The Nordics and the Netherlands offer the best opportunities for investment in the burgeoning data centres market, but the need to have smaller scale domestic facilities to comply with data and privacy laws is set to lead to an uptick in activity across all of Europe, according to advisor Savills' new Data Centre Investment Index.
Around €450 mln was invested in European datacentres in 2017, with the UK accounting for 41% of all deals between 2007 and 2017. But investment activity is beginning to pick up across continental Europe as investors become more familiar with the sector, Savills claims.
Due to the growing popularity of cloud-based infrastructures, the need for cost-effective hyper-scale data centres of 50,000+ m2 in Europe has grown exponentially over the past five years, with Cisco predicting that hyper-scale data centre traffic will quintuple over the next five.
Savills Data Centre Investment Index Savills has identified the best locations in Europe in which to invest, benchmarking 20 countries against 12 indicators crucial to the development of datacentres. The Nordic nations take four of the top five slots, given their strengths in offering low energy costs, cool weather and access to water, with the Netherlands rounding out the top five.
'With data centre occupiers taking leases of 10 years or more, and an increasing number looking towards sale and leaseback options, the sector offers investors an appealing proposition,' commented Marcus Lemli, head of European investment, Savills. 'Data Centres are increasingly an investment product category accepted by institutional investors such as AXA and CBRE Global Investors, and the weight of money has pushed yields down significantly over the last couple of years to 5-7%. We expect these yields to move in further in the coming months and years.'
Datacentre investment REITs are the most active buyers in the sector, notably US Equinix REIT, Asia's Keppel DC REIT and US-based Digital Realty, says Savills, but as the market grows it is slowly opening to non-specialist investors (investment managers and general REITs).
Lydia Brissy, European research director, added: 'New datacentres are increasingly concentrating in suburban or rural areas in countries that offer the best opportunities in terms of natural environment, security, energy and connectivity, with the Nordics being the location of choice for hyper-scale facilities. But there’s still a need for small and medium-sized centres, nationally based, to mitigate any potential latency and also to avoid legal issues relating to data sovereignty. This means that countries such as the UK, Germany France and the Netherlands will continue to witness an increasing demand for data storage and corresponding investor activity.'