Planes, trains and automobiles

From rolling stock and airports, to motorway services and car parks, European transportation infrastructure is generating interesting investment opportunities, says Arjun Infrastructure Partners’ Romain Py

Europe continues to generate compelling investment opportunities across the transport infrastructure ecosystem. The region’s rail operators are upgrading their rolling stock, while the increased penetration of electric vehicles is changing the landscape for motorway services and car parking.

Meanwhile, a combination of improved passenger numbers, revenue and cost rationalisation as well as valuation adjustment mean that the airport sector is becoming more appealing than it has been for some time. Romain Py, partner at Arjun Infrastructure Partners, discusses the rapid evolution of the transport sector.

Q What impact is the threat of tariffs having on transport infrastructure assets?

We focus on European mid-market infrastructure and so, to date, the impact of tariffs has been negligible. However, there are exceptions. For example, a container terminal in Benelux that exports Heineken beer to the US has been affected by the tariffs.

The complex interdependencies between different sectors are not always obvious and we’re certainly more cautious in the current environment. For example, the biggest impact on the European renewables sector so far has been positive, with a decrease in the price of solar panels. We continue to monitor developments closely.

Q Against this complex backdrop, which subsectors within transport are most attractive?

We’re bullish on rolling stock and made an investment in the British rolling stock company Angel Trains, which is performing very well. We’re also big believers in car parking. There’s been a pronounced shift away from on-street parking to off-street parking in recent years. Regulation is also playing a role in shaping the investment opportunity, such as low emissions zones, or the ongoing pedestrianisation of city centres.

The emergence of multimodal or mobility hubs is another factor, playing into the car parking story. A lot of cities are building tram or public transport systems to tackle city congestion. Car parks do and will continue to support this mobility infrastructure by allowing people to travel into city centres on public transport.

Q What are your views on EV charging as an investment opportunity?

Our exposure to EV charging comes entirely via our motorway service operations in the UK. Motorway services operator Welcome Break has already rolled out more than 500 fast EV chargers across multiple sites. The advantage of this approach is that EV charging is just one component of the asset’s return profile. Although, there’s another slight benefit to EVs because more time is required to recharge. This typically means longer dwell time and higher average spend, as the clientele also tend to be wealthier.

However, we struggle to understand the economics of investing in EV charging on a standalone basis. A lot of investments have faced problems due to underestimated capex and overestimated penetration levels. When European EV charging business Allego listed in 2022, it was valued at around $3.4 billion. Today, the implied value is less than €100 million.

We don’t, therefore, currently believe that EV charging offers compelling risk-adjusted returns, or that it represents attractive relative value when compared to other asset classes within the transport infrastructure. There seems to be a gold rush in this space, bearing a striking resemblance to the fibre sector, where the economics were not fully understood, and underwriting assumptions were overly optimistic.

Of course, not all EV charging opportunities are alike. The business models being employed are very heterogeneous; some EV charging businesses are asset light, others are asset heavy. Some are B2B, while others are B2C. On the whole, I think these are very challenging investments, but there may feasibly be attractive opportunities if you’re able to secure a concession or have a quasi-monopoly.

Q What are the key trends in the rail sector?

When it comes to rail, you have to differentiate between the UK and the rest of Europe. In the UK, there are no segregated tracks which mean freight and passengers travel on the same rail. The railway is also quite dated, with peculiarities including the fact that overhead lines or catenary cannot go through Victorian tunnels. This means you need bi-modal or tri-modal locomotives.

Recent data suggests that passenger volumes have continued to recover, but remain below pre-pandemic level in the UK. The forward growth rate through to 2050 is projected to be around 1.6 percent per annum, compared to 7 percent for the period 2000 to 2024. Having said that, not all segments have been equally affected. Intercity remains strong, as does suburban non-commuter rail. In contrast, the commuter space has obviously been affected by working from home. Although travel patterns are improving, with more people going back to the office.

In Europe, meanwhile, liberalisation of the rail sector is one of the most significant trends, growing ridership. Germany is the most advanced market in this regard, followed by France and then Spain. That’s creating opportunities for new rolling stock, notably in the high-speed rail segment. Older trains are being replaced by lighter, higher capacity trains that offer better quality service including Wi-Fi and air conditioning. We’re seeing a lot of tenders in this space. Deutsche Bahn, for example, is currently procuring 30 to 40 new high speed trains for €1.2 billion.

Q How has the motorway service sector fared in the aftermath of the slump in traffic during the pandemic?

Clearly, this sector was badly impacted by the pandemic. Traffic totally collapsed and staff had to be furloughed, with a massive impact on operations. One benefit that Welcome Break had during that period, at least, was that we’d recently rolled out drive-throughs, which were allowed to operate. We also didn’t just sit back and wait for volumes to return during the pandemic. With sites being physically closed, it gave us the opportunity to upgrade the offering, modernising our facilities.

We took advantage of the pause to reassess the business’ strategy, including the roll out of new sites. This led to the recent launch of a brand-new site in Rotherham, with more on the way. One of the reasons why we need more sites is also the need for more EV charging.

“The airport sector is more attractive today than it’s been for some time. But it’s a sector where you really need to get into the details and understand the passenger profile and route networks”

Q Is the aviation sector also providing interesting opportunities?

From around 2010 to 2020, capital was piling into airports. People were typically paying more than 20x EBITDA, even though not all of those assets warranted that price tag. As a result, a lot of investors have been burnt by airports, which is impacting appetite.

However, not all airports are equal. UK traffic was sitting at an average of around 90 percent of 2019 volumes last December, while traffic at some airports is significantly above pre-covid levels. A lot of work has also been done on cost structures. Workforces have been right-sized, for example. New scanning systems that allow passengers to flow more quickly through security, to areas where they typically spend money, have been installed. And, of course, almost all airports have implemented a dropoff fee.

Revenue bases have therefore been diversified, while at the same time, valuations have been adjusted downwards to reflect lower growth prospects. We therefore believe that the airport sector is more attractive today than it’s been for some time. But it’s a sector where you really need to get into the details and understand the passenger profile and route networks.

“We don’t currently believe that EV charging offers compelling risk adjusted returns, or that it represents attractive relative value when compared to other asset classes within the transport infrastructure”

Q How is the decarbonisation story playing out across different aspects of the transport infrastructure ecosystem?

Given our target risk-return profile, we don’t aspire to be at the cutting edge of tech innovation. The decarbonisation of car and rail is relatively straightforward. I don’t think a new diesel engine locomotive has been procured in the UK for at least the past decade and in Europe, certainly, everything is electrified.

Meanwhile, in a number of European countries, delivery vans and light commercial vehicles have also all been electrified as there are increasing restrictions to access city centres for more polluting vehicles. The bigger the mode of transport, and the longer the distances being travelled, however, the more challenging decarbonisation becomes.

All airlines are moving towards sustainable aviation fuels. And in reality, new aircraft are already hugely less polluting than older models, with more efficient engines and a higher number of passengers per aircraft. Shipping, in particular, remains a difficult problem to solve, in part because of the sheer size of the vessels. But also because of competing technologies, for example LNG, hydrogen and nuclear, and because you’re talking about a global network. We ultimately need governments and the industry to converge towards a common solution. Of course, far easier said than done.

When it comes to these more challenging aspects of transportation decarbonisation, we remain cautious for now, although there may be investment opportunities to be found further down the line.

Extract from Infrastructure Investor July/August 2025 magazine