That the world is becoming more digital is obvious; how real estate investors can profit from that is less so.
If we work online, what does that mean for offices? If we study online, what does that mean for student accommodation? If we shop online, what does that mean for retail?
Those may be some of the challenges, but the opportunities are also compelling. While infrastructure investors would like to claim the territory for themselves, data centers, cell towers and fiber broadband are all part of a digital landscape relevant to all sorts of investors.
1. Data is rising in the east
Europe and the US have set a high bar for data center development, but Asia-Pacific is rapidly catching up as cloud computing demands grow exponentially. That provides a host of opportunities for investors willing and able to take advantage of them.
“Asia represents one of the last geographical frontiers in the data center space and is the area where we have the greatest opportunities,” says Kok-Chye Ong, managing director – head of IDC Platform, Asia (ex-China) at Gaw Capital Partners.
This is echoed by Kris Kumar, chairman of FLOW Digital Infrastructure, who says: “Asian markets are underserved for digital infrastructure, particularly in the hyperscale end of the industry.”
Erin Ledger-Beaupre, senior managing director at Macquarie Asset Management, agrees there are very attractive Asia-Pacific opportunities, both in the largest markets – Australia, Singapore, Japan and Hong Kong – as well as emerging markets that may “become an interesting location for data center exposure as well.”
Demand is rising around the world, and there is no shortage of markets in which to invest.
2. ESG is rising up agendas
As data centers spread across the globe, their environmental impacts also come into sharper focus. This is true not only of their energy use, but also their use of resources, such as water.
Data centers are estimated to consume 1 percent of global electricity, according to an article in the journal Science. January 2021’s Climate Neutral Data Centre Pact requires data centers to improve energy efficiency with measurable targets, including buying carbon-free energy and focusing on water conservation. Many firms have committed to it, but progress is slow.
Reporting metrics such as power usage efficiency, water usage efficiency and carbon intensity enables operators to set targets and investors to hold them accountable to those targets. And firms do want to do their bit.
“Maximizing the amount of power sourced from renewables is an area of particular focus, with most operators targeting 100 percent renewable energy over the medium term,” says Mark Brennan, partner at investment manager Foresight Group.
Even in niches such as digital real estate, ESG remains a key concern for managers and investors alike.
3. Towers and fiber each have scope to rise, too
It would be an error to think that the digital real estate niche is limited to data centers. Real estate investors are also moving more into cell towers and fiber broadband, both of which – as with data centers, albeit to a lesser extent – have been typically thought of as infrastructure investments.
Here, too, ESG concerns are significant. “The antennas on cell towers that send signals back and forth use a lot of power,” notes David Guarino, senior analyst at commercial real estate analytics firm Green Street.
“Whether it is using more green energy, or more efficiencies in the design process, these are definitely questions that people are asking.”
One of the other questions they are asking is how best to be involved in the space. Demand for digital services continues to boom. The number of 5G users is expected to reach one billion this year, and a quarter of all mobile phone connections by 2025, according to industry association GSMA.
The European Telecommunications Network Operators’ Association, for example, estimates that 5G covered just 2.8 percent of mobile connections in Europe in 2021, compared with 13.4 percent in the US and 29.3 percent in South Korea.
This was not least because of slow growth in the construction of 5G cell towers – a situation sure to be remedied. Expect more towers to rise very soon, and real estate investors to be involved when they do.