/ Analysis / New ARCADIS Report: Built Assets Contribute $27 trillion to Global Economy

New ARCADIS Report: Built Assets Contribute $27 trillion to Global Economy

Matt Ball on May 30, 2014 - in Analysis, Corporate, Maintenance

Built assets generated a total global income of $27.1 trillion in GDP in 2013 according to a new study published by ARCADIS, (EURONEXT: ARCAD), the leading global natural and built asset design and consultancy firm. Developed in conjunction with the Centre for Economics and Business Research (Cebr), the Global Built Asset Performance Index illustrates for the first time how the U.S. compares to 30 countries worldwide whose economies collectively represent 82 percent of the global GDP.

The Global Built Asset Performance Index examines the income generated by buildings, infrastructure and other fixed assets, which totals approximately 40 percent of GDP across the 30 countries included in the research, a mixture of both advanced and emerging economies. Most striking, the report reveals that the U.S. is in danger of its aging built asset base leading to a slow decline in its economic power.

Manju Chandrasekhar, financial institutions sector leader for the Americas at ARCADIS US said: “Built assets such as transportation, power and water infrastructure, as well as productive industrial centers and high quality residential and commercial property, all positively contribute to the economic performance of a country. For the first time, our report paints a full picture highlighting the relative differences between 30 of the world’s major economies, in terms of economic returns, and assesses how differences in these economies’ effective use of their built asset stock, impact their global competitiveness.”

A changing landscape

The study shows a changing landscape as economies expand and contract and infrastructure is upgraded over the course of years – or not. Overall, China generated the highest aggregate returns from its built assets at $6.9 trillion in 2013. This is forecast to rise to $7.4 trillion in 2014.  Despite being the world’s largest economy, U.S. built assets generated considerably less income on a relative basis, at $5.5 trillion, although still well ahead of India and Japan in third and fourth place respectively.

Top ten countries by overall built asset income

Country        Income from Built Assets (Purchasing Power Parity measure)*
1.    China        $6.9 trillion
2.    USA          $5.5 trillion
3.    India          $2 trillion
4.    Japan        $1.9 trillion
5.    Germany   $1 trillion
6.    Mexico      $990 billion
7.    France      $818 billion
8.    UK             $693 billion
9.    Brazil         $633 billion
10.  Turkey       $622 billion

*Income shown as a ‘Purchasing Power Parity’ measure of GDP to enable accurate global comparison

Aging infrastructure could threaten productivity and continued return

Almost two-fifths (37 percent) of GDP in the U.S. was generated through its built assets in 2013, representing a strong return from its accumulated capital and built asset wealth. Some of the original assets that are now 60 to 70 years old are still able to generate healthy returns, despite being fully depreciated. However, the longer-term sustainability of such returns are considered to be at risk, since much of the U.S. infrastructure was built in the 1950s and 1960s and again in the late 1990s-mid 2000s, when real estate values were at their highest. As such, a disproportionately high amount of U.S. built asset investment is spent on routine maintenance of these aging assets, as opposed to renewal and expansion, as well as the management of associated liabilities as assets near the end of their lifecycle. For example, as many as one in nine bridges in the U.S. were deemed structurally deficient, with an estimated repair bill of $76 billion, in a recent report by American Society of Civil Engineers (ASCE), highlighting the need for major investment. Water infrastructure is also in need of replacement and renewal in many cities, especially on the East Coast.  The ASCE estimated the total investment requirement by 2020, across all infrastructure classes, to be $3.6 trillion, or $600 billion per year, which represents approximately 4% of US GDP in 2013, against the allocation of about 1.6% achieved in the same year, which was the lowest percentage in the last 2 decades.

U.S. infrastructure: where to go from here

These dynamics suggest the U.S. needs to review aging and redundant assets while also entering into an age of asset renewal and extension. A need to support the flow of trade and create viable alternatives to the automobile and gridlocked city centers, which reduces labor productivity, is driving a focus to invest in high-speed commuter and freight rail and port upgrades. Major new corporate headquarters are being built for technology companies in the San Francisco area, the oil & gas industry in Houston, and pharmaceuticals on the East Coast, creating a need for quality built assets to enable strong performance from these industries.

Catherine Tobiasinsky, national director, built asset consultancy at ARCADIS US said: “From our research we can see that countries face many different challenges in order to maximize the performance of their built assets. While some countries are proactively managing their built asset wealth to put them in pole position to reap the economic returns over the coming decade, others are in danger of failing to invest in their aging built asset base leading to a slow decline in their global competitiveness. Sustaining a built asset base that protects the environment, enables people to thrive and creates economic value is possible but a clear long-term vision to deliver this infrastructure is absolutely essential.”

The full report can be downloaded at www.arcadis.com/builtassetindex

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