How Road Infrastructure Adds Value To Industrial Land

What happens to the value and demand for industrial land when major roads are constructed? As found in past major land use studies and supported by classic economic theory, transportation improvements and the addition of new transport infrastructure positively impacts the value of surrounding land.

In fact, Urbis Valuations was involved in a 2006 Victorian Supreme Court case (Murdesk Pty Ltd v Roads Corporation [2006]) that established that industrial land values benefited from the Craigieburn Bypass by 10%.

Is that what actually happens in practice? Urbis recently reviewed three major metropolitan roads to answer this question and revealed some interesting insights.

The three projects are the M7 in western Sydney, the Eastlink Tollway in Melbourne’s outer eastern suburbs and the M1 Motorway in Brisbane’s northern suburbs.

Three phases in road development that impact on industrial land

In analysing the construction of major road infrastructure, there are three distinct phases.

The planning and pre-construction phase

1. The construction phase

2. The operational phase

3. During the planning and pre-construction phase, there is evidence that the greater the certainty of the project, the quicker and greater the impact on industrial land values. So, if the risks that the project won’t go ahead are high, this reduces the likelihood that land prices will be bid up.

The construction phase is more obvious.  Once the road infrastructure is being constructed, everyone can better appreciate the locational and operational benefits it will deliver.

Finally, once the operational phase commences, the benefits (or otherwise) of the project become apparent.

When does most of the uplift happen?

One of the interesting findings is that the uplift in industrial land values varied across the projects. The strongest phase was during construction. However, the patterns varied.

With only three projects to review, in different cities and in different time periods, it’s challenging to form a strong view on why these differences occurred.  If the M7 was influenced by the certainty of the Olympics program and confidence that a long awaited and much needed piece of infrastructure was finally going to happen, perhaps the Melbourne result suggests a city already having benefitted from a number of tollway programs and the community waiting to see the full effectiveness of the road?What  is clear is that industrial land values always increase once the infrastructure is actually under construction.

Road infrastructure delivers long-term value uplift

The final insight relates to the longevity of the value uplift.  It is permanent. In every case, we found that the rate of capital value increased compared to the greater metropolitan area, and that gap over parity was retained, even when the catchment area land values stopped rising.  It was real, longstanding value that was created from the infrastructure.

Perhaps the most interesting was the M1 catchment in Brisbane.  Between 2007-2012 including the construction and initial operational phase, its catchment area industrial values grew 5.7% versus a decline of 3.5% in the Greater Brisbane area during the same period, which was impacted by the GFC. That is, the value uplift protected the M1 catchment during the tough times.

The increases in industrial land value for these projects were substantial – more than previously reported– which provides empirical proof of the relationship between transport infrastructure and industrial land.

However, there is also a sting in the tail. Industrial land purchasers don’t just rush in if they sense risk. Perhaps allaying those fears should be added to the infrastructure program.

Russell McKinnon is a Director of Urbis, an interdisciplinary consulting firm offering services in planning, design, property, social planning, economics and research. Russell has over 16 years direct agency and valuation experience and has extensive experience having worked in both Sydney and Canberra.