An ever-growing market
Every time you send an e-mail, reply to a message on your phone or buy something online, data is created and needs to be stored and processed… somewhere. The creation of burgeoning amounts of data and the need for data storage and computation increases by the second, which is therefore intrinsically linked to the expansion and growth of the requirement for data centres and data centre space.
What we have seen in recent years is a growing investor appetite to expand into the data centre sector. Rewinding the clock back to the heady days at the height of the property boom in 2007, investors were focussed on office, retail and industrial. The ‘alternatives’ sector was a much younger and smaller sister to these larger sectors. Fast forward to now and the alternatives market has risen to the top of the agenda for some investors as the focus shifts to gain higher returns and move up the risk curve. It therefore comes as no surprise that investors have turned their attention to data centres; a market that is supported and underpinned by an increasing appetite to store and process an ever-growing amount of data. Indeed, data centres have proved to be one of the more resilient sectors in the face of the global Coronavirus pandemic, where demand from both an occupational and investment standpoint has actually increased in the face of otherwise adverse conditions for many other real estate sectors. This stands to reason when we consider how many economies around the world are reliant on the internet to continue operating in their “new normal”. For many people, the pandemic has fast tracked our digital transformation from what might have taken months or even years, to a matter of weeks. We can now work, exercise and socialise virtually, all of which creates the requirement for data and hence helping to underpin the occupational demand for data centres.
How to value?
CBRE has a specialist Data Centre Valuation team and so naturally we are commonly asked “how do you value a data centre?”. Well, in short, it depends. Our experience shows that data centres come in all sorts of different shapes and sizes, and really, no two are the same. Over a series of posts, we look to tackle this key question and provide some insight into the valuation of this specialist sector.
In the world of property, it’s common for us to be asked “what are yields of prime data centres currently trading at?”. In reality it’s never quite as straight forward as that. A key characteristic of the data centre market is that there’s a paucity of transactions and owing to this there are no prime benchmark yields in data centres like those that are available in some other real estate sectors. Perhaps what sets data centres apart from other real estate sectors is that we have seen no real trend emerging in the market. When it comes to valuing a data centre, this makes it by no means impossible, but certainly more tricky.
What makes the sector so complex is the sheer number of variables and moving parts that can affect a data centre asset. When undertaking a valuation, some of the first aspects we want to know about the property are:
- What: What type of data centre is it?
- Where: Where is it located?
- Who: Who is occupying it?
- When: What will happen at the end of the tenancy / occupation?
Over a series of posts we cover these points and address what is widely considered to be one of the most complex areas of real estate valuation. In our next post we discuss the different types of data centres and how this can impact on value.