International investment opportunities in UK infrastructure


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For further information, please contact David Weare, Partner, Fladgate LLP (dweare@fladgate.com)


 

The UK is currently developing over £500 billion worth of major infrastructure projects that include over 720 schemes set out by the National Infrastructure and Construction Pipeline up to 2020/21. With only half of the funding estimated to be coming from public investment, the UK must look abroad for international investment partners if these ambitious plans are ever to become reality.  Many of these partners are likely to come from Asia.

The infrastructure development plans comprise a diverse mix of schemes including housing, transport, utilities, health, defence and connectivity projects among others. The National Productivity Investment Fund has a significant £23 billion investment up to 2020. The package includes a 5G and full-fibre communications upgrade that will be the subject of a £700 million investment, and £2.6 billion to enhance the UK’s transport networks.

The UK’s successful track record of attracting international investment into infrastructure assets provides some confidence that the ambitious private sector funding target can be achieved. In 2016 more money was invested in the UK by foreign investors than any other European nation with the amount invested in energy and infrastructure projects increasing by 8% in 2015-2016.  A number of initiatives are underway to help secure the foreign investment required to rejuvenate the UK’s infrastructure.  In an effort to encourage greater Chinese investment in UK infrastructure projects, a new Infrastructure Academy was founded at University College, London in December 2016.  The academy is intended to help train Chinese companies and officials in UK investment processes so as to attract more opportunities.

A significant part of the private finance in new infrastructure is likely to be through a revamped form of private finance mechanism. A government announcement on the form that will take is currently awaited with interest, and it remains to be seen how closely any mechanism will follow the proposed PF2 model.  Any new initiative must promote the ability of the public sector to make a return on its investments and must be shown to have learnt from past experience.

Although direct foreign investment in high profile projects attracts media headlines, opportunities also exist at a local level for private investors to work with the public sector in a mutually beneficial way that enables infrastructure assets to be upgraded and for development on difficult sites to become viable. One of the principal themes from both the National Infrastructure Forum and London Real Estate Forum in June 2017 concerned the greater possibilities that arise when infrastructure and real estate are not viewed as separate asset classes.  An integrated approach can assist in unlocking sites and reducing the public sector burden through private infrastructure investment.

Such an approach is currently working well in a number of developments around railway stations. One creative idea under consideration is the proposed decking and redevelopment above Clapham Junction, the busiest station in Europe by number of trains using it.  Combining commercial assets with the construction of stations can assist in creating a modern transport network in a way that satisfies the demands of both the public and private sectors.

Whilst infrastructure is widely acknowledged to act as a catalyst for growth, it can sometimes be an impediment. Insufficient infrastructure mapping can create enormous upfront expenditure for private developers and in some cases these costs can prove prohibitive.  A number of initiatives are therefore currently underway to improve matters.  The most prominent of these is the London Infrastructure Mapping Application, an online tool which takes data from around 12,000 infrastructure and development projects and visualises information spatially to enable development to proceed in a more coordinated and cost efficient way.

With a full pipeline of schemes, private investors understandably need to be confident, before investing, that the knowledge and skills exist to ensure the planned infrastructure projects are successfully delivered. Thankfully a positive learning legacy already exists from the 2012 London Olympics redevelopment.  This is now taken to another level with the Crossrail toolkit.  This inspired initiative makes Crossrail documents available online to enable subsequent projects to learn from that expertise.  September 2017 will also see the opening of the new UK National College of High Speed Rail.  This college will provide the UK’s workforce with the specialist training, skills and qualifications required to build HS2 and future rail infrastructure projects.

International private investors will play an increasingly important role in rejuvenating the UK’s infrastructure over the next few years. Investors will be attracted by what has been shown to be a resilient asset class that meets a fundamental need.  Given its role as a catalyst for growth, it should be in the interests of private developers to work with the public sector to enable development in areas of greater scale and connectivity, employing imaginative and creative solutions where necessary.  The most successful outcomes are likely where the public and private sectors work together to confront the challenges of what needs to be done and when they ensure that such challenges are met speedily.

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