INSIGHTS

On May 04, 2026

AAM Viewpoints — Infrastructure: Constraint and Opportunity

Authored by: Ryan Severino, CFA, Chief Economist, BGO

Last week, I was presenting a variety of topics at a conference, including infrastructure. I could only discuss it briefly given my time constraints, but it reminded me that it is playing a larger role, for both the economy and commercial real estate (CRE). And that warranted a longer discussion. For most of the past cycle, the conversation around the economy focused on demand. Was growth too strong or too weak? Was policy too tight or too loose? Would rates move up or down? But that framing no longer fits the data, at least not completely. Over the past year, a somewhat different pattern has emerged. Growth has held up better than expected, especially in some areas, but it has not translated into the kind of expansion that typically follows a recession. Manufacturing has not accelerated meaningfully. Construction tied to new capacity has begun to lose momentum. Tariffs and industrial policy have produced more price pressure than output, even as the economy has not imploded.

Yet, the economy is running into physical constraints. Growth is no longer limited by demand. It is limited by what the system can physically support. Labor availability remains tight, particularly in skilled trades. Permitting timelines remain long and uncertain. And communities are pushing back against development, including non-residential, as electricity prices increase. Consequently, infrastructure has become the most binding constraint, especially in an economy increasingly powered by artificial intelligence (AI). Power availability, transmission capacity, logistics networks, and water access now determine where growth can and cannot occur.

Structural, Not Cyclical

Electricity demand is rising quickly, driven by data centers, electrification, and industrial policy. The grid is aging, and expansion and upgrades are occurring somewhat slowly. In many markets, developers cannot secure power on a timeline that makes sense. Generation capacity is increasing slowly. Transmission buildout continues to lag generation. Interconnection queues sometimes extend for years. The clearest example is data center development in Northern Virginia, the largest data center market in the world. Demand remains strong and capital is available. But power access now determines which projects move forward. Utilities have delayed or constrained new connections in certain areas because the grid cannot support incremental load on the required timeline.

Logistics systems face similar limits. Ports, rail, and last-mile networks operate efficiently, but they do not scale without friction. Congestion and capacity constraints can slow activity in the exact locations where the economy is trying to expand. Water has emerged as a parallel constraint in select markets, particularly in the Southwest. In Phoenix, rapid growth has collided with long-term water availability concerns, which is even restricting some residential development. Regulation and supply limitations now shape where and how development can proceed. Demand exists in many places, but the resources do not always support it. The economy can generate demand and attract capital, but projects still fail to advance at scale.  

Implications for CRE

This shift has strong implications for CRE. During the last cycle, broad exposure worked. Strong demand lifted most assets. But that dynamic is changing. For industrial, infrastructure capacity is now a key determinant of where production and distribution can occur. Industrial performance will likely become more uneven. Markets with reliable infrastructure will capture a disproportionate share of demand. Other markets will face hard limits on growth. For data centers, access to power remains the dominant constraint, and we believe will be for the foreseeable future, even as demand for time on a data center increase. The constraint story also changes what investors should consider scarce. If bottlenecks persist, the most valuable assets will not be generic space or land. The scarce assets will be the inputs that allow that space to function or that land to be developed. Powered land, sites with secured utility access, logistics nodes with true connectivity, and locations with deep, skilled labor pools will drive value. The building increasingly matters less than the capacity it sits on. The old axiom about location in real estate has been broken, somewhat.

This shift builds on a relationship that has always existed between infrastructure and real estate value, but that relationship has not always been visible. In the past, infrastructure was generally abundant. Power, water, and logistics capacity were widely available. These inputs did not differentiate assets in a meaningful way. Location, tenant demand, and capital markets drove value. But the environment has changed. When infrastructure becomes constrained, it becomes scarce. Markets capitalize that scarcity directly into land values, development feasibility, and income growth. The premium shifts toward capacity. Infrastructure has moved from a background condition to a primary driver of value. But current pricing suggests that this is a work in progress, suggesting that infrastructure’s importance to CRE values will rise in the future.

This shift also reinforces a broader trend. Real estate is converging with infrastructure. These asset classes used to operate somewhat separately. But increasingly, they depend on each other. Infrastructure availability directly affects real estate performance. In some cases, control over infrastructure creates a competitive advantage. Infrastructure constraints also increase development risk. They do not just raise costs — they delay projects or stop them altogether. These constraints extend timelines and force investors to focus more on areas such as site selection and entitlements. Location now reflects capacity, not just geography. For CRE, this environment rewards selectivity and the buildings that can accommodate demand will likely outperform by a wider margin over time.

CRN: 2026-0409-13385

The opinions and views of this commentary are those of BGO and are not necessarily those of Advisors Asset Management. Any forecasts or opinions expressed herein are BGO’s own as of April 26, 2026, and subject to change without notice.