The UK has, for many years, consistently underinvested in infrastructure compared to its G7 peers.
With flagship projects, the country has a terrible track record. In the past year, the long-awaited, controversial high-speed HS2 rail line saw its expansion into the north of England scrapped due to escalating costs. Meanwhile, the Lower Thames Crossing development was plagued with delays before being approved in March of this year.
Local councils also consistently challenge proposed construction projects, including West Oxfordshire District Council, which continues to object to the construction of a solar farm on green belt land after raising concerns in 2024.
UK projects also tend to have higher expenses than other leading markets, with the construction of a London-centric data centre soaring to £1,200 per square foot, due to high demand.
In comparison, US data centre construction costs start at just $625 per square foot.
The lack of structure has led some investors to allocate their capital elsewhere, thereby impacting economic growth.
Labour pledged to change this in their election manifesto, and the sector has begun to experience a shift, including the recent introduction of the 10-year infrastructure spending strategy, which pledges £725bn of government funding.
Private sector spending is also expected to play a critical role in infrastructure investment.
Coupled with interest rates coming down in the last six months, which has made long term projects more attractive, analysts and fund managers are expressing optimism.
Andrew Gill, infrastructure income fund manager at Time Investments said, “In the UK there’s been under investment in wider infrastructure.”
“This year it feels like it’s turning a corner, with interest rates now coming down. It’s looking good for UK infrastructure.”
Data centre demand
The government designated data centres “critical national infrastructure” in September 2024, due to a growing appetite for AI adoption and digitisation, with centres expected to contribute £44m to the economy by 2035.
The centres act as digital backbones for a broad range of services, including internet use and digital banking, with an estimated 479 in operation, according to Data Centre Map.
The UK currently stands as the world’s third-largest data centre market, behind the US and Germany.
Additionally, 100 more centres are expected to be built in the next five years, according to Barbour ABI, as the country aims to become a global digital leader.
Fund managers are capitalising on this surge, as demand for centres outstrips the current supply, creating more opportunities.
Gill said, “Cloud storage, digitisation and more recently AI, that’s all pushing demand into data centres.”
“But none of that works without physical infrastructure.”
“Big data centres have been more of a London phenomenon and availability of space is going down. So data centre owners can push rents or rates up, which is good for investors.”
Online shopping, tariff woes and fighter jets
The market demand for warehouses has followed a similar trend, as businesses scramble to find spaces with automation and high racking to hold supplies.
According to real estate firm CBRE, 53 per cent of warehouses in the UK are over 15 years old, leaving them unfit for modern purposes, including the continued influx of online shopping.
This includes large corporations, such as online shopping giant Amazon.
The company plans to build an additional 100 fulfilment centres to bolster its existing 31 centres over the coming years.
Gill acknowledged online shopping is “certainly part of the big jigsaw”, adding the impact of tariffs clogging up supply chains has also forced retailers to lock down more space.
Meanwhile, the government’s pledge to increase defence spending has also increased the need for new and updated warehouses.
Research from estate agent Savills predicted that the UK will require 3m square metres of new warehouse space by 2032, to support the expansion of defence manufacturing, highlighting the scale of demand.
Time to invest in roads and rail?
While the construction of roads, railways and other public assets is typically paid for by government equity, in some circumstances private companies and investment platforms stand to benefit.
Philip Kent, chief executive of investment platform Gravis Capital, said, “The private sector can have a role as a contractor…so that’s effectively a type of public, private partnership.”
This includes the upcoming construction of the £38bn Sizewell C nuclear power station, with the cost spread between the government and a range of private investors.
Both fund managers acknowledged the government’s efforts to remove barriers blocking the rate and speed of construction is also a positive sign, including the incoming Planning and Infrastructure Bill.
Kent said, “For the first time in the last sort of decade, I think there’s some really tangible progress that we can point to say that capital is flowing and projects are getting unlocked.”