Real assets, particularly property, has been turbulent in the past few years. Inflation is still ongoing and capital costs remaining high, which matter in sectors where debt plays a big role. Investors understand how resilient the sector can be with structured income as a key driver, however they’ve become more wary with how their real estate and infrastructure portfolios will perform. 

As we look at where real assets are placed right now on paper and in theory for investors, I discuss real estate and infrastructure funds with Head of Income Research, Dug Higgins on our latest Investment Research podcast, deep diving into the macro environment of the sector and what it means for advisors.  

 

The macro picture isn't perfect, but there’s strong structural demand 

The headline view for real assets is that there will be higher interest rates for longer, despite the growth prospects. With inflation still lingering, and the cost of capital at post-pandemic highs, Higgin’s macro picture is that the environment is ever-changing, and managers who have relied on the ‘market wave’ to carry them forward will find it harder to judge if they’re not consciously allocating. Asset selection has never been more important with the gap widening between winners and losers - especially in real estate. 

While real estate may face ongoing headwinds, infrastructure’s higher levels inflation linkage has been supportive of returns. Despite the inflation pass though being deal-by-deal dependent, this characteristic positions the asset class well in the current uncertain environment.   

Additionally, digitisation and the emergence of AI continues to drive investment well beyond data centres. Energy transition remains a major destination for capital, and with government debt rising, private capital is increasingly needed to fund infrastructure. 

Diverging flows, converging returns 

Among institutional investors, the fate of the two sectors “couldn't really be further apart” with property still struggling to raise capital, while infrastructure recorded a record year of fundraising in 2025. A similar pattern is visible across Zenith's rated peer group in the wealth channel where real estate funds have seen roughly half a billion dollars in net outflows over the past 12 months, following drawdowns of around 10–15% for most funds. Infrastructure funds, by contrast, attracted $1.3 billion in net inflows over the same period. 

Returns also tell a different story, where unlisted real estate delivered about 9.7% over the year to Q3, overtaking unlisted infrastructure at about 8.3%. “The fact that everything is back in the green for return numbers I think is actually a healthy signal,” Higgins comments. 

Importantly in real estate across the Zenith rating universe, outflows have not triggered fire sales. Asset sales to fund redemptions have been orderly, with no meaningful evidence of large haircuts to book value beyond isolated pockets such as some non-core office assets. 

 

The metric on everyone's radar: discount to replacement cost 

This concept has been a talking point since the pandemic, but Higgins says it's no longer just a soundbite but rather a metric that valuers are considering in property valuations. 

The idea is simple: across much of the Australian commercial property market, assets are worth less than it would cost to build them today and when that's the case, no one rationally builds new stock. That chokes off new supply and can put a floor under rents for existing, well-located buildings. 

According to the numbers: 

  • national office rents need to rise another 30% before new development becomes viable, though this varies by city 
  • new CBD completions are running around 60% below their 10-year average, and 
  • in some markets, new development may not make sense until around 2030. 

For existing stock, that likely means rising value and stronger rents, all else being equal. Of course, Higgins states that it doesn't automatically offset poor building or tenant quality, but it helps underpin value. As valuers build it into their numbers, investors may start to see another 15% drawdown as unlikely. That could bring capital back to real estate, particularly from those now underweight in property and overweight in infrastructure. 

 

What does it all mean for advisers? 

Real estate and infrastructure funds are getting on with business and Higgins sees no sign of systemic distress. Real estate's main challenge is steering a steady course while flows are hard to come by. Infrastructure faces a different challenge in maintaining quality with plenty of capital coming in the door. In Higgins' words, "This is all about discipline on balance sheets. It's about discipline in asset selection. It's about discipline on strategy." So far, managers are largely showing it. 

Advisers also need to manage client expectations around liquidity in private markets, where cycles turn more slowly.  

Finally, the range of strategies on offer continues to expand, from new infrastructure options to the finer segmentation in real estate. For advised clients who can accept the liquidity trade-off, that means access to diversifying returns long enjoyed by industry super funds and other large investors. 

For a long-time private market meant core Australian real estate or nothing. Only in the past couple of years have more quality strategies come to market, particularly from offshore. As they continue to arrive and create a more diverse menu of opportunities, we see that as a win for investors. 

 

Resources mentioned in the podcast: