The lines between private real estate and infrastructure are increasingly blurring, a trend largely driven by the growing scarcity of power and the potential for greater returns. This convergence is not just about investors shifting capital from one asset class to another; it’s about recognizing that the demand for power presents an opportunity to serve with on-site supply.
Industry leaders are taking notice. Jacob Monroe, co-founder and CEO of London-based energy advisory firm Camion Energy, argues that investors who can see past the binary of infrastructure versus real estate will gain a competitive edge. This sentiment is echoed by Raj Agrawal, global head of real assets at KKR, who points out that electrification is not just a data center phenomenon but a trend sweeping across sectors, from transportation to heavy industry. As the power grid ages and demand rises, energy constraints are reshaping decisions across the real estate sector.
The response from the industry has been a wave of mergers and closer collaboration between real estate and infrastructure platforms. Australian superannuation funds, London-based insurance companies, and sovereign wealth funds have all taken steps to unify their real assets platforms. Manuel Dusina, head of real assets at Phoenix Group, emphasizes the critical need to find ways to power new asset classes that will drive future mega-trends. On-site power generation is seen as a key solution, offering cost savings, energy independence, and a reduced carbon footprint.
Even without formal mergers, power scarcity is fostering closer collaboration between real estate and infrastructure teams. Julie Ingersoll, CIO of Americas direct real estate at CBRE Investment Management, highlights how access to power is now a major concern for assets beyond data centers. This shift has made collaboration with infrastructure teams crucial for asset selection and deployment strategies.
Prologis, a global logistics powerhouse, has been an early advocate for close collaboration between its real estate and infrastructure teams. The company has invested heavily in on-site power generation, with rooftop solar installations producing over 550 megawatts of power across its logistics assets. JT Steenkamp, vice-president of projects and technology for Prologis Mobility, underscores the importance of being an infrastructure player in the 2020s and beyond.
The widening issue of power constraints is not limited to data centers. Industrial assets, retail buildings, and other sectors are increasingly facing power challenges. As demand for electricity grows, there will be greater pressure to create flexibility from the grid by enabling on-site power generation. This trend is expected to drive continued convergence of real estate and infrastructure platforms, with stronger returns from assets that combine the two.
However, combining real assets also poses risks. Hugo Llewelyn, CEO at Newcore Capital Management, warns that insufficient analysis and communication of risks to investors could lead to problems. As the industry navigates these challenges, the convergence of real estate and infrastructure is set to reshape the sector, creating new opportunities and challenges for investors and managers alike.