Richard Marshall, head of research, infrastructure at German asset manager DWS, shares his insights on the outlook for infrastructure in the second half of 2024, highlighting how the asset class has seen its performance continuing to weather the higher rate environment.

Despite the challenging macroeconomic conditions, the infrastructure asset class performed strongly over 2023, and Richard Marshall (pictured) at DWS is optimistic about the outlook in the second half of 2024.

Marshall sees value in the European midmarket for the infrastructure asset class in 2024, given the potential for diversification, value and a strong regulatory environment. Within this context, political risk remains an issue for investors and the digitalisation thematic draws attention to data centres and their role in facilitating the growth of artificial intelligence (AI).

He believes that much of the political risk for the infrastructure market may materialise in the second half of 2024. Numerous elections across Europe have taken place in June and July, resulting in shifts in governing power, for example, in the UK and France. While there will be resultant changes in policy, Marshall is positive on the European infrastructure market because of the broad-based strength of the policy foundation for infrastructure.

Amidst elevated political risk and a transaction market that remains subdued, Marshall thinks that data centres remain an infrastructure sector that attract significant investor interest and their valuations have been more resilient relative to other digital assets. “Data centre market capacity forecasts were already bullish prior to the release and early adoption of artificial intelligence capabilities, but now further capacity is expected to be required. In Europe alone, AI-dedicated capacity could potentially drive 25 per cent of data centre growth up,” Marshall said in a note. The spread between conservative, baseline and optimistic market scenarios for future data centre capacity growth is wide, but certainly capacity demand is set to increase.

Marshall expects three key trends to drive market development.

-- Beyond the AI story, he believes that growth in cloud service requirements should remain the chief driver of data centre demand as the digitalisation of industries gathers pace;

-- As with other sectors, he thinks there is a drive within Europe to increase domestic data storage to ensure that data is held under the jurisdiction of national data privacy laws; and

-- As AI becomes viewed as a strategic sector by governments, there will be a greater need to have domestic processing power to develop national AI capabilities.

Combined with the desire to develop more domestic data centre capacity, Marshall highlighted how the saturation of existing data centre markets such as the FLAP-D (Frankfurt, London, Amsterdam, Paris and Dublin) region, could see the development of new data hubs, predominantly where land prices and data centre development costs are lower and there is available renewable energy and grid connectivity.