Alternatives to fight inflation in real estate and infrastructure

With inflation running high and the risk of a recession rising, some investors may want to consider alternatives in real estate and infrastructure.

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According to Larry Antonatos, managing director and portfolio manager with Brookfield Asset Management, alternatives have strong, specific fundamentals, as well as fewer investors participating, so they could present attractive investment opportunities. 

For example, in real estate, student housing and life sciences buildings could be considered specialized forms of residential and office. 

That said, more traditional real estate categories such as residential, logistics and retail were also greatly impacted by the pandemic and may present opportunities. 

Within residential, both multi-family and single-family performed well during the pandemic, and Antonatos predicts those trends will continue.

Logistics is another area that was very positively impacted as many supply chains were disrupted, amplifying the importance. However, Antonatos said while the fundamentals for logistics are strong, a slowdown in appreciation could be coming.   

Conversely, both office and retail were negatively impacted by the Covid-19 pandemic. Antonatos predicts the long-term trends for retail will be similar to the long term-trends for office space, with higher-quality property located in the best markets continuing to dominate.

With respect to infrastructure, inflation could create a tailwind for cash flows because a number of infrastructure assets have pricing mechanisms indexed to inflation, Antonatos said. Canadian inflation has soared to its highest level in nearly 40 years and even if it slows, Antonatos predicts it will remain higher than the prior 10- to 20-year average. 

However, similar to real estate, the fundamentals of infrastructure vary by sector. 

Utilities will continue to do well, Antonatos said, particularly those focused on the transition to clean energy because it will require capital spending. According to Antonatos, because most utilities can earn an attractive return on their capital base, a higher capital spending will result in higher revenues. 

“That’s a great tailwind for utilities,” Antonatos said. 

Further, the headwinds that transports, airports, seaports and toll roads faced during the pandemic are steadily reversing thanks to a recovery in traffic volumes as the last restrictions are lifted.

Lastly, data infrastructure was also a huge beneficiary during the pandemic, and Antonatos said that will continue because data usage is only increasing given the shift to remote work. 

This article is part of the AdvisorToGo program, powered by CIBC. It was written without input from the sponsor.

Maddie Johnson

Maddie is a freelance writer and editor who has been reporting for Advisor.ca since 2019.