Still the hottest asset? Reflections on Data Centre investment

Data centres continue to be one of the most talked about investment assets, attracting Real Estate and Infrastructure investors alike. Needless to say the asset class has been hot, and Bisnow Data Centre Expo event brought together some of the biggest players in the sector and explored some of the reasons why the asset class continues to be strong and what the future holds.

1. The supply fundamentals are evident for all. We are consuming more data, increasingly relying on AI and cloud computing, and the real estate required to deliver this digital infrastructure is ever-growing. Supply seemingly cannot keep up with demand.
2. Steady, long-term income to class A tenants (hyperscale). Data centres can generate ‘bond-like’ cashflows over the long-term to strong institutional investors, creating an incredibly attractive investment and financing proposition.
3. Lease types continue to evolve. Investors are increasingly looking for triple-net leases to shift operational management and risk onto tenants.
4. Power, power power. Where latency was once critical, power is now the fundamental driver behind new developments. Powered land continues to sell at a premium, and the market is driving high prices for the scarce land available.
5. The need for alternative power generation. Developers are exploring on-site generation, staged upgrades and even small modular reactors (SMRs) to secure resilient energy supply to counteract lack of capacity in the Grid and unlock data centre development opportunities. However different power generation sources carry different financial, regulatory, and operational risks.
6. The rise of secondary markets? As the powered land race heats up, secondary markets are becoming increasingly attractive. Developers are prioritising markets where planning and regulatory frameworks support faster approvals and predictable development .Governments are doing their bit through infrastructure improvements to attract data centre investment.
7. How do we deliver the growth? Delivering a growing pipeline of DC projects and operating them once built requires having the right people in the right places, with an emphasis on upskilling and training specialised talent to mitigate the shortage of skilled workforce.
8. The financing market is evolving. Many of the panelists spoke to the changing financing markets, with hybrid products increasingly popular covering both the development and then the stabilized asset. It will be fascinating to see how this approach bleeds into other asset classes.
   

With ever larger campuses, and increasing demands for computing power, investors, developers and operators are looking for creative ways to meet the exponential demand. Innovation in the technology, cooling strategies, and most importantly the energy to fuel this critical infrastructure will be fundamental to the asset classes continued success.

Kingswood have experience in supporting investors and lenders in the acquisition and development of data centres across the UK and Europe. Feel free to reach out to one of the team for more information.