Data Center REITs – landlord or tenant trusts a way in to 5G data infrastructure

5G REPORTER

The push is on to invest in 5G. Many investors are diversifying, holding shares in publicly traded antenna companies or carriers. Another big play are REITS — Real Estate Investment Trusts — as a way into the big infrastructure shakeups. Data centres will also play a vital and growing role in the new industries that will grow out of 5G infrastructures — such as remote surgery, autonomous automobiles, robotic factories, and other innovations.

 

 

5G Reporter covered cell towers REITS in a previous story [found here>>]; equally pivotal to the 5G expansion are data centers. These centers are fundamentally secure warehouses that contain rows upon rows of network equipment and servers. These expensive infrastructure centers also include various vital failsafes such as backup generators, redundant off-site servers, and industrial-sized air conditioners to ensure that the equipment stays up and running and that no data is lost. 

A REIT is one of the ways to invest in these companies, either in the data centres themselves, or their tenant companies.

Major data center examples

  • CyrusOne – 45 worldwide data centers. Founded back in 2012.
  • Digital Realty – Over 200 data centers across the US and in Europe. 
  • Equinix – Over 200 data centers spanning five continents and 24 countries. A global leader.

The tenants of these companies

  • Amazon
  • IBM
  • Microsoft
  • Oracle
  • eBay
  • Facebook
  • Google
  • Netflix
  • JPMorgan Chase
  • Morgan Stanley
  • AT&T
  • CenturyLink
  • NTT Communications
  • And more

Why is it so difficult for new data center companies to break into the industry?

The basic external build of a data center is straightforward. What is inside those walls is far more intricate and complex. The costs are high once you factor in the equipment such as backup generators, air conditioning, security systems, isolated power systems, redundant backups, and so on. What this means is that a company must have extraordinary initial capital even to build a functioning data center.

Cash flow

Datacenter leases tend to last between five and ten years, but it largely depends on the tenant. These leases also factor in how much electricity is used, as well as the square-footage taken up by the equipment. There are also often annual rent increases within these leases. Much like cell tower REITs, the retention rate of a data center client is very high. It is very costly and time-consuming to move from one data center to another. Sections of a data center are often set aside for a tenant before construction has even finished. New development in technology is also a big drive in terms of data center cash flow. 5G technology development should be a significant boost to the data center industry — making it a target for some investors.

Growth drivers

There is always a growing need for companies to connect to the cloud and their respective business partners. As we push further and further into this current technological and online age, with developments such as 5G happening all the time, this need will only increase. Tenant co-location can also act as a growth driver because data center values increase as more tenants move there. This may become even more relevant in the next couple of years, as 5G tenants will be looking to distribute their data storage over a more extensive space. There is a growing need to be closer to both end-users and the infrastructure itself. 

 

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