Investor interest in data centres soars into 2022: CBRE report

A new report from CBRE says that investor interest in data centres throughout the Pacific continues increasing into 2022 over other physical alternative asset classes, with 31 per cent saying they’re interested to invest.

The new insights from the ‘Capturing the Cloud’ report series reveal that the sector has seen the sharpest increase to any other alternative asset class, with a 15fold (29 per cent) spike since 2018, when interest sat at just 2 per cent.

The report examines what investors need to know about data centres, from the types of investment, what’s driving demand, the risks, to the potential location opportunities throughout the Pacific.

Infrastructure investment drives data centre location opportunities

A wave of new data centre supply is already occurring throughout Australia, rising 6.8% pa since 2016 and expected to rise a further 4.5%
pa until 2026.

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The new supply places Sunshine Coast and Darwin as prominent potential locations, which correlates to major infrastructure investment plans in both locations.

Cam Grier, Pacific Director, Industrial & Logistics at CBRE, explained why location is key to data centre potential.

“Announcements were made last August about the final construction phase that will ultimately provide a $500 million system of high-capacity cables connecting Perth, Darwin, Port Hedland, Christmas Island, Indonesia and Singapore – The DJSC,” Grier said.

“It’s this new 40Tbps of internet capacity between Australia and Asia that is unlocking the data potential in Darwin,” he said.

He also revealed that their clients are already making their mark in the Northern Territories, with continued interest expected.

Similar interest was also seen from clients in the Sunshine Coast due to the Japan-Guam-Australia South Cable System, the first new
cable to land on the east coast of Australia, outside of Sydney.

“Across the Pacific locations that are close to cheaper power sources or with cooler climates are sort after,” Grier said.

Major investment with strong yields

Australian data centres are some of the oldest in Asia Pacific and in recent years there has been a significant injection of capital to either modernise older assets, or to build new centres, ensuring that they function sustainably.

CBRE Valuations Manager Darcy Frawley explained the risk and rewards.

“As a sector that’s still in its infancy, from a real estate investment perspective, providing valuations can be difficult, investors will need guidance on the regulations and nuances involved, which most notably relate to ESG,” Frawley said.

Since energy costs can be 70 to 80 percent of operational costs, Frawley said there should be a focus on renewable energy and construction.

In 2021 throughout Asia Pacific saw a significant amount of capital was allocated to the sector, with  US$4.2 billion worth of data centre properties changing hands.

“Typically, we have seen data centres trade at a significant yield discount to prime industrial facilities, however more recently due to the heightened interest, we have seen this yield spread compress for long leased facilities,” Frawley said.

He also noted that data centres have moved towards both “micro” and “macro” assets.

“Small, dispersed data centres, called edge data centres, are being deployed to provide hyper-local storage and processing capacity at the edge of the network. While larger ‘hyperscale’ centre developments accommodate for the significant uptick in demand to centralise operations,” he concluded.