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UK ranked highest in Europe for infrastructure investment but third highest for regulatory risk

The UK has the third highest regulatory risk in Europe, with a lack of consistency in regulatory changes threatening investment in infrastructure.

According to the 2016 Infrastructure Investment Survey from consultants Deloitte, 20 per cent of infrastructure investors said the UK has the greatest regulatory risk in Europe, behind only Iberia and Italy, and ahead of the likes of Eastern Europe and Germany.

Respondents said a lack of stability and consistency in the regulatory regimes alongside “onerous” regulation were the principal reasons for the UK’s ranking.

The survey suggested infrastructure investors showed “a clear desire for more stable regulatory regimes”, with a call for regulators to be “more independent and less susceptible to the influence of changes in the political landscape”.

However, the UK still ranked highest in Europe in terms of where investors will focus their investment funds, with Scandinavia in second place, and was well ahead of the likes of Italy and Eastern Europe.

The survey, which covered 25 European infrastructure investors with combined assets of more than £200bn, pointed to pipelines, renewables and rail as the top three most attractive assets to investors across Europe.

Over the last five years, 92 per cent of respondents said their infrastructure investments had proved to be resilient, with only 8 per cent reporting a mixed performance.

However, investors cut their target internal rates of return compared with Deloitte’s previous survey in 2013, with 43 per cent expecting returns of between 10 and 12 per cent; in 2013, 41 per cent of investors expected returns of between 12 and 14 per cent.

Returns were lowest for PFI/PPP assets, water and regulated utilities, while the transport sector – particularly ports and rail/metro assets – showed the highest levels of returns.

Airports was the best performing sector overall, with nearly 50 per cent of respondents saying that it had performed well. In contrast, nearly 20 per cent of respondents said that investments in the renewables sector had performed poorly.

The survey suggested that results in the sector had been “erratic”, largely due to changing regulatory frameworks and changes to renewable energy policy.

Commenting on the survey, Deloitte infrastructure M&A partner Jason Clatworthy said infrastructure assets “continue to perform strongly and provide stable, secure returns”.

“We expect this to continue through a period of more steady evolution in the infrastructure investors market over the years to come,” he said.

He added that there was “a wall of capital” looking to target infrastructure.

“As such, infrastructure investors remain keen to see an increase in deal pipeline, both via the secondary sale markets but, importantly, also in the greenfield space should regulators of governments facilitate this more readily.”

The survey tallies closely with research from Arcadis, which suggested that the UK is the ninth most attractive market for infrastructure investment worldwide, and the second most attractive in Europe.

 

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