Key Highlights
- Data centers one bright spot within commercial real estate industry
- Growing reliance on cloud-based tech = opportunities for buildings via housing tech’s hardware
- Demand for 5G and AI to increase such opportunities
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As businesses and consumers gobble up more data, developers and investors are seeing more opportunities in commercial real estate. Somewhere, all of that data has to be stored and data storage centers are those places.
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While simultaneously being pummeled by empty storefronts, empty office towers, empty apartment buildings, descending rents if tenants can even afford to pay rent, and lawsuits to break leases, commercial real estate investors and developers are seeing positive growth opportunities in data centers.
“Our houses are connected, our cars are connected, our streetlights and parking meters are connected, and every single one of those connections is passing data back and forth,” said Sean O’Hara, president of the exchange-traded funds division at Pacer Financial. As technologies such as 5G and AI become more and more ubiquitous, there will greater demand for data storage than there is currently.
Investors are paying attention. Real estate investment trusts (REITs) focusing on data centers had returns of +19% in the first half of 2020 alone. (The only other industry sector with a positive result in 2020 was the industrial sector, warehouses, at a comparison of only +2%.) Goldman Sachs, KKR and Blackstone, among other equity firms, have recently announced multi-million dollar investments in data center infrastructure.
(Talk about REIT comparisons…those focused on hotels and resorts dropped -49%, retail dropped -37% and office space dropped -25%.)
According to Milena Petrova, an associate professor at Syracuse University who teaches real estate and corporate finance, “You think about data as an intangible asset, but data has to be stored somewhere.” The more data analyzed, the more investment needed in storage space and servers.
Most data centers are being built on the outskirts of major metros such as Atlanta, Chicago, Dallas-Fort Worth, New York and Phoenix, all areas in close proximity to clusters of undersea cables that send data back and forth from all over the world. The cloud’s Grand Central Terminal? Northern Virginia
“The Ashburn area outside D.C. is the largest data center market in the world,” said Jon Lin, president for the Americas region at Equinix, one of the largest global data center companies. “It’s really the hub of the digital economy in a lot of ways.”
Other must-have location requirements for data centers include cheap land costs, local taxes (cities and states compete ferociously for these new construction developments via tax incentives), and reliable, cheap power since data centers operate 24-hours a day.
Data center development is “…not simple real estate…it’s not an apartment,” said O’Hara with Pacer Financial. But, data center development and investment are both critical and growing as people and businesses throughout the world are increasingly connected via digital infrastructure.
Thanks to The New York Times.
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