According to Savills, 2020 will mark a clear step towards improved liquidity for the data centre asset class and the sale-and-leaseback process could improve access to the sector for investors.
In its report European Data Centre 2020: A Tipping Point for the Industry Savills points out that while investment activity in the data centre market was initially fuelled chiefly by new development activity and M&A, it is now evolving towards sale and leaseback.
“This will unlock the market by providing investors with data centre acquisition opportunities,” the firm said in its report.
Savills said that this month Digital Realty revealed plans to sell a European portfolio of 11 data centres with an approximate €600m value, having sold a 10-data centre portfolio based in the US to Mapletree for $557m in January.
Covid puts data centres in the spotlight
Covid-19, the call to work from home, and the switch to online shopping have elevated personal digital devices and internet connectivity to new levels, not least for the data centres that handle much of the activity.
Savills points out that in March, internet service providers (ISP) reported traffic growth ranging from 35% to 90% within the EMEA region. But the trend was already upwards and the number of hyperscale data centres worldwide more than doubled between 2015 and Q2 2020 from 259 to 541.
While Covid-19 has brought data centres in the spotlight this year, investors’ interest in the sector has been growing over the past five years not least because tenants usually occupy the premises for 10+ years so the sector offers long-term income streams.
Attractive yields attract non-specialist investors
Savills also points out that yields are attractive compared to other asset types, reflecting the liquidity premium. Prime core European yields range between 5% and 7% depending on the quality of the asset and on location.
“As the market is rapidly maturing and in the face of pent-up demand, we expect strong yields compression in the next one to two years,” the report states.
Investment has previously been by specialist investors. However, Savills said that over the past three years, non-specialist private institutions have slowly entered the data centre investment market. These include general REITs such as Schroder European REIT, investment managers including Catella, institutional investors such as AXA and sovereign wealth funds GIC and PFA. Also infrastructure funds Brookfield Infrastructure Partners and EQT Infrastructure are involved in the data centre market.