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Transport infrastructure back in sights after subdued period

Image: joyt/AdobeStock

Interest in infrastructure assets is returning as the effects of the pandemic wane – but the sector faces several challenges. Nicol Dynes reports.

Investors’ appetite for infrastructure assets waned during the pandemic, but is now coming back strongly and prospects for 2022 are good.

“There was a significant dip in investment flows in transport infrastructure because of Covid-19, but it’s a cyclical play and we are seeing more volume as the economic recovery takes hold,” says Tania Tsoneva, senior director, global infrastructure research, at CBRE Investment Management.

The recovery is providing momentum and Europe-wide government drives to ‘build back better’ have highlighted the need for significant investments in the sector.



“The volume of transport infrastructure transactions has been good recently,” says David Pedler, director, transaction services, at PwC. “Awareness of the infrastructure gap has led to positive initiatives and extra impetus to invest. The appetite remains very strong and we’ve seen significant deals across all segments.”

The impact of the pandemic has varied significantly depending on the segment, with some areas barely affected while others were severely hit and continue to suffer. “Some pockets of transport infrastructure were not impacted by the pandemic at all, like ports,” says Tsoneva.

Investors still have confidence in the right infrastructure assets, but are staying away from sectors they see as problematic. “There’s been more transaction activity in shipping and rail and there have been some big deals in toll roads,” says Pedler. “The highest level of hesitancy is in the aviation sector because despite the expectations of a rebound it has not gone back to pre-covid levels.”

Aviation’s muted bounce back

Previous events, such as the GFC and the Icelandic volcanic ash cloud, have affected aviation, but the sector always bounces back. This time, however, investors are likely to remain cautious because the outlook is uncertain.

Even within aviation, however, there are distinctions to be made. “Anything that has a cross-border aspect is problematic and international travel will remain impacted by restrictions for a while yet,” says Tsoneva. “But in countries with strong domestic travel even aviation is recovering.”

‘Anything that has a cross-border aspect is problematic and international travel will remain impacted by restrictions for a while yet.’

Tania Tsoneva, CBRE Investment Management

Now that most countries are recovering from the pandemic and the economic crisis, investments are set to pick up. “Demand for investment remains high and as the recovery takes hold in Europe we expect many more transactions and a robust market going forward,” says Pedler. “There are huge opportunities in electric vehicles and in decarbonising the transport infrastructure.”

One of the key themes in the infrastructure sector now is the green transition and transformation, experts agree. “Technology has been so disruptive to our industry bringing about change almost on a daily basis, so there has to be a constant effort to understand and adapt,” says Ben Segelman, head of capital markets UK, Ireland, Mainland Europe, Middle East and Africa, at DHL Supply Chain. “We expect technology to keep coming up with new, innovative solutions.”

DHL is aiming to reach net zero emissions by 2050 and is making huge investments to reach that goal, from electrifying its van fleet and using ‘green’ fuel in aviation to technology that helps drivers find a quicker route to their destination.

“It entails a huge change in the way we operate but it’s the combination of all those small changes that leads to a general improvement and will help us reach our sustainability objectives,” explains Segelman. “It is what our customers want, a better greener future.”

Greener transport

DHL’s large fleet of planes now includes eight entirely electric versions and in London it has invested in river boats, which are a speedier as well as greener alternative to using roads.

“We’re making substantial investments and seeing the benefits, but there’s a long way to go,” adds Segelman. “Our scale allows us to shoulder these additional costs, but smaller groups would struggle with that.”

DHL’s fleet of 12 zero-emission eCargo aircraft will form world’s first electric Express network


The need to move to net zero goals is affecting transport infrastructure significantly, but besides the cost of investing in new technologies there’s also the uncertainty of which ones will perform and which might become obsolete.

“We are about to enter a very exciting stage in technology,” says Tobias Kassner, head of research at Garbe Industrial Real Estate. “Germany, like other countries, is experimenting with electric vehicles and hydrogen, but only time will tell which technology works best.”

A lot of attention is paid to the rollout of charging points for electric vehicles, but there is a risk of the infrastructure becoming outdated and assets becoming stranded. “Elsewhere in the world they are working on batteries that you can change, so you don’t need the charging point infrastructure anymore,” notes Kassner.

Private capital will only get involved in a big way once things are more predictable and there is a business model that works, says Tsoneva. “We’re at the beginning of the electrification journey and Europe is leading the way. But it is still unclear how it will be rolled out and who will pay for it, there is finance and technology risk.”

In the end it will have to be a combination of different solutions that together change the picture. “It will be a journey,” adds Tsoneva. “You cannot bet on one solution but all options must be kept open. You have to keep monitoring development in electrification, hydrogen and all innovations because the market is changing all the time.”

‘If automated driving became the norm that could solve the shortage of drivers issue and also the parking issue as trucks could drive at night.’

Tobias Kassner, Garbe Industrial Real Estate

Logistics assets’ attractiveness will depend on how green they are but also on their location. “There was a great shortage of labour and land even before the pandemic, but now it has got worse,” says Kassner. “As people demand ever faster deliveries and one-hour time slots it has become essential to be closer to where people live.”

The issue is that there is no available land and costs are high. “One option is extending the life of existing stock,” continues Kassner. “People still focus on the risks in distressed assets, but if they are located near metropolitan areas then transport costs will be low.”

Given the challenges the sector faces, adapting to change applies not only to modes of transport and new technologies but also to different locations.

“From a real estate development point of view we’ve always been told to locate on the transportation hubs and what logistics operators like DHL wants is a reduction in the cost of its transportation fleet,” says Segelman. “But at the moment at DHL we’ve recognised that it may be worthwhile to increase the cost of the transportation routes to be located closer to the labour resources.”

So the new rule is follow the workforce, rather than the money. Shortage – or even lack of labour in some areas – has become the main issue.

“Labour has become the key driver for us,” Segelman adds. “We employ 500,000 people globally across DHL and it’s incredibly difficult to ensure staff retention and have the ability to guarantee that all of our facilities are properly resourced.”

More people needed

Despite all the automation that has been put in warehouses and despite the potential for driverless vehicles in the future, at present a lot more people are needed to run the operations.

“The political agenda wants to move freight off the road, but we haven’t seen a significant shift,” says Garbe’s Kassner. “Volumes transported by road increase every year. It would be nice to transport everything by train, but it’s just not feasible at present.”

But technology could solve many problems in the years ahead, he suggests: “If automated driving became the norm that could solve the shortage of drivers issue and also the parking issue as trucks could drive at night.”

Even drones could play a part at some point in the future. “We’re investing in drone technology and continue to monitor and engage with it, but authorisations now are a real obstacle to a mass rollout,” says Segelman. “But it’s just a matter of time. In the next 10 to 20 years drones will be integrated in the supply chain.”

The labour shortage issue is now being recognised across the industry because it is leading to significant changes in companies’ choices, but it can still raise questions with investors.

“We sometimes get asked why have you not built inside of the golden triangle in the UK or why have you not built in a capital city in Europe?” says Segelman. “There are reasons why and more often than not they are fuelled by the understanding of the operations inside the warehouse rather than just what traditionally we have been told was a good thing.”

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