Investors continue to show strong appetite for real assets


17 / 06 / 22 - 3 minute read

The rush to meet global Sustainable Development Goals has created a growing demand for infrastructure, which is opening many attractive investment opportunities

The modernisation and improvement of infrastructure are critical to achieving the global Sustainable Development Goals (SDG). As estimated by the OECD, annual infrastructure investments of $6.9 trillion will be required until the end of the decade.

While global infrastructure has suffered a lack of public investments in the past decades, investors have become increasingly interested in the stable, long-term income many infrastructure assets offer. Thus, the global Assets under Management (AuM) in infrastructure are expected to outgrow investments in real estate and reach nearly $1.9 trillion by 2026.

Author

Markus Rüther

The positive sentiment of PATRIZIA clients reflects the long-term trend for infrastructure investments. Sixty-four per cent of institutional investors responding to the second PATRIZIA Investor Survey plan to expand their share of infrastructure investments in their portfolio. Conducted in spring, the survey found 20% of PATRIZIA clients even expect a significant expansion – by more than 10% – of their infrastructure holdings over the next five years.

The results confirm global trend towards infrastructure investments. According to Preqin, nearly half of global investors plan to increase their long-term allocation to the asset class, with just 7% intending to reduce it.

“Infrastructure is a prime source of stable incomes for long-term investors,” says Tom Maher, Managing Director of Infrastructure at PATRIZIA. “Addressing megatrends such as climate change, urbanisation and the ageing of populations require tremendous infrastructure investments. So, we are beginning an infrastructure super-cycle that will provide investors with attractive investment opportunities.”

PATRIZIA’s institutional investors see portfolio diversification, stable returns, attractive risk-return profiles and hedging against inflation as critical benefits for investments in infrastructure. To receive the benefits of investing in infrastructure, investors prefer funds (48%) or direct investments (33%) in infrastructure equity over investments in listed infrastructure companies, debt, or funds of funds.

In growing their infrastructure investments, they prefer renewable energies. Nearly 80% of investors desire to increase the weighting of renewable energies in their portfolio over the next five years, of which about 20% intend to increase the share by more than 10%. Besides renewable energies, investors express the most interest in utilities, transportation, and social infrastructure. For example, nearly 60% expect to increase the weight of social infrastructure in their portfolio.

Real estate portfolios continue to grow in parallel

PATRIZIA investors plan to expand their share of infrastructure investments but not at the expense of their real estate positions. Instead, they want to grow exposure to both real asset classes.

In parallel to investing substantially in infrastructure, they continue to expand the real estate share in their portfolio. Sixty-one per cent of investors plan to grow their portfolio shares in real estate (including 14% that expect to increase the share by more than 10%). Investors particularly look to increase their positions in Logistics, Residential and Alternative Living, such as student and senior housing.

“The appetite for real estate and infrastructure investments remains strong,” concludes Maher.

“Both asset classes will be more and more combined to address global key trends in the future. For example, combining infrastructure and real estate solutions will help make cities smarter and allow local communities to have better solutions for sustainability, urbanisation, and demographic change. At the same time, smart cities infrastructure investments will allow investors to achieve the stable, long-term returns they are looking for.”

Conducted in spring, the survey is based on responses from 107 institutional PATRIZIA clients.

Markus Rüther

Markus Ruether, Director at GAULY Advisors, has been a communications professional for about 20 years and woked with PATRIZIA for more than four years.