23 / 10 / 23 - 5 minute read
In a 1964 BBC interview, famed science fiction writer Arthur C. Clarke envisioned a world 50 years in the future where everything was interconnected – a world where a person could function remotely from Tahiti or Bali as efficiently as from London. Fas
Digitalisation, however, is about more than working from the Maldives or attending Zoom birthday parties long distance. The pandemic underscored the indispensable nature of high-speed, reliable internet, marking digitalisation as not just a convenience but a necessity. And with five billion people online as of 2022, the digital realm's expansion is relentless.
The UN's ambitious 2030 goal of universal and affordable internet access – creating a world where 8.5 billion people can access the internet affordably – will accelerate this growth. But data creation, already rising near-exponentially, is expected to surge over the coming decade, driven not only by an increasing number of internet users but heightened bandwidth demand.
The implications? The latest PATRIZIA Infrastructure Insight delves into the topic. In short, there is an urgent need for robust digital infrastructure, reliable networks, vast data centres and swift internet speeds.
Juatin Webb, Managing Director - Infrastructure Investment Solutions at PATRIZIA explains that digital infrastructure was a niche investment sector only a few years ago. Now, as the world hustles to keep pace with its digital appetite, this asset class is mainstreaming.
“Until only recently, digital infrastructure was considered a very specialised asset class. But with deal activity in the sector on the rise and investors appreciating the diversification it can provide in the face of market volatility, it is rapidly becoming a staple in diversified infrastructure portfolios.”
Over 60% of the global population uses the internet, but regional variations exist
Source: PATRIZIA, International Telecommunication Union (via World Bank, Our World in Data)
Necessity creates opportunity
The pandemic's market upheavals reshaped investment strategies, underlining diversification's importance in maintaining robust cash flows. Digital infrastructure offers returns uncorrelated to conventional GDP-linked assets, making it an enticing addition to modern portfolios.
Digitalisation isn't just a linear progression. The rapid ascendancy of technologies such as artificial intelligence, the Internet of Things (IoT), high-quality video streaming, cloud computing, and autonomous vehicles has transformed bandwidth needs.
And here lies the investment opportunity. As governments grapple with funding constraints, especially post-pandemic, the private sector is poised to fill the void.
“Reliable fibre networks and data centres have become premium assets, no longer the niche they once were, but the mainstream of a forward-thinking investor's portfolio,” says Justin Webb.
“From communication towers to fibre, and from data storage to smart cities, the spectrum of investment is vast. Skilled asset management and understanding the nuances of this complex industry can yield strong returns.”
Chat GPT eclipsed 100 million users in just two months
Source: PATRIZIA, Statista
The mainstreaming asset class
This growing demand has shaped PATRIZIA Infrastructure’s flagship strategies, addressing digitalisation’s incessant pull. Localcom and Connexin are prime examples. While Localcom is boosting rural connectivity in Spain, Connexin, based in Hull, UK, focuses on constructing and managing broadband and IoT infrastructure across the north of England.
The race to a 'smart' future also resonates in PATRIZIA’s smart city strategy, anchoring the primary layer of digital infrastructure required for implementing smart city solutions. PATRIZIA has also committed to SiFi Network’s projects to build fibre-to-the-premises (FTTP) networks across six cities in North America.
These city-wide networks will provide the backbone of future smart city infrastructure in these cities. PATRIZIA is also a direct equity holder in SiFi Networks America, the developer of the city projects. SiFi operates an open access network where homes are passed with fibre, and customers can choose any number of internet service providers (ISP) rather than being captive to one company providing the infrastructure.
PATRIZIA has also invested in a growth platform for smart street lighting in rural municipalities in Italy through the purchase of two companies: Ottima and Selettra. The companies, operating under long-term concession contracts with local municipalities, upgrade old street lighting to modern LEDs, which provide c.60-75% savings in electricity costs. The companies also provide heat management and add-on smart city services, such as CCTV, Wi-Fi and smart traffic lights.
Digital infrastructure consists of three main asset types
4 International Monetary Fund, February 2023, Estimating Digital Infrastructure Investment Needs to Achieve Universal Broadband
Navigating the digital frontier
What makes digital infrastructure alluring for investors? High barriers to entry, consistent cash flows, and essential service provision make it a prime candidate for astute institutional investors. The demand for internet access is expected to only accelerate from here, independent of economic tides, reinforcing digital infrastructure's place in diversified portfolios.
As digitalisation continues its growth, infrastructure investors are presented with an opportunity to invest in digital assets. However, the digital realm's innate intricacies, often complicated by swift technological advancements, demand skilled asset management. Proficient deal evaluation, regulatory navigation, and operational finesse will define success in this dynamic market.
For professional clients only, download the PATRIZIA Digital Infrastructure Insight Report.
"It was only three decades ago that the internet became
publicly available. Now it influences nearly every aspect of our lives.
The digitalisation trends described in this section will continue
to transform our lives. But behind that transformation lies
significant opportunities for infrastructure investment."
Justin leads Investment Solutions which is responsible for providing strategic advice and building investment strategies for institutional and government clients. Justin’s particular fields of expertise center around developing and managing investment risk management strategies and developing alternative asset portfolio plans for institutional investors, focusing on liquidity and illiquid asset investment programs.
Justin is a Chartered Accountant and a member of the Australian Institute of Company Directors with extensive experience in infrastructure investment, corporate finance and financial modelling together with performance analysis, reporting and alternative asset management. Justin sits on PATRIZIA’s Listed and Unlisted Infrastructure Investment Committees and is a member of PATRIZIA Infrastructure’s Valuation Committee.
Managing Director Infrastructure Investment Solutions
Nicole conducts research on trends and market developments in infrastructure across a variety of sectors and geographies, and authors research briefs and insights for current and prospective clients. She is also responsible for the coverage of currency research and manager monitoring, including for PATRIZIA’s asset consulting clients.
Prior to joining PATRIZIA in 2016, Nicole worked for Morneau Shepell, a Canadian human resources consulting firm, where she was responsible for conducting asset liability studies and investment manager selection for the firm’s defined benefit and defined contribution pension plan clients. Nicole has a Bachelor of Science (Mathematics and Economics) from Mount Allison University in New Brunswick, Canada.
Harrison is a member of the Investment Solutions Group and is involved in producing research papers for PATRIZIA Infrastructure, with a particular focus on applying modelling and analysis to his research. Harrison is also involved in business development across PATRIZIA Infrastructure, and is currently based in London alongside many of the fund teams. He previously worked at Deloitte, where he undertook financial modelling of infrastructure and economics projects across both the public and private sectors. Harrison has a Bachelor’s Degree in Finance and Economics from the Australian National University.