The infrastructure asset class has seen its performance continue to weather the higher rate environment. Data from a range of private market benchmarks now point to another strong year of equity returns in 2023, although conditions in 2024 for businesses will remain challenging from a macroeconomic perspective.
Sectors with a high reliance on capital expenditure have been under the greatest scrutiny from the prevailing rate environment and have thus seen pressure on valuations. Elevated construction and labour costs compounded the pressures from an increase in the cost of capital.
As interest rates fall, we expect the transaction market to gather pace, which should address the liquidity constraints in the fundraising market. The delay in cutting rates and resultant reticence to bring assets to market has replaced the denominator effect as the key factor impacting fundraising.
Elections continue to be front-of-mind for infrastructure investors, and appetite for data centres continues to grow. Although the additional AI-driven demand has bolstered an already bullish pipeline, cloud storage, data sovereignty and capacity constraints are all factors that are expected to drive additional data centre requirements.
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