CEE Summit: data centres boom to attract new investors

The data centres boom will attract a whole new cohort of investors to Central and Eastern Europe, delegates heard at the ´Data Centres: Real Estate´s AI Revolution´ panel at  the recent CEE Summit in Warsaw, organised by Real Asset Media and The Poland Observer.

¨We are just of the beginning of the journey¨, said Thomas Veith, Partner, Global Real Estate Leader, PwC. ¨The macroeconomic structure is strong and the stable legal framework is in place. Poland is seen as a driver for Europe from a growth perspective and the predictions are that within the next three years, Polish capacity will double. The entire region will definitely benefit from this catching up situation.¨

As data centres are scalable assets, they will attract international investors who are able and willing to invest large amounts of capital. 

¨Poland and the region have been missing large ticket investors, like a couple of hundred million plus for real estate assets¨, said Veith. ¨But with data centres you can create the scale, which will definitely attract a new wave of capital.¨ 

But there is not enough understanding of the asset class in Europe yet, so it is foreign capital that is more likely to invest first.

¨Talking to Asian investors, there are so many listed data centre REITs in Singapore, while the big PE-style US investors have all the focus teams and they understand what´s going on¨, said Janusz Dzianachowski, National Managing Partner, Head of Real Estate practice, Addleshaw Goddard. 

In Europe investors tend to be more hesitant. 

¨Speaking as a German to the big German funds, there´s so much concern which I don´t understand because it´s such a big opportunit¨, said Veith. ¨I feel it´s a shame that there is not enough capital to fund this digital backbone, which is so important from a sovereignty perspective.I think from a European capital perspective, there´s so much more potential. But sometimes we are not bold enough to go in. That´s why a lot of US capital and Asian capital is chasing this, but we are losing the sovereignty point.¨

The geopolitical situation is strengthening the case for data sovereignty, while future technological developments will necessitate more capacity, so the direction of travel on the demand side is clear.

¨There´s the ongoing EU investment for AI gigafactories, which also includes Poland¨, said Christian Schiberl, Manager, Head of Technical Advisory International, Drees & Sommer Austria. ¨We´re also seeing general trends beyond AI:  when we finally reach the point of autonomous driving, we would need to build a huge network of data centres across Europe next to motorways to provide the latency and the speed for autonomous driving. So there are multiple paths that all lead to capacity and data sovereignty becoming a bigger issue.¨

The basic fact is that if you want to keep the data in a country, then you have to have data centres. That demand is coming from the EU, from European government and from customers too. The CEE region will also benefit from EU funds and support for infrastructure investment.

¨We should keep in mind that Poland and the other countries in the region have secured quite sizable funding from the EU for infrastructure and investments, which is a huge opportunity because we´re talking about billions of euros that can help speed up the reconstruction of the grid, which is a key thing¨, said Dzianachowski. ¨This is where the opportunities are, if we spend this money wisely.¨

Demand is clear and the key issue now is energy, experts agreed. As long as the  energy issue is not resolved the market will struggle and development will struggle. 

¨The good thing is that this is happening¨, said Adam Ponichtera, Managing Director, Data4. ¨The energy mix in many CE countries is changing. Poland used to produce virtually all its electricity from coal but that is no longer the case. Only five years ago only 8% of energy was green, but now it is 45% and heading towards 60%. Energy provision will become less of an issue.¨

Poland and the CEE region also have the climate advantage. Poland is compared more to Scandinavia than other parts of Europe because of its average temperature of nine degrees, which makes cooling easier. 

¨At a global level data centres have been the number one choice for the last four, five years already in our annual Emerging Trends in Real Estate report in answer to the question where would you love to invest as a real estate investor?¨, said Veith. ¨It is always data centres. And this reflects the sentiment in the market. When talking to the big global clients, they are really keen, even in this environment where there are questions about AI hype, because there is still a fundamental need for more infrastructure investment.¨

After the growth phase the expectation is there will be a maintenance phase, where the key supply is delivered. And then the hard work to maintain the digital infrastructure will begin. 

¨But if you want to invest in data centres, the next three to five years is the best time¨, said Veith. ¨If you want to have a piece of this cake, you should look at it strategically and do it now or within the next 12, 24 months.¨

Some would argue that there are still so many unknowns, and the sector is developing so fast, that it might be better to wait until there is more clarity.

¨There are a lot of things we do not know about the asset class, like what it´s good for and how it will develop¨, said Thomas Kaechele, Director: Head of Germany, Head of CEE, M&G Real Estate. ¨I think if I want to invest in real estate, I should at least to a certain extent understand it. So for me, it is value-add infrastructure, actually, because rather or instead of the real estate, the plot is important. If you can deliver power, if you can deliver cooling capacity, thenyou´re the king. It takes time to get permits and creating the capacity so it is a long-term play and it is not for us at the moment, it is too early. But I am sure there will come a day when we do the first data centre deal.¨