Gábor Soóki-Tóth: Brownfield regeneration

Brownfield regeneration – the potential role art may play in recreating spaces and communities in “obsolete” urban neighbourhoods

Industrial restructuring in Western Europe and the former “Soviet bloc” countries had different causes and effects – e.g. technological change vs. political change, innovation and change at the sector and company level vs. total transformation of the economy and privatization. However, there were similarities as well. The service sector took over the role of traditional industries as the engine of growth, and globalization has shifted the spatial structure of the locations of production and logistical services. Another similar aspect was the lack of space in city centers that drove property prices and, in general, the changes in the image of urban areas, as more emphasis was placed on the image of a city as global competition for capital and human resources intensified(1).
Brownfield regeneration means the recycling (“upcycling”) or reuse of land and building structures that were abandoned by their original users. In contrast to greenfield development, where the former use – in most cases agriculture – has not altered the land, brownfield development requires extra investment to ready the land and any facilities that occupy it for the new use. This may mean partial or total demolition of existing structures and, if required, the cleaning of the soil and buildings from any contamination that remained from previous uses. The provision or the upgrading of utilities and transport connections apply in both cases.

A ‘crash course’ on Real Estate

Broadly speaking, there are two main types of properties: residential and non-residential. The logic of development – albeit sharing some similarities – is specific according the type of property, as the future use and user requirements are different. Within the non-residential category there are multiple subsectors, with their own set of specific criteria: retail, office, industrial and warehousing. Development may be speculative or custom (built-to-suit), depending on whether the final product is based on a speculative assessment of general market demand (e.g. mass housing, standardized office, warehouse buildings) or a predefined set of specifications by a client.
In general, the life cycle of a property can be interpreted as the repetition of two phases: development (from the idea to the construction of the final building) and exploitation (use of the building). At the end of the exploitation period, when the building no longer has any appeal for the market or cannot perform according its functional requirements any more, a new development phase starts. During the exploitation phase, several additional upgrades may take place, ranging from minor maintenance to major overhauls and reconstructions. Also during the exploitation, phase ownership may change several times.
The value of land is highly dependent of its location: the relation to other properties (functional structure), transport corridors and hubs. Highly accessible central locations attract functions that may pay the highest rents, whereas functions that need more space and generate limited profits, and thus may yield less, are found in more peripheral locations. Topography and history provide an explanation for how and why settlements have developed and the character and relationships between neighborhoods within an urban area or region. These patterns also change over time: complete areas that proved obsolete may be left abandoned, while others with a similar fate will disappear to give space to completely new functions.
Multiple conditions determine the development of a property. These are interrelated and change over time. Despite the complexity of these conditions, there are some basic economic principles (“economic rationale”) that explain why and how a property is developed or redeveloped over time. In general, if there is a potential for a higher yielding use, landowners will be motivated to harvest this potential. In a dynamic market, where growth requires spatial extension, attractive areas increase in density and the urban area expands into the surrounding unbuilt land.
Development requires funding that may come from (the developer’s own) equity and loans provided by financiers. The cost of funding is related to the perceived risk associated with the development. The expectation of investors and developers for the level of profit or yield reflects the level of risk. Risk and uncertainty may be analyzed along various classifications. STEEP is widely used as a classification in marketing that offers a useful framework for understanding the factors representing risk for property development. STEEP stands for “social, technological, environmental, economic, political conditions”. In the social sphere, market demand and the availability of management capacities may be mentioned, while in the technological and environmental one the conditions of supply, the level of innovation and competitiveness or the availability of appropriate technology for recycling and upcycling are important. Economic cycles and the financial and investment climate have a major impact on the initiation and delivery of property projects, whereas political risk involves uncertainties with regard to the legal, planning, and tax frameworks within which a project’s feasibility is assessed.
The feasibility of a property project or the highest and best use of a certain property defined by its location and spatial conditions (its size, shape, topography, technical conditions, etc.) relies on whether it is suitable to meet market demand: the needs of “willing and able” buyers and tenants. Can it deliver a more attractive proposition by its location, size, quality, terms of business conditions (flexibility) than other competitive offers on the market (the supply in general)? At the end of the day, will the income generated by sales (rents) be above the costs of investment? Income-producing properties are viewed as future cash-flows by investors. The potential to generate cash-flow determines the sales price of the property. This is highly dependent on the presence of end-users willing to pay the expected rents over the long term and the perceived risk of that income stream. Thus, a simplified valuation of the property divides the annual net cash inflow by the general market yield, derived from similar historic transactions. This simplification involves the assumption of a perpetual income until infinity.
The potential to change the value of a property motivates development or redevelopment. Compared to the “value in-use”, a new zoning regulation allowing more intense use or a different function, subdividing or consolidating parcels, the construction or upgrading of utility services (creating buildable plots) and, last but not least, building or retrofitting structures all have the potential to add value. Creating value involves innovation and speculation: the evaluation of risks and rewards at the various stages of development from the initiation through the land and project development phases. Market demand and competition and the ability to forecast changes and making sensible offers accordingly is both an art and science at the same time. Changes in the market at large may be a result of changes in technology (e.g. the shift from one source of energy to another one, one mode of transport to another one, etc.) that may have a devastating impact on complete regional ecosystems. Locations as well as urban structures may go out of fashion (e.g. the growing size of water vessels may force port terminals out of business) or on a micro scale, if individual buildings lose their attraction because of changing requirements with respect to size, layout or technical specifications, or as their immediate connectivity or visibility fails to keep up with new standards.
Adaptation to the new reality may be as simple as abandonment or the continued use by different occupiers, who have less demand for quality or less affordability. If the general market conditions allow for it, an adaptive reuse of the existing structure or partial, or even total, redevelopment for new uses may occur. This is highly dependent on how other locations develop, on the rate of absorption in general and in particular on whether the urban functional node (office, retail or light industrial and warehousing) where the property is located generates rent levels (prices) that make such an intervention possible.

The story of Budapest brownfields

After the compromise with the Habsburg Monarchy in 1867, the Hungarian Kingdom enjoyed equal status in the newly formed Austro-Hungarian Monarchy. By 1872, Buda, where the royal seat and castle were located, Pest, the commercial city, and Óbuda, the agrarian small town built on the ruins of the former Roman military camp near the city of Aquincum, were united to create a twin capital city: Budapest. With the ambition to rival Vienna using state investments, but also utilizing the economic drive that brought industrialization to a country formerly doomed by a prohibitive tax regime to remain the food-producing region of the Habsburg Empire, the “new” city thrived. Besides the construction of boulevards, avenues, hospitals, and market halls, a new Parliament – copying the Gothic style of London’s parliament building – and numerous cultural venues, even the first underground on the continent and – again trailing London – the second in the world, private capital built entire neighborhoods of new residential and industrial buildings. Many of these, by now historic neighborhoods, were seen as substandard remains of a socially unequal, oppressive, “capitalist” past by the architects of the new post-WWII welfare state under the heavy influence of the USSR. Modernist principles and mass production technology were embraced and, just as in the 19th century, the parts built or rebuilt during the period between 1946-1989 are or may be considered as lacking the quality demanded by today’s occupants.
Most of 19th century Budapest’s industrial areas were located near transport corridors and the sources of raw materials: near the banks of the Danube River, along the rapidly developed railway lines and clay and stone quarries on the periphery of the city. These locations form a circular belt within the current administrative border of the city since the administrative annexation of peripheral villages and towns to the Hungarian capital in 1950. The largest quarries were in Óbuda (today District 3, in the northwest part of the city) and Kőbánya (in District 10, in the southeast part), whereas the main linear industrial corridors along the main transport infrastructure and the Danube, which has since lost its logistical function almost entirely in Hungary, were in District 13 (in the north) and districts 9 and 11 (in the south). The largest industrial blocks and homogeneous industrial neighborhoods were created in districts 8, 9, 10 and 21 (Csepel). Many of the traditional sectors that had been established were sustained until 1989, when privatization and the introduction of a market economy radically de-industrialized Budapest. The sectors that went “out of business” were food processing (mills, oil presses, baking factories), large-scale heavy industry (steel and metal production), engineering production (e.g. the manufacturing of engines, trains, trams, buses, machinery), textiles and leather-working, building materials (stone and clay mining), and traditional energy generation (coal- and oil-fired power stations). The area needed for the railways to operate was also reduced, leaving large amounts of urban wasteland behind.
The sectors that expanded were mainly services: retail (and logistics), wholesale trade, legal and tax advisory services, and business services. To accommodate this new demand from white collar employment, it was initially residential functions that were transformed, mainly in the inner parts of the city, by either changing existing buildings or occupying infill sites with office buildings. However, the densely built-up fabric of the inner city and the protected 19th century cityscape did not allow for easy expansion. Therefore, since the mid-1990s, office developers have ventured into off-center locations with varied degrees of success, largely dependent on the public transport access to these locations and whether individual projects could result in furnishing the given area with a positive image as a business hub.

As Zsuzsa Földi and her colleagues(2) point out, radial transport corridors, especially if high capacity public transport services run along them, have changed the most during the past two decades. The northwestern Szentendrei Road has accommodated retail and some office functions, replacing the former engineering works and the large-scale housing prefabrication plant, whereas traditional textile manufacturing locations remained in use, but with new functions: wholesale trade and services. The northern Váci Road became the main inner city commercial office hub, where especially in the inner part (District 13), most former factory buildings have been demolished and their premises fully redeveloped by developers. The outer part (not serviced by the metro line that runs along the inner part) has been less affected: retail and wholesale took over most of the premises. Some remained abandoned, but significant parts of the old industrial properties have remained in use by the original or new companies (e.g. the GE-Tungsram factory). Towards the south on both sides of the river we see similar patterns: in Pest, District 9, Soroksári Road has two distinct sections with a clear difference between the rate of change, and in Buda, in District XI, Szerémi and Fehérvári roads also have changed or are changing. Probably the least radical transformation in terms of demolition and redevelopment has taken place in the dense industrial blocks of districts 8, 9, 10 and 21, where although the original companies and uses have changed a lot (e.g. in District 8, the Ganz factory has disappeared completely, however the compound has been taken over by trade – most notably this is the largest Chinese business hub in the region), the buildings and original fabric of the industrial estates has remained intact.

Risks, returns, creativity and innovation

The lack of demand from the traditional users of industrial areas combined with the high risk involved with the redevelopment (cleaning up contamination, changing land-use regulations, etc.) puts these partly abandoned properties in a quarantine situation: only the most brave or desperate dare to enter. The most desperate are small businesses, arts and crafts, and trade. Demand for affordable space allows these businesses to compromise on location and the quality of facilities. Demand also comes from venture developers, who may come from sectors other than property and thus are not necessarily limited to the constraints of the mathematical logic of development risk appraisal. Probably the most striking example is Graphisoft Park, developed by Gábor Bojár, the ambitious founder of the architectural software company Graphisoft. After his small firm outgrew the converted villa it occupied in the leafy neighborhood of the Zugló (District XIV), he came across the former Gasworks site in Óbuda (District III). He must have fallen in love with the location as far back as in the mid-1990s, when Graphisoft – by then already an international business success – acquired the site, a remote and contaminated industrial compound had neither good transport connections nor the supporting urban context that would predestine it for revival (as opposed to the Váci Road corridor, located “off-center” from the CBD and with a high-capacity metro line running along it). The beautiful riverside location overlooking Óbuda Island, the historic industrial and residential buildings around the site that had been purchased called for building a Stanford-like campus for a miniature version of a Hungarian Silicon Valley. This is exactly what happened: the quality architecture and landscaping of the park attracted other software companies to settle, and the cluster started to grow. Nowadays, Graphisoft is part of Nemetschek, a German CAD giant and Bojár and his crew are busy focusing on developing the campus where Microsoft and SAP has its headquarters, among many other high-tech enterprises, extending the sectoral focus to nano- and biotechnology as well. Graphisoft Park is now also complete with a business school and the Acquincum Technology Institute offering academic programs for the best talents from around the world.
A new urban product was born here, as well as in other areas where, to a similar or greater degree, the past has been retained or destroyed, and more commercially oriented, less striking, but nevertheless functional and price/quality-conscious, architectural and urban development projects have been executed. In one way or another the marginal locations gradually transformed into mainstream ones. This has only happened along the main transport arteries and in some of the hotspots, but even in these areas, there is a part of the industrial estates that remained intact (2-3 blocks away from the main road or junction) and a large part of the peripheral industrial districts have remained marginal despite the urban transformations that have visibly transformed Budapest since 1989. Affordability drives demand for these spaces, but as result of the low income generated here (often lower than what would be needed to maintain or upgrade the buildings and the infrastructure) and the fragmented ownership structure, they merely provide functionality and a rather weary impression. As there are no transformative forces and synergies among the occupants, anyone who succeeds in doing business here will leave as soon as they expand or develop, and only those who have no alternatives remain.
The research into the Budapest brownfields revealed that, bearing the main regional differences between the former industrial districts of the north, east, and south in mind, in addition to the infrastructural developments (upgrading and systematic development of railways, roads and new bridges across the Danube) that would allow the transformation to speed up(3), there is also a need to apply softer strategies that involve revealing the qualities and potentials these areas have, to build communities of occupants, and to create new appeal by changing the image of the area, although not necessarily by changing the fabric or the physical environment. The interviews conducted by Földi and her colleagues in the article cited before reveal that there seems to be a general understanding of the need to apply softer strategies (at least verbally); however public administration and decision-making bodies seem to rely more on administrative procedures (regulatory planning) and feel more comfortable talking to “big investors” who may be able to totally transform a property within a short time than to spending time and energy facilitating time-consuming small-scale activities that would trigger community-based actions to take place, probably with much less visible transformation of the urban fabric. In her article about the changing definition of brownfields(4), Éva Orosz highlights the shift of regeneration strategies in Europe, as the former industrial areas are considered to be important parts of the local cultural heritage, not just by virtue of their physical existence, but in terms of their functional reintegration into the city. Remaining marginal offers an opportunity to both change a viewpoint and to have new cultures developed by their users.
The term “smart city” evolved as a technological development providing affordable solutions enabling the gathering and collection of information, on a very large scale, on the operation of cities – even in real time. Disruptive concepts – like the idea of a sharing economy versus the economy of growth based on increasing and more sophisticated consumption – together with this real-time monitoring aspect, have the potential to completely change the way we live in our cities. In contrast to the expectations that digital technologies will eliminate spatial differences because everyone can work from everywhere and a large portion of their activities can be performed from anywhere (“the world is flat”), it seems the world at large has become more focused on location. Meeting in person and via media channels are not ways of communication that replace each other, but complement them. Besides adapting technology for sourcing and analyzing information, the fast feedback of smart city systems allows for the raising of consciousness and thus triggers changes in attitudes. Orosz mentions the role of temporary uses(5), the culture of intermediate “pop-ups” being an alternative solution to the traditional planning and development paradigm, as they offer the possibility of experimentation. Again, softer strategies to reintegrate underutilized or marginalized urban areas that are financially viable as well may be introduced.
Richard Florida, in his seminal book The Rise of the Creative Class, argues that talent, tolerance and technology drive the new economy, and, based on the conclusions of the book, many cities tried to adopt strategies to attract talent and thus foster economic growth. Florida advocated a “bohemian” index, arguing that there is a strong correlation between the presence of artistic types and the economic success of the city. There is a popular notion that run-down areas attract alternative lifestyles and creatives who are outside the mainstream, as these areas offer more affordable spaces to live and work for them. The arts and artistic production are viewed in general as an experimental sector ready to accommodate abandoned spaces for its activities, both formal and informal. The recipe would say: take an abandoned space, add entrepreneurial rebellious creative activists, allow them to create a vibe – add a bit of flavor by providing some funding – let it boil: and as the pleasant smell fills the area, a new attractive urban playground is created for the less marginal also to enjoy (and inhibit). The rest of the story is usually discussed as “gentrification”. Probably a realistic version of the story would be more complex; in any case, many objections were raised to Florida’s conclusions (among others, see the reflections of Edward Glaeser, who re-ran some of the math behind the arguments and came to rather different conclusions(6)).
What can be said as a conclusion? It seems that the future of locations in a city largely depend on the general economic climate: is there a need to expand or to intensify use? Whereas mainstream users prefer good accessibility and high quality facilities, at least the Budapest brownfield story tells us that there are always uses that, out of necessity, allow for some compromise in both regards. Areas that lost their original value may provide room for the marginal, the smaller scale (not necessarily smaller by size), or the more disturbing (smelly, noisy, etc.). If art is considered as a function allowing a critical or different view and the questioning of the context and the mainstream logic of development, it has great potential to challenge the prospective outlook of an area. Building a vision by inviting stakeholders into the discussion, understanding their desires, also challenging their views, and opening channels for them to communicate with each other (also towards a wider audience) may lead to the formation of a user/owner community interested in their locations future. A new identity may be developed, or by simply revealing the clustering of functions, some new business opportunities may arise. In the case of Csepel, where multiple ownership and limited accessibility are among the key obstacles to revival, there remains the speculative – and not very realistic – hope to sell out to a major new investor. This and the daily struggle for survival in the case of the smaller companies have eroded the cooperation to run at least the common facilities of this otherwise well-occupied historic industrial district. Despite this fact, it has remained active, with even some new investors arriving, and there are many who continue to work here. Several current initiatives – both by the municipality and by community groups – target the occupants. Understanding the individual cases may bring a better understanding of what can be done beyond the usual notion that the area ‘lacks public funding’ for upgrading its infrastructure. Hopefully the results may be the subject of a similar paper to be written in about a year or two.

(1)  Éva Kiss: Budapest ipari területei az utóbbi évtizedben (Industrial Areas of Budapest in the last Decade), in Tér és Társadalom, 23. évf. 2009/2, p. 70., source: http://tet.rkk.hu/index.php/TeT/article/viewFile/1235/2466 (accessed: March 10., 2017)

(2)  Földi Zsuzsa – Czirfusz Márton – Tagai Gergely – Uzzoli Annamária: A barnamezős területek felértékelődésének térbeli jellegzetességei és ingatlanpiaci háttere Budapesten (Spatial and property market aspects of the changing value of brownfield areas), in: VI. Magyar Földrajzi Konferencia tanulmánykötete, 2012 p. 246-249 forrás:  http://geography.hu/mfk2012/pdf/Foldi_Zs_et_al.pdf (access: March 10., 2017)

(3) Kukely György – Barta Györgyi – Beluszky Pál – Győri Róbert: Barnamezős területek rehabilitációja Budapesten. (Urban regeneration of brownfield areas in Budapest), in: Tér és Társadalom, 20. 2006. 1. 57–71. p, source: http://tet.rkk.hu/index.php/TeT/article/view/1039/2074 (accessed: March 10., 2017)

(4) Éva Orosz: A barnamező fogalmának változó értelmezése (The changing interpretation of the term brownfield), in Tér és Társadalom 26. évf. 2012/2. pp. 73-87., source: http://tet.rkk.hu/index.php/TeT/article/viewFile/2039/3872 (accessed: March 10., 2017)

(5) ibid. p. 80.

(6) http://scholar.harvard.edu/files/glaeser/files/book_review_of_richard_floridas_the_rise_of_the_creative_class.pdf