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2017 Data Center Investment Review

By Kevin Imboden, Director of Research, Data Center Advisory Group

2017 proved to be a banner year for investment in the data center sector, with a record of well over $20 billion invested in the industry through large mergers, portfolio deals, and single-asset transactions. With 2017 volume equaling the last several years of investment combined, I’d like to take a look back at the activity that has shaped the data center conversation over the last 12 months.

The Mega Deals

Listed REIT Digital Realty gets the award for largest transaction of the year, closing its merger in September with formerly listed DuPont Fabros Technology for a final deal value of $7.8 billion. The merger enables Digital to grow stronger in key data center markets such as Northern Virginia, Chicago, and Silicon Valley, as well as provides development opportunities in Toronto, Phoenix, and Portland through projects underway and stockpiled development land. Fellow REIT Equinix found its own expansion opportunity, acquiring a portfolio of owned and leased centers from Verizon for $3.6 billion in May. The deal introduced Equinix to 600 new customers and secured an agreement from Verizon to exclusively market Equinix colocation and interconnection services, along with obtaining control over the Miami NAP of the Americas carrier hotel. Other $1 billion+ capital placements included Cyxtera’s creation and takeover of CenturyLink data centers, Stonepeak’s investment in Cologix, the Digital Bridge acquisition of expanding operator Vantage, and the Peak10 and ViaWest merger with the combined entity recently renamed as Flexential. Iron Mountain also continued its push into the data center realm, announcing a $1.3 billion buyout of io Data Centers at the end of 2017 and ultimately closing the deal early in 2018.

Buyers Seek Diverse Portfolios and Single Assets

As I discussed at length in a previous blog post, Mapletree Investments and Mapletree Industrial Trust launched their maiden US data center investment in 2017, paying $750 million to Carter Validus Mission Critical REIT for a fourteen-asset nationwide portfolio. Carter Validus didn’t stop with this sale, selling off the Ascent facility in the Chicago suburb of Northlake to Digital Realty for $315 million. This was the largest single-asset transaction of the year and a huge gain for Carter Validus who had paid under $212 million for the center back in 2014. CyrusOne also had an early 2017 win, acquiring two large centers in New Jersey and North Carolina from Sentinel Data Centers for $490 million. The center in the Raleigh area is CyrusOne’s first in the state, and both facilities have room for expansion as needed in future. Montreal continued its growth as a data center investment destination at the end of the year, with GI Partners acquiring the Ericsson facility in a deal brokered by Cushman & Wakefield.

The Crystal Ball Says….

With one merger already closed for 2018, the outlook continues to remain positive for data center investment. In response to market demand, many large markets including Northern Virginia, Dallas, Chicago, Phoenix, and Atlanta will soon be at or near double their current size, creating a large supply for prospective investors. This, combined with the need for more centers at the edge, could lead to further capital outlay from a variety of sources over the next two to five years. Continued interest from such investors as GI Partners, Mapletree, and Carter Validus bodes well for the sector; these are companies that could invest in any arena of commercial real estate yet they choose to have a focus on data centers. Personally, I’m excited to see how far this sector can go in 2018. For now, it appears limitless.

Based in the San Francisco Bay area, Kevin Imboden is Director of Research for Cushman & Wakefield’s global Data Center Advisory Group. Since 2007 Kevin has expertly interpreted real estate, retail, and economic data while leading large global research teams of researchers. His experience includes eight years at Real Capital Analytics, most recently as Director of Research.

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