In February of this year, property developer & reallionaire investor Peter Beckwith announced that his firm PMB Holding plans to invest £36 million in a data project in Milton Keynes. UK. Despite the top economic conditions across U.K. and Europe, Data centre properties are weathering the economic storm. What's more, more and more reallionaires are queuing up to profit from the data centre property sector. Real estate tycoon, Anthony Lyons & Simon Conway entered the UK data centre market with a whopping £250m investment into two sites in south east England. Clearly, data centre properties are proven to be hot-property assets.
For starters, this property asset continues to be recession proof and inflation proof, whilst simultaneously attracting blue-chip tenants. Further, rental yields are averaging double digits and possess strong demand, solid balance sheets and a lot of liquidity. No wonder REITs that own data centre properties are set for another profitable year in 2012..
Favourable credit metrics, manageable leverage, excellent equity appreciation, limited secured debt, and meaningful unencumbered asset holdings, all play a fundamental role in making it easy for data centre REITs to raise capital from a variety of markets. A conclusion fully supported by Moody’s analyst Maria Maslovsky.
Although data centre properties have been around since the dot.com boom days, they have only become a real estate asset class in its own rights around 2009. Today, data centre properties are on most institutional and super rich individual property investors shopping list.
Whilst cost of development/acquisition and technical know-how presents a high barriers to entry for some investors, other investors are overcoming such barriers by entering into pre-management lease agreements on a long-term basis. Unlike a shopping mall which may cost around £100-£300 sqft to build, a data centre can set an investor back by £1,000-£1,500 a sqft depending on location. However, with companies having growing IT budgets and opting to use cloud-computing, owners' rental yields can easily cover all cost and still award them with great returns.
Nevertheless, it is advisable to bear in mind that a lack of specialist knowledge of the operations possess a fundamental risk and outsourcing of management should not be seen as the ultimate solution. Yes, data centre properties are a very appealing proposition and the fact that it has grown by double digit figures last year whilst other property values are falling. One should always be mindful of the fact that data centre properties can rarely be reinvented to another property asset should the sector goes sour in 7-10 years time.
However, now is the time for great optimism and the very fact that Facebook and Google have created REITs to invest billions in data centre properties clearly indicate the strength of this property market. Moreover, the fact that less households tend to rent DVDs and rather download films / movies online and on playback TV tells you that there are a lot of bloody data needs to be stored.
At the end of the day, REITs worldwide has to find an asset that gives them a return so they can pay out money to their subscribers and data centres are helping them to achieve this comfortably. Given that Digital Reality Trust, a REIT, owns 108 data centre properties spanning 20.8 million sqft and valued at £6 billion does say something very meaningful. HIGH GROWTH & HIGH RETURNS.
