Internet data traffic has grown at a frantic pace since the outbreak of Covid-19, registering an increase of almost 40% in the world between February and mid-April 2020. The increase in remote work, e-commerce , the consumption of leisure content, distance education and the need to close the digitalization gap in the private and public spheres indicate that the volume of data generated, processed and transmitted will continue to grow exponentially, which will imply more infrastructure and space for data storage, according to the report Data Centers in Spain, by Savills Aguirre Newman.
The international consulting firm points out that investor interest in this type of asset has also experienced exponential growth as a result of the pandemic. Although for five years it was already an alternative segment on the rise globally due to its strong fundamentals, with prime returns between 5% and 7% in Western Europe and long-term rentals between 10 and 30 years, the barriers to entering the market are currently limiting the exposure of private capital in the sector.
There are still many corporate data centers, although those managed by one of the large internet companies or by specialized operators that offer hosting services for different companies are more and more frequent. The most frequent option is to carry out the development of new projects under the turnkey format with developers and owners of land or buildings, since the figure of rehabilitation and adaptation of a property to new business needs is another alternative.
According to the report, according to the estimation of the giants of the data center business that operate in Spain, only in physical infrastructures, the new direct investment could reach 3,000 million euros in the next five years, which would place Spain in the same level as the FLAP markets (Frankfurt, London, Amsterdam, Paris) and would make it the main digital node in southern Europe.
Madrid is the main location for data centers in Spain, followed by Catalonia (mainly Barcelona), with 25%.
The main obstacles to entering this market niche are, on the one hand, ignorance of a highly specialized segment, and, on the other, the lack of supply. According to Savills Aguirre Newman, private investors will increasingly turn to alliances to enter the market. At the international level, it is a mature market, in which large companies present in the Spanish real estate market already participate. Goldman Sachs, KKR or Aquila Capital, to name a few, have specialized divisions in the sector. Blackstone and GIC (Singapore's sovereign wealth fund) work in joint venture with companies in the sector, while Axa, for example, operates through Data 4, acquired in 2018. REITs (Real Estate Investment Trust, equivalent to Socimi in the Spanish market) are also very active players in consolidated markets.
From SQM to MW
Given the evidence that the digital industry will continue to grow and with the forecast of 5G present in 75% of Spanish homes in 2021, Savills Aguirre Newman points out the interest of investors in data centers as a fundamental piece of the new and digital ecosystem A key industrial driver, also taking into account that the Next GenerationEU plan includes an item for the support of the digital economy, as well as the long-term budget of the EU (2021-2027) for the digital transition.
The report notes that, unlike other real estate assets, the size of data centers is measured in megawatts (MW) instead of square meters, although, as buildings, reference is also made to the surface. Large data centers, generally owned by internet giants, can occupy some 10,000 sqm.
Many of today's data centers are located in industrial or logistics environments, so it could be related to this type of product, but in this market square meters are not rented, if not megawatts. In fact, in choosing the location of a data center it is essential to identify land that will reach a robust and uninterrupted electrical power. Another important and highly valued aspect in the design of this type of product is the growth capacity in terms of power consumption (which would also imply growth in surface area), which would place the soils in industrial and logistics estates in an advanced position for possible new developments, although other locations are valued.
