Principal, CIO, Infrastructure, CBRE Clarion
CBRE Global Investors, combined with CBRE Clarion Securities and CBRE Caledon, is one of the world’s leading real asset investment managers providing real estate and infrastructure investment solutions to over 500 clients worldwide.
CBRE Global Investors is the investment management division of CBRE Group, Inc. the world’s premier commercial real estate services and investment firm. The company’s shares trade on the New York Stock Exchange under the symbol “CBRE.”
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In this uncertain environment, we believe listed infrastructure offers investors a higher level of certainty and predictability by providing consistent cash flows, which are relatively unaffected by unexpected macro events. The main drivers of listed infrastructure’s relative stability and growth potential are:
Listed infrastructure companies in the developed markets own an estimated $6.1 trillion1 in infrastructure assets globally. We estimate that these companies will spend $200 billion annually, upgrading, replacing, and expanding their existing assets. On the asset base of $6.1 trillion, that means an annual growth rate of 3.2%. This growth rate is organic and repeating and undertaken regardless of the next uncertain macro event.
Exhibit 1 below shows the intensity of annual capital spending across each infrastructure sector. What is important for infrastructure investors is that this investment is being made under a regulatory structure which provides companies a high level of certainty into the rate of return that will be achieved.
Political pressure to decarbonize continues to mount in industrialized countries, and curbing the greenhouse effect has become a decisive factor for energy policies worldwide. Decarbonization goals in the energy sector can be achieved by shutting coal power plants down and replacing them with renewable and natural gas-fired generation. Under the current regulatory policy, electricity generation from renewables increases rapidly, surpassing coal by 2030. Renewables contribute three-quarters of electricity supply growth to 2040, underpinned by policy support in nearly 170 countries and falling costs. Coal-fired output remains broadly flat, though its share declines significantly, while natural gas and nuclear power maintain their shares.2
Communication infrastructure growth revolves around the increasingly data-intensive nature of wireless traffic as well as the Internet of Things (IoT). Companies in the Communication sector are investing heavily in their assets to meet the non-cyclical demand of increased online traffic and connected wireless devices. We expect this investment to generate consistent cash flow growth for companies in the sector for the benefit of their investors.
In an uncertain environment, infrastructure assets offer investors relatively predictable growth. The growth is secured by required investment in aging infrastructure, as well as new investment in decarbonization and data growth. Listed infrastructure companies are well placed to benefit from these trends, and we believe will offer investors attractive risk adjusted returns.
1Source: CBRE Clarion as of 09/30/2019
2Source: International Energy Agency World Energy Outlook 2019, https://www.iea.org/reports/world-energy-outlook-2019