Still in an early growth phase, data centers are attracting interest and capital thanks to a higher average enterprise value than nearly any other asset class, as well as the lowest implied cap rates among all asset classes at 4.4%.
According to an analysis by Colliers' research director for U.S. capital markets, Aaron Jodka, tower REITs have the highest average enterprise value, while office REITs have the lowest. Significant value can be created by aggregating assets into a portfolio and pursuing an IPO, said Jodka.
The data center asset class has attracted major development announcements reaching into the billions of dollars and has posted strong merger & acquisition activity, REIT privatizations, AI-driven technology advancements and fundraising. Momentum holds in public markets as well, with data center REITs including Digital Realty, Equinix and Iron Mountain, posting a higher average enterprise value than any other asset class except towers.
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“In aggregate, their enterprise value tops that of all industrial REITs combined, which includes a total of eight REITs,” said Jodka.
The quickly evolving sector is likely to look different over the next few years than it does today, which will create opportunities for investors, according to the analysis. Those looking to aggregate assets and create new enterprises will be poised to monetize these investments in multiple ways, said Jodka.
“Historically, portfolios trade at a premium to individual assets, offering an exit to a single buyer,” he explained. “The strength of the public markets could result in future IPO activity and an expansion of traded REITs. This is not an easy endeavor given the high cost of entry, but it offers substantial upside in the future.”
The data center sector supports a robust development pipeline with demand for new space across the country. The analysis said major markets are expanding at a rapid pace, while secondary markets are ramping up to top-tier capacity levels and municipalities with access to land and power have been attracting substantial investment.
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
