Government spending at a time of economic crisis, as well as the heightened sense of ‘green’ investing, are both drivers for non-listed infrastructure investing. Another is the return of inflation.
Mark Chladek (Head of brownfield transactions, Infracapital)
Tania Tsoneva (Senior director – global infrastructure research, CBRE Investment Management)
Anita Lyse (Group sector head – real assets, Alter Domus)
Funds Europe – What are Europe’s infrastructure needs, to what extent is there government support for infrastructure development, and how would infrastructure investment make our societies better?
Tania Tsoneva, CBRE Investment Management – We have relatively high-quality infrastructure in the UK as well as in Europe. However, infrastructure investment has diminished over time, probably due to sovereign balance sheets being under pressure. We went through the financial crisis, then the sovereign debt crisis, so we saw a declining trend and there is going to be a need for catch-up.
The drivers of infrastructure investments going forward are going to be decarbonisation and digitalisation. Europe is the role model when it comes to the energy transition and the greening of the power generation fleet. The UK has the National Infrastructure Plan until 2050, Europe has the EU Recovery funds, the ‘Fit-for-55’ initiative, and the European Green Deal. From an investor’s point of view, there are ambitious targets and a lot of plans, but we also see diminishing returns on capital in some of the sectors, especially in UK-regulated networks.
I expect to see the most investment in the power sector. In the UK, if you look at what National Grid has set for the next five years, about £8 billion (€9.3 billion) of investment, it’s all going into the reinforcement of the grid to accommodate the accelerated growth of renewables and electrification of transport. But how do we attract so much private investment when regulators are reducing equity returns?
Mark Chladek, Infracapital – A few years ago, the European Investment Bank (EIB) identified that there is a requirement for €335 billion per annum to be invested in European infrastructure. Across all sectors, there is a massive demand for new investment. We are seeing this as an opportunity across the entire infrastructure spectrum including sustainability and security of energy supply, digital services and connectivity, cleaner transport and logistics solutions… it’s a long list.
As an infrastructure investor, we have been very active investing in businesses where there is significant growth through new capital investment, for example smart meters, fibre to the home and electric vehicle charging infrastructure.
Anita Lyse, Alter Domus – When we speak with our clients and prospects, the theme that comes back again and again is anything with the word ‘green’ in it. People are increasingly investing in wind farms, solar, recycling – the environmental component of the new fund projects that our clients have is very much present.
Then you have digitalisation, as well as data centres, which have become quite popular among both infrastructure and real estate investors – it’s an asset class that sits well across both.
So, I really agree with the two themes that Tania brought up – the energy transition, so decarbonisation, and digitalisation, that’s what we see from our clients. There are, of course, new funds being launched that invest in more traditional core infrastructure, but yes, green is very much a key word out there.