolios. These two factors could hamper innovation and the delivery of new schemes if costs become prohibitive.

Investors are concerned about the impact of regulation on their business, which interlinks with the wider affordability challenges that are emerging off the back of strong rental growth in recent years. Affordability challenges make some governments consider rental regulations, as a way to be seen to be acting to help their constituents.

However, it is clear that many investors view regulations as a negative for the sector – and a greater proportion of respondents this year are concerned about it than last year. They highlight that regulations could decrease interest in delivering more PBSA, which is already in short supply in many markets, as it would reduce potential investment returns. Some of our interviewees pointed out that tighter regulation in one market is likely to cause them to move their focus to other markets in Europe. These responses align with the results of Savills European Investor Survey 2024 in March, where respondents flagged rent regulation as the biggest risk to further investment in the Living sectors.

This investor feedback highlights the need for the industry to engage with government to articulate the needs of the sector, as well as its role in helping address wider housing challenges. Making sure the sector is part of the conversation around any potential regulatory changes could help ensure that, if they are brought in, any impacts on the sector are minimised.

This European PBSA Investment Barometer Report 2024 reveals a growing PBSA sector in Europe. There is increasing investor appetite to enter and grow within the sector, drawn by its strong fundamentals. With respondents looking to almost double their investments across the region in the next five years, emerging PBSA markets like Spain, Italy, Portugal and the Netherlands should see more much-needed supply, as well as a diversification of active players.

Investors remain concerned about interest rate movements, the cost of construction and the availability of suitable assets. Alongside concerns about the availability of equity for new developments, there are potential challenges in driving significant increases in new stock in the near term and there is a need to strengthen relationships across the development and financing landscape.

The housing affordability challenges facing students have pushed potential regulation further up the political agenda, which is also raising concerns for investors. As regulations surrounding affordability gain traction, collaboration with policymakers will be crucial. By actively participating in policy discussions, the sector can help shape a balanced regulatory environment that safeguards investor interests while supporting both new and reformed policy decisions. Proactive industry-government dialogue may prevent over-restrictive measures, enabling sustainable growth while addressing the housing needs of students and local communities alike.

Investors who champion ESG initiatives are well-positioned to lead in both sustainability and community engagement, fostering a positive reputation among key stakeholders and enhancing the long-term viability of their assets. By prioritising sustainable development, the PBSA sector not only aligns with regulatory standards but also strengthens the social and environmental resilience of university cities, supporting The Class Foundation’s vision of vibrant, sustainable academic communities.

The PBSA sector in Europe stands at a transformative crossroads, where investors wield the power to redefine the very landscape of PBSA. Their strategic decisions, allocation of resources, and visionary outlook will not only drive the sector's growth but also determine the quality of living experiences for the students of tomorrow. With an ever-evolving market and a dynamic mix of players, investors must navigate economic challenges, respond to shifting student demographics, and champion environmental sustainability. Their choices, particularly regarding new developments, financing, and adherence to ESG principles, will have a ripple effect across the sector.

As investors assess opportunities, collaborate with educational institutions, and engage with city officials, they are not just making business decisions, they are influencing the educational journeys of countless students. Their actions can bridge the affordability gap, drive innovation, and ensure that the PBSA sector remains a cornerstone of not only real estate investment but also of higher education itself.

About The Class Foundation:

The Class Foundation, established in 2011, operates as a partner-based non-profit organisation with the goal of advancing the professionalism and understanding of student housing across Europe. Serving as the largest European Student Living ecosystem, its mission centres on being the foremost think tank dedicated to the realm of student housing and experience. With research, events, collaborations and awards, The Class Foundation fosters an extensive international network comprising more than 100 complementary partners creating homes for more than 3 million students. By facilitating connections among operators, investors, policymakers, universities, service providers and student organisations, we provide a community and platform for thought leaders to exchange high-quality information and best practices.

Click here to learn more about Savills Student Accommodation services  

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Follow our news, recent searches, tower semiconductor forecasts upbeat q4 revenue; unveils $350 million investment plan, advertisement.

FILE PHOTO: The logo of Israeli analog integrated circuits developer, Tower Semiconductor is seen at their offices in Migdal HaEmek, northern Israel, February 28, 2022. REUTERS/Amir Cohen/File Photo

Israeli contract chipmaker Tower Semiconductor forecast its fourth-quarter revenue above estimates on Wednesday, driven by a recovery in demand for its chips, and said it plans to invest $350 million to expand capacities.

The U.S.-listed shares of the company were up 7.5 per cent in premarket trading.

The company said the investment will expand capacities for its silicon photonics, used in autonomous vehicles, and silicon germanium, used in wireless communication and high-performance computing systems.

However, the company did not disclose the time frame for this investment.

The plan also includes the qualification and ramp-up of 200mm capacity, both in San Antonio and Migdal Haemek, Israel, and in its 300mm facility in Uozu, Japan.

The company makes analog and mixed-signal semiconductors used mainly in automobiles for "fabless" firms, which outsource chip manufacturing.

Slowing growth in demand for electric vehicles has kept inventory levels for chips used in the automotive industry at elevated levels.

However, Texas Instruments - a bellwether for analog chip demand - indicated last month that improving demand from the Chinese automotive market is helping drive down chip inventory levels.

Tower Semiconductor expects to report fourth-quarter revenue of $387 million, with an upward or downward range of 5 per cent, beating analysts' expectations of $379.2 million, data compiled by LSEG shows.

In September, Tower Semiconductor tied up with India's Adani Group to invest 839.47 billion rupees ($10 billion) for a project in India's western state of Maharashtra. The project will initially have a capacity of 40,000 wafers.

It reported third-quarter revenues of $371 million, which was ahead of Wall Street estimates of $370.3 million. Its quarterly profit was 57 cents per share, compared with analysts' estimates of 53 cents per share.

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