Actual Property Traders Shunning Workplace Area in Favor of Knowledge Facilities

Pandemic Accelerated Pivot Away From the Workplace

As extra staff began working from dwelling through the pandemic, actual property buyers took discover. Over the previous 22 months, this set has constantly pulled money out of workplace properties in favor of knowledge facilities containing servers and different tools. Numbers-wise, Synergy Analysis Group stories a document $47.1 billion in knowledge heart acquisitions for 2021.

In a number of such examples, Blackstone (BX) bought knowledge center-provider QTS Realty Belief (QTS) for $10 billion final summer time, whereas American Tower (AMT) purchased fellow knowledge heart operator CoreSite in November for billions of {dollars}. Monitoring digital exercise additional highlights investor curiosity in knowledge facilities. With extra staff distant throughout COVID-19 lockdowns, international web exercise surged by 48% all through 2020.

Knowledge Middle Demand Spiking, However Returns Are Middling

Rising web exercise has additionally enormously boosted knowledge storage calls for. Throughout 2020, leasing exercise was up threefold over 2019, with Microsoft taking over essentially the most house. Estimates say Europe’s 4 main knowledge heart hubs all reached 355 megawatts final yr — a 77% improve over ranges seen in 2020.

Regardless of the elevated demand, knowledge heart shares have posted solely modest returns. Actually, actual property funding trusts specializing in single-family houses, industrial properties, and self-storage services have all outperformed US-listed knowledge heart REITs. Analysts say this is because of each an oversupply concern and demanding tenants.

Knowledge Middle Provide Outpacing Demand, Tenants Drive a Exhausting Discount

Analysts warning that whereas long-term international demand for knowledge facilities will stay excessive, the true property sector is poised to face some challenges. For one, knowledge heart acquisition corporations like Equinix (EQIX) and Digital Realty (DLR) face competitors from pension funds, present workplace house owners, and different buyers who additionally favor knowledge facilities. This provide glut has notably pushed up emptiness charges in cities like London, Paris, and Amsterdam.

Tech corporations that always signal onto leases are additionally difficult tenants. Specifically, their measurement and marker place supplies them with distinctive leverage, driving down rents. Whereas knowledge reveals industrial actual property income has posted features of round 18% per obtainable foot since 2013, the identical metric is down 8% for US knowledge facilities over the identical time interval. Actual property buyers are clearly enamored with knowledge facilities and analysts argue the long-term outlook is powerful. However within the meantime, a dramatic oversupply and middling returns pose challenges.

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