The risk premium is the part places can control
In brief
- Investors add a premium for uncertainty on top of the base rate. Place leaders can't set interest rates, but much of that premium is theirs to reduce.
- A viability gap is often a pricing problem. Blended structures let public, impact and commercial capital each take the part of a scheme that suits them.
- Treating a site as one business, and capturing the value public investment creates, turns a stalled scheme into a proposition several kinds of investor can back.
6 min read
EXPO REAL is under way in Munich this week. For three days, its halls are full of stands making the case for investing in one city, region or country over another. The displays are impressive and investors' attention is hard to win. The places that leave with conversations worth continuing will mostly have earned them long before they booked a stand.
UK places arrive in a cautious market. A poll conducted at the Real Estate Capital & Investment Decisions Forum in London on 29 September found that 48% of attendees felt less confident about the UK's prospects than a year ago, and another 35% said things felt about the same. Speakers through the day gave the same reasons: planning, rising build costs and the price of money. In a break, one asset owner told me he was selling down his UK portfolio and moving back into eastern Europe because UK interest rates no longer made his numbers work.
The mood in the room
How the room felt about the UK
48%
of attendees felt less confident about the UK's prospects than a year ago.
35%
said their confidence was about the same.
Live audience poll, Real Estate Capital & Investment Decisions Forum, RICS London, 29 September 2026
The people responsible for growing a city or region have no control over interest rates. They have more control than it might seem over the rest of what an investor weighs.
Every investment carries a premium for doubt
Investors price an opportunity in two parts. The first is what they could earn from a safe asset, and it tracks the base rate. On top of that they add a premium for everything they're unsure about. Is the site deliverable? Will the scheme get through planning? Will the partners still be in post in three years? Does the place know what it wants to be? The less certain the answers, the higher the return an investor needs before committing.
Place leaders can't touch the first part, but they have a lot of say over the second. Most know the questions investors will ask about land, planning, enabling works and the viability gap. Where places have more options than they tend to use is in what happens when the honest answer to that last question is "too big".
The viability gap is a pricing problem
A viability gap often means one kind of capital has been asked to carry all of a scheme's risk at a single price. A commercial investor prices the whole development at the return its riskiest part demands, and the numbers stop working.
Capital doesn't all price doubt the same way. Grant and public money can take a first-loss position. Impact investors will accept a lower or slower return in exchange for outcomes they can evidence, such as good jobs, skills or lower emissions. Commercial capital can then come in on the part that has been de-risked. Structured like this, each funder buys the outcome it values, and nobody has to price the whole risk alone.
That changes the pitch. A development described as units in a good location speaks to one kind of investor. The same development described by what it produces (who gets trained, who moves into a better-paid job, which neighbourhood gets connected to opportunity) opens conversations with several.
Treat the whole site as one business
Sometimes schemes reach the market as separate projects: a publicly funded anchor, such as an innovation centre or a skills facility, and a set of commercial plots beside it, each with its own business case. The anchor usually has capital to build it and little to run it. That's how a fine building ends up struggling a few years after it opens.
Treat the site as one business and the calculation changes. Rents from the commercial plots can contribute to the anchor's running costs, giving it income that doesn't depend on the next grant round. The plots become more attractive because of what the anchor offers the businesses that occupy them. And the public money already spent on the anchor starts working for the rest of the site. In effect, a place can borrow against the asset it has already built, and point investors to outcomes that accumulate for years, well beyond the jobs on the plots themselves.
Delivery can mix models across one site too: some freehold plot sales, some build-and-lease, perhaps a joint venture on a later phase. Each has a different viability gap, and each will appeal to a different investor.
Capture the value you create
Public investment in infrastructure raises the value of the land and businesses around it. Places that can capture some of that uplift can fund the next phase themselves. Newcastle and Gateshead did this through their 2012 City Deal. Its Accelerated Development Zone let the two councils keep all growth in business rates from four development sites, covering 80 hectares, for 25 years. They borrowed against that future income to fund a £92m infrastructure programme up front.
Few places have that exact deal on the table. The principle travels, though. Estimate the value your investment will create, and design ways to recycle some of it, through business rates, land value, ground rents or a stake in the scheme, into whatever comes next.
All of this takes work before any investor sees it. Modelling a blended structure or an integrated site means paying for feasibility and viability analysis up front, out of budgets that are already tight. From my work with authorities across the country, I don't think the key issue is access to capital. What's in short supply is the capacity to turn good sites into propositions this kind of capital can back. The private sector and purposeful capital can help at that early stage, funding the analysis or lending the expertise, and that early help lowers the premium for every investor who follows.
Relationships make complex deals possible
Structures like these depend on trust. An investor meeting a place for the first time at its stand is dealing with a stranger, and strangers don't agree to take a slice of a blended capital stack. An investor who has spent a year in candid conversation with that place already trusts its answers.
That trust grows faster when a place speaks with one voice. At events like EXPO REAL, places are often represented by several organisations at once: local and regional authorities, universities, innovation ecosystem anchors, sometimes public finance institutions. The most compelling places are represented by a crowd telling the same story about the same sites, with shared infrastructure that partners can plug into.
It also helps to look beyond the markets everyone else is courting. Latin American family offices and private wealth holders tend to invest patiently, through relationships, and much of their capital goes into real estate and hard assets. Few UK regions have a relationship with them. I made the case in July in 'The investors no one in your region is calling' for Real FDI.
That's the purpose of the UK–LatAm Investment Bridge, which I'm developing with Jaime Moreno of Acacias Capital. Acacias leads the conversations with investors in Latin America. Recurve works with a founding cohort of UK places to get them ready and into the room, with the relationships in place before the first meeting.
Build the relationship first
UK–LatAm Investment Bridge
With Acacias Capital, we're preparing a founding cohort of UK places to meet patient capital from Latin American family offices, with the relationships in place before the first meeting.
Places can build credibility
Credibility with investors comes from habits a place can learn. It builds relationships before it needs them. It agrees one story across its partners. It designs schemes so that different funders can each take the part that suits them. And it captures some of the value it creates, so that each phase helps pay for the next.
That's the thinking behind Local Power, Global Reach, the toolkit I've written building on insights from the Commission on Devolution and Diplomacy. It's made for place leaders in local and regional government, and for the universities, cultural institutions and economic development teams who work alongside them. It covers how to organise international partnerships, inward investment and purposeful capital, and it launches this autumn.
Launching this autumn
Local Power, Global Reach
A toolkit for place leaders on organising international partnerships, inward investment and purposeful capital. Join the waitlist for a copy on release, or see where your place stands today with a short self-assessment.
A stand at EXPO REAL is where a conversation starts. The months of work behind it decide whether there's a second meeting. The base rate will move on its own timetable, but the premium your place carries is yours to work on now, and I took some hope from that in a cautious room. If you're working to close a viability gap, build investor confidence in your place, or review your international partnerships strategy, email me at sam.markey@recurve.co or book a conversation.
With thanks to Courtney Fingar, Irina Gasson and the Property Forum team, and to my fellow panellists Juliet Gamlin, Richard Dawson and Jace Tyrrell.
Questions place leaders ask
Frequently asked questions
What is a risk premium in place-based investment?
It's the extra return an investor needs to cover uncertainty about a scheme or a place, on top of what they could earn from a safe asset. Doubts about land, planning, enabling works, governance or a place's priorities all add to it.
Can a council improve investor confidence if it can't influence interest rates?
Yes. Interest rates set the base return, but councils and their partners control much of what investors are unsure about. Ready sites, a clear planning position, one shared story and quick, consistent decisions all lower the premium an investor applies.
How can a council close a viability gap on a development site?
Look at how the scheme is structured before looking for more grant. Blended finance lets public or philanthropic money take first loss, impact investors take a slice at a lower return in exchange for evidenced outcomes, and commercial investors fund the de-risked remainder. Treating an anchor building and its surrounding plots as one business, and capturing some of the value public investment creates, can close more of the gap.
Why should UK places look to Latin American capital?
Latin American family offices and private wealth holders tend to invest patiently and through relationships, and much of their capital goes into real estate and hard assets. Few UK regions have built a relationship with them yet. The UK–LatAm Investment Bridge exists to change that.
What is Local Power, Global Reach?
It's a toolkit by Sam Markey, building on insights from the Commission on Devolution and Diplomacy, for place leaders organising international partnerships, inward investment and purposeful capital. It launches in autumn 2026. You can join the waitlist or take the Global Partnerships Readiness Check.