Oulook 2024: APAC infrastructure shows promise

As the investment landscape continues to shift, infrastructure investments in the region appear set to continue presenting opportunities for resilience and long-term success, driven by the growth of technology and the demand for renewable energy.
Oulook 2024: APAC infrastructure shows promise

Asia Pacific (APAC) infrastructure is emerging as an attractive asset class for investors in 2024 — but there are still challenges on the horizon.

Recent trends indicate growing interest in infrastructure equities and debt, driven by financing needs in sustainable energy and digitalisation, according to Jessica Hardman, head of European real estate portfolio management at German asset management firm DWS.

Jessica Hardman,

“Infrastructure equities are much more investable than in the past as well,” Hardman told AsianInvestor. “We are seeing a pickup in terms of transactions and investments in the last and current quarter. Infrastructure debt is also promising.”

“The asset class is benefiting from the need for financing in connection with megatrends such as the transition to sustainable, climate-neutral energy supply and digitalisation.”

There will also be an increased need for refinancing in infrastructure financing over the next two years since many debt instruments are due to expire. Interest rate premiums are currently attractive, she said.


Across sectors like energy, transport, and social healthcare, institutional investors can find promising prospects aligned with their strategies for long-term growth and effective defensive assets, according to Nicola Palmer, partner at QIC Infrastructure.

Nicola Palmer,

“Globally, energy transition and renewable energy continue to experience high levels of activity and we expect this to continue in 2024, including in the Asia-Pacific region. This outlook expectation aligns with fundraising trends, with energy transition funds securing the most capital in 2023,” Palmer told AsianInvestor.

Palmer expects that global investors will revisit infrastructure as an asset class in 2024 as they seek authentic inflation protection.

“However, they will be discerning and examine whether assets are providing true inflation protection and whether inflation can be passed through to customers,” she said.

The key investment themes that strongly support the investment case for infrastructure globally and in the Asia-Pacific region include decarbonisation, decentralisation, deglobalisation, and ageing demographics, according to Patrick Mulholland, partner at QIC Infrastructure.

Looking ahead to 2024, the Asia-Pacific region, particularly Australia, offers significant opportunities due to the global energy transition and the abundance of critical minerals, he said.

Patrick Mulholland,

“Australia’s attractive investment attributes and the significant investment still required in renewable generation and associated enabling infrastructure continues to draw significant global investor interest,” Mulholland told AsianInvestor.

“The opportunities for Australia to provide both energy and transport infrastructure to the critical minerals sector are real — Australia is one of the few countries in the world rich in critical minerals like iron ore, copper, nickel, and energy, that has firmly aligned itself to the US, which provides robust further investment support in the medium to long term.”


Institutional investors’ demand for data centres has been surging and will no doubt remain structurally strong in the coming years, and this demand is being turbo-charged by the AI revolution, according to Morgan Laughlin, head of global data centre investments at PGIM Real Estate.

“The classification of data centres as infrastructure is in the eyes of the beholder. However, we expect data centres to become a material component in the alternatives sector within the next five years and a material component of overall portfolios, in other words a mainstream investment, in the next 20 years,” Laughlin told AsianInvestor.

The opportunity in data centres is supported by structural growth of demand for data centre capacity across the APAC region, driven by the digitalisation trend.

Morgan Laughlin,

“With access to power becoming more challenging in a number of major markets, rental prospects for data centres remain robust against favourable fundamentals of solid demand and limited supply,” said Laughlin.

Within this asset class, Laughlin believes the biggest opportunities exist in hyperscale data centres, or large scale, high-specification data centres that serve the demand from cloud providers such as AWS, Microsoft, or Google.

“Hyperscale is expected to remain the strongest growth segment of data centres — but at the same time, it has the highest barrier for new entry — particularly in markets where power supply is limited, such as Tokyo, Seoul, Singapore, and major markets in Australia,” he said.

Rapid growth in artificial intelligence systems, particularly in AI training — the process of teaching these systems to perceive, interpret, and learn from data — is also spurring a huge incremental rise in demand for hyperscale data centres to host them, said Laughlin.

“Having initially been a niche real estate investment strategy, the strong market fundamentals of data centres – ranging from demand strongly outpacing supply, to long leases with annual escalators, as well as a lot of ‘under-rented’ assets — are combining to create a compelling investment story and evolution into an increasingly institutional asset class.”


Investors must still be wary of risks to infrastructure assets such as disruptive forces and macroeconomic factors, as well as high capital expenditures, according to QIC’s Palmer.

The past 15 years of infrastructure investment post-GFC has been very benign and positive.  But new megatrends have changed the market dynamic, causing investors to rethink their approach to this asset class.

“Disruptive forces include climate-induced natural disasters, transformative events like Covid, and the impact of conflicts [like Ukraine]. There is a material risk of further supply chain disruption in 2024 due to further tightening of trade restrictions between China and the West,” said Palmer.

The rise in interest rates has caused a retraction in liquidity. Growth capital is becoming harder to access and good businesses with a strong outlook but a need for growth capital are facing funding challenges, said Palmer.

“At the same time, the gap between buyer and seller valuations is increasing. This is opening up a large pipeline of opportunities for investors with capital, although investors are more discerning and conscious of relative returns across asset classes,” she said.

In addition, high inflation has challenged a subset of infrastructure businesses, particularly where they are facing increased costs of labour and where it is not possible to have full inflation pass through to customers.

“Supply chain issues from 2020 to 2022 have significantly increased the cost of goods required for development, particularly for energy transition such as turbines, solar panels, and batteries,” said Palmer.

In addition, significant rises in interest rates, energy, and labour costs in 2022 and 2023 have exacerbated the capital cost of project development. 

“The high capital costs of development are forecast to continue into 2024,” she said.

¬ Haymarket Media Limited. All rights reserved.