Data Centers might be overlooked by some commercial real estate investors, but that probably won’t be the case for long.
The intensive use of technology is no longer just unique to tech tenants and companies. Most companies in the world are relying on these innovations, hence the need for more data centers to house a firm’s information, causing plenty of new development in this property type.
On the REIT end, the first half of the year was great for those that specialize in data centers. Digital Realty Trust, considered the largest data-center REIT, with properties across the United States, as well as other countries, had a strong second quarter. Revenues increased 23 percent from the same year-ago period, while FFO per share and EBITA were also up from the second quarter in 2015. Another large player, TierPoint, is expanding its facilities in Pennsylvania and Texas.
JLL reports that the largest data-center market with the most absorption so far this year is in Northern Virginia, followed by San Francisco’s Bay Area and Chicago’s metropolitan vicinity. But more secondary markets are also targets for data-center development. One example is Chattanooga, Tenn., where data centers are being built, in part because of that city’s great Internet connectivity capabilities.
The biggest names in the technology business are also doing their own development. Microsoft recently opened a state-of-the-art data center in Quincy, Wash., which is just over 150 miles west of Seattle. Overall, the Pacific Northwest is the leading area in the country for servers that house cloud information, according to JLL. On top of that, Facebook and Apple are going overseas to open data centers, with both of them planning and opening facilities in Denmark.
The thing that worries JLL analysts about continued investment in the data-center sector of commercial real estate impacts the rest of the industry – rising interest rates and investor hesitancy due to the coming presidential election.
However, there is no reason to think that there will be any slowdown in the demand for data centers across the country. The reliance of technology and cloud-based data by consumers and businesses isn’t going away. This appetite will only enhance the demand for data centers in the future.