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Three reasons to invest in infrastructure or commercial property


This article explores why commercial property and infrastructure assets are attractive to investors in their ongoing search for yield.


 

In a low interest rate world, cash deposits are likely to continue to provide poor returns for some time. Coupled with ongoing market volatility, investors are looking for assets that provide stable and consistent income.

Investor search for yield, inflation hedging and low correlation with other asset classes has led to a rise in allocations to infrastructure over the past five years. Commercial property has also proven to be a popular choice with investors, due to its defensive nature, diversification benefits and income potential.

So how do these asset classes offer value in a low-interest rate and highly volatile economic environment?

Commercial real estate

Infrastructure

What are the risks for investors?

The overall scale of risk when investing in both commercial property and infrastructure sits between bonds and shares; the income is more secure but has less capital growth potential than shares.

The search for yield is a positive tailwind for commercial property, helping to lift prices., rental growth is lagging which could lead to pressure on property values for low rental growth assets if there is a sharper than expected rise in interest rates later in the decade.

Within infrastructure, regulation and contract security are key areas for analysis. Regulation varies significantly around the world and can change, so understanding the different regulatory environments is important.

Similarly, understanding the contracts that infrastructure companies have is crucial to analysing the long-term value of a company.

Typically, long-term investors like commercial real estate for the stability it provides in an investment portfolio, the long investment cycle periods and high potential to generate yield.

In a low interest rate environment where investors are chasing yield, asset classes that exhibit defensive and stable yield profiles, along with strong growth potential, are obvious candidates for a long-term investment strategy.

About the author
Tim Humphreys is the head of AMP Capital’s Global Listed Infrastructure team, based in the Sydney office. He also leads the research effort of infrastructure companies in the Americas. Tim has over 15 years’ experience in the financial industry in the UK and Australia and is a skilled infrastructure analyst.
Michael Kingcott is the Head of Property Investment Strategy and Research at AMP Capital leading commercial property research and investment strategy.
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The infrastructure opportunity for SMSFs

Have you considered investing in core infrastructure to achieve your investment goals?

Infrastructure offers compelling investment benefits including stable long-term cash flows, which are often inflation-linked, from assets with dominant market positions.

Infrastructure has become increasingly popular with investors looking to improve the resilience and diversification of their portfolio.

Find out more about AMP Capital's direct infrastructure offering, including benefits and risks.

Learn more

Sign up to our newsletter!

Receive regular insights and marketing communications including a weekly update of tending news and market insights that are tailored for SMSF trustees and investors.
AMP's Australian operations are bound by the current Australian privacy legislation which outlines how organisations should manage and use personal information collected and held about their customers. AMP Privacy Policy
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