New report identifies onshore data center trends and implications as an alternative investment class
Demand for data centers in Japan will experience major near-term growth, driven by the growing adoption of cloud computing, according to CBRE. Data Centres: Bringing the Cloud Back to Earth report, published today by CBRE Research, estimates that demand for data centers in Japan will continue to gain traction as an alternative investment, as real estate investors look to diversify portfolios.
The report provides new insights into data center business models in Japan and the primary factors to consider when evaluating data centers as a real estate investment class.
Data centers are facilities that allow computers to be securely housed and operated with 365 day, 24 hour consistency. According to the report, major findings include:
From an investment perspective, cap rate for data centers is estimated to be 5.5% to 7.5%. It will likely attract investors seeking higher yield under the current environment where expected NOI yields have declined to record lows below 5% for traditional asset types.
Demand for data centers in Japan is expected to see major growth, driven by the growing adoption of cloud computing. In addition to growth in the new demand, there is also likely to be demand from customers switching from obsolete data centers.
Japanese major data center service providers have started to say that it is now difficult for them to continue investing in the real estate part of their data centers because of the high construction cost in Japan. It could become more common for land and buildings to be spun off into separate operations.
CBRE Research has categorized the main criteria for assessing the quality of data centers when considered as real estate. The specific criteria that high-grade data centers need to meet today are shown in Figure 1.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.co.jp