Data Center REIT Returns Top Even Industrial
As millions of people are working from home, attending online schooling, shopping online and gaming, data center demand rises.
Data center REITs are paying off for investors.
As of November 30th, data center REITs yielded 17.2% in returns, beating—by a significant degree—the robust industrial asset class, according to JLL.
In the same timeframe, infrastructure REITs produced 10.2% returns, followed by industrial (9.8%), self-storage (8.2%), healthcare (-13.9%), office (-19.9%), lodging (-27.2%) and retail (-28.3%).
The reason for the surge is simple: millions of people are working from home, attending online schooling, shopping online and gaming, according to JLL. For instance, the Internet and Television Association found that peak downstream internet usage increased by a cumulative 30% since March of 2020. Peak upstream internet usage increased by 51.2%.
These working, shopping, streaming and learning activities create an immediate demand for data center capacity. As that demand has increased, so has global M&A activity in the data center sector, which surpassed $30 billion as of November 2020, according to Synergy Research. Digital Realty’s acquisition of Interxion at $8.4 billion was one of the massive deals in 2020.
JLL expects to see traditionally non-data center investors and developers explore opportunities in the sector this year. These investors and developers will back startups with good management teams or explore some form of M&As and partnerships.
In general, investment activity has grown on several fronts. JLL says it has increased on a speculative basis where cloud demand has been most robust, in secondary markets where cloud demand has increased and in new international markets.
As existing players continue to roll out funds and as new entrants seek entry into the space, institutional equity interest is at a peak
In November, for example, funds affiliated with Blackstone Real Estate formed joint ventures with Corporate Office Properties Trust to acquire interests in eight single-tenant, data center shell properties. This was the latest in several deals between COPT and Blackstone.
In a 2020 transaction Blackstone Real Estate acquired a 90% interest in two of COPT’s wholly owned data center shell properties valued at $90 million. Additionally, Blackstone Real Estate signed an agreement to acquire a 90% interest in six other data center shell properties partially owned by COPT.
Other big players are showing interest in the sector.
In October, as another example, The Goldman Sachs Merchant Banking Division formed a global data center infrastructure platform. It initially committed to fund up to $500 million of equity capital to enable approximately $1.5 billion in near-term investments deployed across North America, Europe, Asia Pacific and Latin America.