The investment universe for private real estate managers is growing ever more competitive as the line between infrastructure and property becomes increasingly blurred.

Adding to the issue this week was Australia’s biggest pension fund manager AustralianSuper, which has combined its property and infrastructure teams into one real assets unit.

“Over recent years, we have seen the importance of sector selection in driving performance across both property and infrastructure, as well as a blurring of investment opportunity classification across the two asset classes, which we expect to only increase in the future,” said Nik Kemp, AustralianSuper’s global head of real assets.

The evolution of the real estate market with investment appetite moving from sectors dependent on significant human occupation – like offices and retail – to sectors not dependent – like data centers – has made differentiating whether an investment is infrastructure or real estate trickier. One head of capital markets at an Australian real estate firm told PERE they did not know whether to approach a domestic institution’s infrastructure or real estate team when pitching a recent data center investment.

Not only do real estate and infrastructure managers have to compete for assets like data centers, some infrastructure managers are even eating into other niche real estate strategies like social housing and healthcare properties – asset classes that do require human occupation. EQT, for example, acquired Australia’s Stockland Retirement Living from Stockland Group for A$987 million ($622 million; €590 million) for its Infrastructure V fund earlier this year. There is even talk of industrial assets – one real estate asset class with hitherto clear institutional support – one day being considered for inclusion in an infrastructure portfolio.

On the fundraising side, the two asset classes are now competing for institutional capital allocations too. PERE data shows nearly half of all investors were under-allocated to infrastructure in H1 2023, compared with only 38 percent in real estate. This indicates there is more room for investors to put money into infrastructure in the future. The same cannot be said for real estate at present. For example, sovereign wealth fund allocations to real estate have decreased from 9.2 percent in 2022 to 8 percent in 2023, according to the latest Invesco Global Sovereign Asset Management Study. Allocations to infrastructure, meanwhile, increased from 4.9 percent to 7.1 percent over the same period, the report revealed.

The complexion of returns between real estate and infrastructure remains a differentiator, however. Real estate is increasingly expected to offer a total return with both income and capital appreciation, moving away from the bond-like characteristic with which it often used to be labeled – conveniently in a low interest rate environment. Infrastructure assets often can still carry this label. This is especially true at this point in the cycle where infrastructure is yet to see the same kinds of markdowns as real estate.

AustralianSuper’s complete integration of the two teams is uncommon. The investor has a significantly higher allocation to infrastructure than real estate, at 13.78 percent versus 4.97 percent. And for its real estate investments it is looking for projects with infrastructure-like characteristics. One example is the investor’s participation in a development at London’s King’s Cross, a 67-acre site that includes eight million square feet of commercial space including multiple property types. Like many infrastructure investments, that is a multiple-decade commitment.

Many of its peers still have separate teams for property and infrastructure. Indeed, even among the six Australian investors listed in PERE’s Global Investor 100, four have dedicated teams for the two asset classes.

Still, AustralianSuper’s strategic moves serve as another example of the two asset classes overlapping. And that cannot be welcomed by a real estate manager generation already battered by secular and financial forces that have ruined many of their business plans.