Data centres, at the crossroads between technology, real estate and infrastructure, are a relatively new asset class but they are capturing the attention of institutional investors because of their growth potential.
One in three investors is planning to deploy capital in data centres in the next two years, according to a new survey by PwC, and expect returns of between 4-6%. They are ready to invest between €50 million and €250 million and the majority plan to make direct investments.
‘Data Centre Outlook 2021’, a new study by Pwc and the German Datacenter Association (GDA), also shows that nearly half of investors admit to having a limited understanding of how data centres work. Only one in five considers their knowledge of them as ‘very good’. Hence the need for an in-depth study of this fast-growing asset class.
‘Data centres are the factories of tomorrow, the literal foundations of our increasingly interconnected, digital world’, said Thomas Veith, German Real Assets Leader, PwC. ‘Not least due to the impact of the Covid-19 pandemic, demand for storage capacity, system performance and processing power is soaring in nearly every segment of the global economy’.
This huge increase in demand represents a new challenge for the real estate industry, which must provide facilities to enable highly complex technical infrastructure and sensitive server farms to be housed to the highest standards of security.
The study examines some key questions on the sector and its prospects. As the value of data rises, will the value of, and demand for, data centres also increase? PwC’s finding is that ‘high demand on the part of real estate investors for the asset class will exceed supply in the short term’.
ESG criteria play a secondary role when it comes to investing in, and operating, data centres. The main criteria for choosing a location, according to the survey, are a good power supply, connection load, internet exchanges and data protection.
Germany is the favourite location for over 80% of real estate investors as well as data centre operators, thanks to the high standard of data protection and legal certainty. Within Germany, Frankfurt is regarded as the most attractive city for data centres, followed by Munich and Berlin. Austria, France, the Netherlands and Central and Eastern Europe also ranked high.