“What if infrastructure never goes back to 12% returns? What if it brings a 7% return forever?” These are questions institutional investors need to face up to, says Sam Sicilia, CIO of Hostplus superannuation fund. “Everything is relative. After a while, values will move from one level to another. And when they move, it will not be for just a week or a year.”

Sicilia’s comments strike at the heart of the conundrum afflicting infrastructure and real estate markets alike. There is an unprecedentedly large volume of capital earmarked for unlisted real assets, but the common observation today is that the markets are too expensive.

But as Holger Kerzel, who is responsible for illiquid assets at Munich Re and ERGO, says, no asset class is cheap anymore. “Infrastructure, in comparison, is attractive.”

Most investors seem to agree with this view. Of those investors surveyed by IPE Real Assets’ top 100 infrastructure investors report, 72% said infrastructure was not, broadly speaking, too expensive. The finding marked a big increase on the 52% recorded last year. Further declines in interest rates could well explain why more investors are comfortable with the pricing of infrastructure relative to other asset classes.

Another interesting contention is that infrastructure was previously cheap and is now more fairly priced. EDHECinfra has argued that the past decade of price increases could be interpreted as “a normal process of price discovery”.

Some investors think similarly. “I think it was too cheap before,” says Guillaume Morency, infrastructure portfolio manager at Canadian institution Desjardins. “We’ve been involved in the asset class for a long time, so we’ve been benefitting from that compression of returns.”

You could also argue, as GLIO chief executive Fraser Hughes does on, that investors should look at the $2.5trn (€2.26trn) universe of publicly listed infrastructure assets when so much capital is targeting the private markets. “Investors who ignore the global listed infrastructure asset class narrow their core infrastructure options considerably,” he writes.

A similar argument can be made for listed real estate. In this edition we dedicate more than 20 pages to real estate investment trusts (REITs). As we report, global REIT performance has been mixed over the past decade, but the sector could be about to enter a positive period.

The outlook for REITs improved significantly in the past year, says Rick Romano, managing director and head of global real estate securities at PGIM Real Estate. “The big concern all investors wanted to talk about a year ago was whether interest rates were going to go up and what that would mean for real estate. We haven’t heard that question this year,” he says. “With rates down and a slower global economic growth environment, we’ve entered that not-too-hot, not-too-cold scenario again. It’s Goldilocks, part two, for REITs.”

But could a similar projection be made for unlisted real estate debt? It is an investment proposition suited to an environment of slower growth and moderating returns. “Given where we are with interest rates and cap rates, cap rate compression is probably not where we’re going to see value creation going forward,” says Jack Gay, head of commercial real estate debt investing at Nuveen Real Estate. “Returns are going to come more from the income side of the real estate, and growth in net operating income, and that presents a more modest growth picture in terms of the returns that investors might expect on core equity assets. We have the potential to generate returns similar to core equity, or greater, also on a current-income basis, through various debt vehicles.”

AustralianSuper does not need persuading. The largest superannuation fund in Australia plans to increase its in-house resources so that it can make further inroads into global real estate debt markets. As we report, it will open an office in New York next year and hire around 40 staff in the Big Apple and London.

“Most of our recent deployment is in the US,” says Jason Peasley, head of mid-risk strategies. “We see that being the primary source of growth. The dominant part of the loan portfolio will be in our asset-backed strategy. We are working with a range of debt products, including loans for repositioning of commercial buildings, multi-use and logistics assets and construction finance. The returns and terms available in the US market are attractive for certain types of loans, compared to equity transactions.”