Competition Remains Fierce in the Data Center Space
Prices are rising for data center properties–but even the most experienced operators are subject to the risk that the technology behind data centers could change quickly.
January 27, 2020 | Bendix Anderson | National Real Estate Investor
The ever-rising demand for data storage and the rise of more cloud-centric services has fueled rapid development of data centers and driven investor interest. But the challenges of operating data centers along with fierce competition for top assets make it a tough market to close deals.
As with other sectors, cap rates and yields continue to compress. Buyers accepted cap rates averaging close to 5 percent in primary markets in early 2020, according to Cushman & Wakefield. In secondary and tertiary markets, buyers accepted cap rates in the mid 7-percent to 8-percent range. That’s down from cap rates over 10 percent a decade ago.
“We expect to see further compression in coming years, as the sector moves closer to maturity and more capital moves in,” Dave Fanning, executive managing director and data center advisory group leader for Cushman & Wakefield. “There is a large amount of capital chasing a handful of available assets, as well as risk exposure due to a lack of diversification within the asset class… Most deals are happening ‘off market.’”
