08 June 2017 – Property Week
The data centre market has been on a near-constant upward trajectory in recent years thanks to the exponential growth in the amount of digital information created and stored by businesses. Although still a niche sector, it is one of the few areas of property going from strength to strength in the wake of the EU referendum as major businesses such as IBM and Amazon have reinforced their commitments to expand their UK data operations.
So it was not entirely surprising when last week, data centre developer, owner and operator Global Switch – one of the largest players in the sector, backed by the Reuben Brothers – announced that it had raised funds totalling €1bn (£871m) via two bond offerings. Of this, €600m will be used to refinance an existing bond, but the balance will be available for other purposes, allowing the company to push the button on a major portfolio expansion.
Could this significant fundraise, combined with the growing need for data services, indicate that the sector is becoming more mainstream as a real estate asset class?
‘Big wave’ of investment
Global Switch chief executive John Corcoran certainly thinks so. Speaking to Property Week, he says the company will add to its 10 existing data centres with a further seven centres. Two will be built in London and the other five will be built in other global ‘tier-one’ markets: Hong Kong, Singapore, Sydney, Frankfurt and Amsterdam. Some are already under way and all will be complete within five to 10 years.
The company is hoping to capitalise on what Corcoran calls a “big wave” of Chinese companies looking to expand into the UK and Europe, fuelled by the Chinese government’s ‘One Belt, One Road’ initiative – which encourages firms to invest in locations along the route from Europe to south Asia, creating a modern version of the historic Silk Road trading path.
“Global Switch’s business was based at either end of that road, so I saw that the business was in a good position to take advantage,” Corcoran says, adding that although unknown to many westerners, Chinese internet firms are big business. “We are guilty of looking through a North American prism and thinking there is only one major search engine, but in China there is Baidu, one of the biggest internet firms in the world.” Chinese ecommerce company Alibaba is now the largest retailer in the world, he adds.
Global Switch’s typical clients include telecoms companies, systems integration businesses, internet service providers, private enterprises such as financial institutions and the public sector. Although Corcoran is reluctant to reveal the identities of most of them, he will say that they are among some of the biggest names in UK and North American business. He adds that the company is present in all of Europe’s tier-one markets and has developments in three of the Asia-Pacific region’s top five – Singapore, Hong Kong and Sydney – and plans to enter a joint venture in Shanghai.
This leaves only Tokyo, but Corcoran predicts that “more tier-one markets will emerge in Asia-Pacific” and that these will outstrip the number of opportunities in Europe. He cites potential tier-one locations in Taiwan, Korea and India and adds that it is “actively looking at those areas”.
In such a high-tech market, the properties themselves are evolving. The latest tranche will be more efficient, providing 300 mega volt amps (MVA) of power across about 2.2m sq ft, while the older 10 provided the same MVA across some 3.2m sq ft – reflecting an improvement in power density of around 50%.
Global Switch only deals in the prime end of the market, which Corcoran defines as “very big, carrier-neutral data centres in major hubs, which are multi-tenanted with an average of 50 to 70 customers”. “Much like prime retail or office assets, if you’re a prime gateway centre you enjoy low churn rates, generally command premium rents and grow your assets more easily,” he says.
So data centres are not that far removed from mainstream property after all. If the likes of Global Switch continue to grow at their current rate, the sector could well shake off its niche tag sooner rather than later.