2021 Australian Infrastructure
Investment Report

Infrastructure Partnerships Australia and Allens have partnered to jointly present the 2021 Australian Infrastructure Investment Report.

Overview

Message from the CEO
Investor Appetite
Broadening Definitions
ESG Investments
Investment Limitations
Interactive Report

Download Full Report

This year’s report captures the views of international and Australian investors who collectively own or manage over $570 billion of infrastructure assets across the globe.

Our report, in collaboration with Allens, provides a comprehensive view of investor appetite and sentiment and reveals insights into the drivers and challenges for infrastructure investors.

Message from the CEO

The 2021 Australian Infrastructure Investment Report marks the sixth edition of this research, and it remains the most comprehensive sector-wide analysis of the trends, issues and opportunities facing current and prospective investors in Australian infrastructure. With the previous edition having been undertaken in the second half of 2019, this report provides an important temperature check for the Australian market as the pandemic persists.

With governments adding to already record spending on infrastructure as a source of economic stimulus, we are at a critical moment. Understanding how investors’ priorities have shifted and addressing barriers to investment will be crucial to leveraging private capital through Australia’s economic recovery from COVID-19.

Australia remains a compelling infrastructure investment market, buoyed by a positive early response by governments to COVID-19. Our economic resilience and effective early management of the pandemic solidified our reputation as a mature and reliable home for investors’ capital. This response, in combination with factors that have attracted investors to our domestic infrastructure market – including economic stability and a strong track record – underpin a confidence that even those asset types hardest hit by COVID-19 will bounce back over the medium term. Yet, a timely COVID-19 vaccine rollout remains key to retaining the early momentum which has seen Australia solidify its position as an attractive infrastructure market.

However, a lack of opportunities, the cost and complexity of bidding and policy instability are starting to bite. These positives are being counteracted by a range of challenges. Perhaps a victim of our own success, more investors are fighting for fewer deals, while research participants have also highlighted high costs and complexity of bidding as key issues. This is compounded by ongoing policy and regulatory uncertainty, most particularly in the energy sector. These factors increase risk without commensurate reward for investors, and undermine confidence in long-term investments.

Australia also risks being left behind by other regions on ESG investment. ESG has become a key factor in investment markets. Of those surveyed, 93 per cent believe ESG has grown in importance in the last two years, and all participants see its role growing over the next five years. In this context, investors’ preference for social infrastructure and renewable energy assets has grown markedly.

But Australia risks being left behind by more progressive, capital-hungry markets. Despite a clear preference to invest in renewable energy assets over fossil fuels, Australia still lacks a coherent set of decarbonisation policies. These could catalyse investment in more sustainable energy, transport, waste and construction projects. In the absence of policy and regulatory clarity in this area, investors are increasingly drawn to the US and EU, where ESG-friendly opportunities are more plentiful and backed up by strong public policy objectives.

We cannot afford to rest on our laurels given the growing competition for capital and the upside of getting it right. With other regions – most particularly the US and EU – re-emerging from the pandemic and also pulling the stimulus lever, getting our domestic investment settings right is more important than ever. The message from investors was clear, capital is a coward and will go where it is treated well – so maintaining Australia’s position as a destination of choice will require renewed focus on the settings that attract and retain capital in this market.

We thank each participant for their contribution to the sixth Australian Infrastructure Investment Report.

Adrian Dwyer
Chief Executive Officer
Infrastructure Partnerships Australia

David Donnelly
Partner
Allens

Appetite for Australian infrastructure is strong, but there is uncertainty

There is evidence of growing uncertainty in the Australian infrastructure market following COVID-19, with the decline in ‘highly likely’ responses directly correlated to the growth in those ‘considering’ investing.
Economic stability remains the primary point of attraction for investment. It has remained unchanged as a positive for Australia’s infrastructure investment environment since 2019.

Australia’s track record for infrastructure and knowledge of market participants slipped six and 13 percentage points respectively, but remain dominant attractions for investment in Australia.

What makes Australia attractive for Infrastructure Investment

Investors are broadening their definitions of infrastructure and moving up the risk curve

Limited opportunity and greater competition in traditional core assets is broadening the definition of ‘infrastructure’ as investors look toward core-plus assets. Some participants suggested organisations are investing in ‘themes’ and thus have a more agnostic view of asset classes.

There was clear consensus that COVID-19 has accelerated a race towards telecommunications and data-related assets, with the digitalisation of the economy regarded as a dominant and lasting trend. Participants explained that digitalisation, which may have otherwise occurred over three or four years, is now occurring within a few months.

However, participants made it clear that some risks and opportunities associated with telecommunications are difficult to quantify over the long term. Moreover, participants highlighted a more limited set of telecommunications and digital infrastructure investment opportunities in the Australian market compared to the rest of the world.

Preferred Australian asset types to invest in

ESG is a growing investment driver for traditional and emerging assets

ESG has evolved into a key decision-making factor for investors. While ESG and social licence considerations have been recurring themes but secondary drivers of investment in past years, they now sit at the forefront of investors’ mindsets.

Participants noted Australia is a clear leader in governance, but in the social and environmental space, Australia lags behind European markets.

Investors’ interest in social infrastructure is growing. This year, investment appetite for social infrastructure reached record levels, overtaking roads as the top preference for the first time. Participants explained that pandemic-related factors such as population redistribution, pressures on health and education systems, as well as ageing populations, have accelerated the demand for social infrastructure assets. Participants also highlighted that social infrastructure assets are largely shielded from the negative effects of COVID-19 and meet ESG objectives.

Factors that are more important investors compared to two years ago

Investors see limited opportunities, competition and high costs of bidding

Australia is highly competitive and there aren’t enough opportunities for investors. The largest challenge facing Australia to emerge from the qualitative interviews was the level of competition and lack of opportunities presented in the Australian infrastructure market. There is a perceived risk that the crowded market and limited number of opportunities is feeding into pricing.

The cost and complexity of bidding are seen as major domestic challenges. The cost and complexity of bidding have emerged as the two largest challenges identified by investors in Australia. These results represent the two largest increases from 2019. Competition for assets remains as one of the top three challenges for investors in Australian infrastructure but can also be seen as a result of a historically attractive market.