Real estate

Data centres:

Empowering a data-driven world

Diversify your portfolio and enhance potential for risk-adjusted returns.

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Data centre investing0:53 sec

The global data centre opportunity

Digital transformation and unprecedented global demand for data have brought the sector to the centre stage.

Accelerating demand

  • Structural shifts in how we use data— powered by Internet of Things (IoT), artificial intelligence, e-commerce, and gaming— has led to exponential growth in the amount of data being created.
  • Three times as much new data was created and consumed in 2022 than 2018.1
  • Processing, housing, streaming, and securing all this data has rapidly increased the demand for data centres.
  • Demand for data center capacity is at an all-time high and continues to rise, having grown 137% in the last year alone.2

Volume of data generated vs. storage capacity

Storage capacity
Data created or replicated
Bar graph displaying volume of data generated vs. storage capacity from 2010 to 2025 (projected)

Source: IDC 2022.

Limited supply

  • Data centre vacancy rate is at its lowest point ever in the U.S. Multiple European markets have little available supply.
  • Constrained energy infrastructure, longer lead-times for power and equipment, and higher labor costs are driving up construction costs.
  • Hyperscale tenants are competing for key locations.

High barriers to entry

  • Options to gain investment exposure to the data centre sector are scarce due to limited offerings.
  • Given the highly specialised and niche nature of the data centre industry, experience is critical to successful execution.

Market size and vacancy rate

Commissioned power
Vacancy
Inverse relationship graph showing data centre market size increasing and vacancy rate decreasing from 2015 to 2022

Source: datacenterHawk, September 2022.

Compelling investment opportunity

Data centres present unique opportunities for real estate investors:

  • Resiliency and inflation protection: With growth and defensive attributes, the data centre industry tends to be less vulnerable to short-term economic cycles.
  • Diversification: Low correlations to traditional assets and other real estate property types.
  • A strong risk/return profile: Longer leases provide cash flow from high-quality credit tenants at higher yields than most property types; Resilient occupier market with cross cycle investment plans.
  • New liquidity from institutional capital: As the sector institutionalises, building portfolios of triple net data centres could lead to larger investors and funds including these assets in their portfolio allocations.
  • Broadening debt markets: Increasing underwriting sophistication underwriting may enhance returns.
  • Continued demand: The essential role of data is a secular trend that will accelerate, making data centres increasingly important in a diversified portfolio.

Importance of experience in execution

Given the highly specialised and niche nature of the data centre industry, experience and access are critical. As an active commercial real estate investor for more than 60 years3—including more than 14 years in the data centre sector—we have witnessed the asset class evolve and adapt.

We have a strong track record and meaningful industry relationships:

  • A top-10 global real estate manager with a fully integrated real estate platform.4
  • Over 440 total development and value-add projects since 2001, valued at nearly $25.1 billion. Invested more than $2 billion in 20 data centre transactions.5
  • Our substantial equity and debt business gives us a distinct perspective of real estate and capital markets.
  • In-house expertise in responsible property investing and ESG—data centres have many unique development, operational, maintenance, security, and energy requirements.
  • Demonstrated ability to source and close significant volume of high-quality investments.6
  • Able to source experienced partners that bring significant technical and location-specific expertise, as well as ability to attract strong tenants.

We can help

Reach out to a Principal representative today for more information on available investment solutions.

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Citations

1 Source: IDC, 2022.

2 Source: datacenterHawk, 4Q 2022 Data Center Market Recap.

3 Principal Real Estate Investors became registered with the SEC in November 1999. Activities noted prior to this date were conducted beginning with the real estate investment management area of Principal Life Insurance Company and, later, Principal Capital Real Estate Investors, LLC, the predecessor of Principal Global Investors Real Estate.

4 Managers ranked by total worldwide real estate assets (net of leverage, including contributions committed or received, but not yet invested; REOCs are included with equity; REIT securities are excluded), as of 30 June 2022. “The Largest Real Estate Investment Managers,” Pensions & Investments, 3 October 2022.

5 Based on gross asset value as of 31 December 2022.

6 Past performance is not indicative of future results and should not be relied upon to make an investment decision.
Disclosure

Past performance does not guarantee future results.

Real estate investment options are subject to risks associated with credit, liquidity, interest rate fluctuation, adverse general and local economic conditions, and decreases in real estate values and occupancy rates.

Principal Real Estate is a trade name of Principal Real Estate Investors, LLC, an affiliate of Principal Global Investors.

MM12913 | 07/2023 | 2827599-072024