Global capital shows commitment to booming data center market
Data centers are high on the list for investors who are increasingly turning to alternatives in the hunt for asset diversification and enhanced risk-adjusted returns.
Evidence for the growing appeal of the global data centres came this week by way of US$2 billion worth of capital committed to the growing commercial real estate sector.
Australia-based property and infrastructure group, Lendlease, partnered with an unnamed institution to invest US$1 billion in data centres across the Asia-Pacific region.
Just a day later, Singapore’s sovereign wealth fund, GIC, and Equinix, the global data centre landlord, agreed a 80:20 joint venture to acquire and develop six hyperscale data centers in Europe for more than US$1 billion.
“The announcements come as demand for data centres continues unabated, driven by global cloud providers,” says Bob Tan at JLL. “Many enterprises are moving away from self-run data centers, with cloud adoption allowing them to save money and create a lot more value.”
Demand from above
There are currently 63.4 million square feet of data-center space globally, and another 4.3 million square feet under construction, according to JLL.
And the pipeline is primed to balloon with the roll-out of 5G. Quicker downloads and greater efficiencies require a new set of technologies. This demand will spur development of data centers, which house, protect and distribute the key parts of internet technology, operations and hardware.
Among these is ‘edge computing’, a process that pushes applications, data and services away from centralized points to locations closer to the user. This requires specialised, smaller data centers built closer to population centers which could become “an important part of the ecosystem,” says Tan.
“Demand for modern data centers is just about as strong as we’ve ever seen,” says Bond says. “For developers especially, there’s a realization that real estate is going to be part of 5G’s backbone.”
Another draw for investors has been returns on offer, which tend to be higher than traditional real estate sectors. A broad push into so-called alternative real estate in recent years comes as investors, facing record-low interest rates environment, continue to hunt for yield in new areas that are perceived to offer robust growth.
The two recent announcements confirm the sentiment.
“As a long-term value investor, we are confident that the strong growth in data consumption and public cloud data storage will continue to drive secular demand for hyperscale data centers,” said Lee Kok Sun, Chief Investment Officer, GIC Real Estate.
The Lendlease partnership will acquire both completed data centre assets and new development opportunities in markets where the company has a significant presence, like Australia, China, Japan, Malaysia and Singapore.
Lendlease’s CEO for Asia, Tony Lombardo, noted the “strong growth potential for this sector, which is evolving into a mainstream real estate asset class.”
Click to read more about which alternative real estate sectors are attracting institutional investors.
What are the first mover advantages in alternatives? Take a seat at the round table as our JLL experts debate the move away from traditional real estate investments and discuss where the real opportunities are in alternatives.