Investment Property Data Center Facilities
The explosive growth of digital technology has driven the demand for real estate data centers. They house and operate servers hosting information and applications used by a wide variety of users, from B2B firms to online retailers and gamers. Precisely controlled environmental conditions ensure the best possible performance and minimize downtime.
New technologies like hybrid working and the proliferation of streaming services require large amounts of data to be stored, managed and processed. In addition, rapid advances in artificial intelligence (AI) and generative AI (a form of machine learning that generates its own algorithms) are fueling the need for massive storage and computing capabilities. This has prompted many private equity investors to seek opportunities in investment property data center facilities. Also read https://www.pandaprohomebuyers.com/closing-costs-when-selling-a-house-in-maryland/
Investment property data centers are typically leased on long-term basis to companies with specialized data management needs. A data center operator usually pays for a base building and then adds its own specialized improvements, such as above-standard load-bearing floors, greater ceiling heights and proximity to ample electrical power supplies. Base building rental rates tend to be at the lower end of the commercial real estate spectrum, with tenants bearing most of the cost of operating a data center.
A few large real estate investment trusts (REITs) focus on investing in powerintensive industrial properties, including some data centers. These REITs invest directly in powered data centers and often also own land and buildings. Others buy existing facilities and reposition them to become more energy-efficient, improving their cash flow and long-term value.
While investment property data center investments have generally been a niche segment of the commercial real estate industry, the sector is growing. Demand for data center space has fueled high levels of net absorption. In 2016, for example, a total of 396 MW was absorbed in one of the strongest leasing years on record.
Existing supply in top data center markets has fallen, driving investment activity in other locations. Top cities, such as Northern Virginia, have attractive economics, with favorable electricity costs and connectivity to fiber, cable and other telecommunication networks. Some local governments are actively encouraging development through tax breaks and other incentives. Others have focused on limiting natural disaster risks and political tensions.
For many users, proximity to major population centers is a key requirement for data center location. Some operators prefer to build their own data centers, allowing them to have more control over the location and the infrastructure of their operations. The investment property data center market is a rapidly evolving space, with new technologies and business models constantly emerging. For these reasons, it’s important for potential investors to stay abreast of the latest developments. A good way to do so is to follow the news on leading data center REITs, such as Equinix (Nasdaq: EQIX), Blackstone (NYSE: BX) and KKR’s (NYSE: KR) CyrusOne. In addition, a number of market-specific real estate research publications cover the data center industry. For instance, CBRE Data Center Capital Markets issues a weekly LinkedIn blast and publishes a national annual report on the sector.