CBRE says investor interest in data centres throughout the Pacific continues to increase into 2022 over other physical alternative asset classes, with 31 per cent saying they’re interested to invest.
The findings were revealed in part one of a new CBRE report series ‘Capturing the Cloud’. The sector has seen the sharpest increase compared to any other alternative asset class, with a 29 per cent spike since 2018, when interest sat at just two per cent.
The report discusses key investor-relevant information about data centres, from the types of investment, what’s driving the demand, the risks, to the major location opportunities throughout the Pacific.
The pandemic impact on the way Australians work has driven a significant surge in data requirements, but rising office costs and the move to outsource data storage is also fueling the need for more data centre supply, according to CBRE.
A wave of new data centre supply is already occurring throughout Australia, rising 6.8 per cent pa since 2016 and expected to rise a further 4.5 per cent pa until 2026. The new supply looks to both the Sunshine Coast and Darwin as prominent potential locations, which correlates to major infrastructure investment plans in both locations.
Cam Grier, CBRE Pacific Director, Industrial & Logistics, provides further insight on 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,” says Cam Grier, CBRE Pacific Director, Industrial & Logistics. “It’s this new 40Tbps of internet capacity between Australia and Asia that is unlocking the data potential in Darwin. Our clients are already making their mark in the Northern Territories and we’re expecting continued interest. Additionally, we’re seeing similar interest 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 sought after.”
Major investment with strong yields
The report notes that 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.
“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,” says Darcy Frawley, CBRE’s Valuations Manager. “Energy costs can make up as much as 70 to 80 per cent of operational costs and so there should be a focus on renewable energy and construction. In 2021 throughout Asia Pacific a significant amount of capital was allocated to the sector – US$4.2 billion worth of data centre properties changed hands, this shows the potential the sector has in the Pacific. 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.”
“It’s interesting to note that data centres have now moved towards both ‘micro’ and ‘macro’ assets,” Darcy adds. “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.”
To explore CBRE’s ‘Capturing the Cloud’ report series, click here.
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