by Kevin Imboden, Director of Research, Data Center Advisory Group
The recent signing by two Mapletree funds to acquire a US portfolio of 14 data centers from Carter Validus presents an intriguing question; is this merely a one-off example of international institutional capital showing a desire to be involved in the sector or might this be the first step of a new wave of investment?
Mapletree is a Singapore-based global real estate investment behemoth with $29 billion of assets under management through its ten funds and REITS. Its funds are invested across all main property types in 13 countries. The organization has even stronger backing in Temasek, the Singaporean state-owned investment company with over $200 billion of assets worldwide. Mapletree is no stranger to data centers at home, with the industrial trust having participated in large ground-up builds for industry luminaries like Equinix and Tata, and is currently underway on a third center in the Tanjong Kling data center neighborhood. At $750 million, only the largest players would have contemplated this US portfolio deal but Mapletree has opted for bullishness; their Industrial Trust’s press release at the time of signing stated a portfolio contribution increase to 16% from a previous 6.7%, attracted by the industry growth and long-term leases in the portfolio.
Key Players Emerge
So how many other investors have moved funds internationally to invest in data centers, and just who is involved? Out of $552 billion moved across borders in commercial real estate since the beginning of 2016, only $7.7 billion of this went to the data center sector, though this was an increase of well over 200% from the previous three years. Mapletree is not the only Singapore-based fund that has led the charge around the world. Keppel’s Data Center REIT (the first and only data center-specific REIT to be listed anywhere in Asia) has acquired centers in its home country in addition to Italy, the UK, and Ireland over the past two years. Keppel’s telecommunications and transportation division (sponsor of the Data Center REIT) also bought a center in Germany in a joint venture. Temasek’s wholly owned ST Telemedia elected to buy out the remaining portion of the UK’s Virtus Data Centers, completing their ownership of a London-centric portfolio. French investment powerhouse AXA Investment Managers has also explored data centers around Europe, having acquired two centers in the UK and the Netherlands on behalf of their clients. In addition to these institutional investors, US-based center operators like Equinix, Digital Realty, EdgeConneX, and Iron Mountain have continued to purchase and develop new assets in Canada, Singapore, Turkey, and across most of Western Europe.
Cross-Border Risk vs. Reward
While the desire for center operators to expand is obvious, why would institutional investors with the ability to target any sector of their choosing take the perceptive risk of moving across borders to buy data centers? Starting with the pan-industry factors, data center traffic is expected to increase over 25% annually over the next three years, driving up demand for more power and space. Many key data center markets (particularly in the US) are expecting to double in size over the next two to five years, a growth rate unheard of in any other sector. In the case of the Singaporean investors, the extreme costs of acquisition, development, construction of a new local facility often makes international investment simply appear far easier and cheaper. The US and areas of Western Europe remain the most mature data center markets, and although this is rapidly changing with recent growth in Asia these areas follow the same paths as the rest of commercial property in that these assets are often deemed the safest. With other traditional commercial real estate sectors suffering from high prices and extremely compressed cap rates (e.g. CBD office and prime multifamily), the six-to-seven cap rates on offer for data centers appear a bargain for those interested in diversification. It is thus to be expected that further capital will be seen globetrotting in search of strong data center returns.
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.