“Data is the new black?” Big data = big opportunities, in real estate too

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As someone who began his career analysing data for the UK government back in the last century, I never expected there’d be a period in my working life when data or big data would be considered fashionable, or in the modern vernacular, ‘the new Black’. But if you are not into big data or using it in any shape or form in modern business, you run the risk of being considered as stuck in the dark ages.

Big data = big usage, big analysis and big storage

The demand for data and the overall digitalisation of modern life, from home and garden to travel and work, has boosted data usage and data analysis. It has also increased company demand for data storage and with it (investor) interest in data centres and data centre REITs.

These centres represent the infrastructure accompanying big data, providing the facilities to house computer systems and associated components. Storing, managing and disseminating data, data centres are a cornerstone of the global internet fabric.

Facilities include:

  • Back-up power
  • Telecommunications connections
  • Environmental controls
  • Security devices

Data centres: investment opportunities?

The safety and reliability of data centres and the information housed in them are top priorities for the centres themselves and the organisations using them. Tenants are typically tech companies including giants such as Apple, Amazon, Google and Facebook.

Their growth across the world, but particularly in North America, as data usage has become more embedded in all aspects of modern life, has fanned demand for data storage, and with it data centres, and helped create real estate investment trusts (REITs) that own and manage data centre facilities. The table below showcases a number of publicly listed data centre companies, mostly in the US, with one based in Europe and one in Asia.

The table highlights the size of the investment opportunity offered by seven data centre companies with a total market capitalisation of USD 75 billion, or roughly 4% of the global listed real estate universe. The average dividend yield at the end of January was 3.3%, which is lower than the average yield on global real estate stocks as a whole, but clearly higher than the S&P 500. Data centre REITs enjoyed a relatively good performance versus other real-estate stocks over one year and three years and did comparatively well versus global equities in general.

Sample table of data centre REITs

Note: all returns are in USD; * equal weight average; as a result of currency fluctuations, returns can increase or decrease. The value of your investments may fluctuate. Past performance is no guarantee for future returns. Source: Bloomberg, as of 31/01/2018

The outlook for demand for data centres

To date, US data centres are driving global demand. While the need for data storage is expected grow tremendously over the next few years as businesses upgrade and increase their data capacity, there are also concerns that technological advances such as smaller and more powerful chips could affect longer-term demand. These worries are not new and data centres have already seen the impact of smaller hardware requirements as processing power has increased. At the same time, demand for data has increased more rapidly than expected, more than offsetting any increase in hardware density.

For investors keen on investing in businesses with structural demand drivers, data centres should be an interesting area. Artificial intelligence, robot usage, blockchain, cyber security and further IT outsourcing are trends that are set to continue and should boost demand for data centres. This should stimulate investor interest In specialist landlords such as data centre REITs, which should be well placed to exploit the expected additional growth.

Shaun Stevens

Real Estate Strategist

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