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What to Know About Data Center Real Estate Marketing in 2020

By: Kayla Matthews on March 2, 2020

People have not always thought of the data center market as an appealing option for real estate investments, but that's changing. Many real estate investment trusts (REITS) are specifically data center REITS, letting investors capitalize on the tech boom. In other cases, companies realize that 2020 is the right time to build more data centers — sometimes by entering a new market. 

Manassas, Virginia Still Dominates the U.S. Data Center List

According to the CBRE 2020 Real Estate Market Outlook for data centers, Manassas, Virginia, tops the U.S. data center list by a sizeable margin. The Northern Virginia city is a primary data center market, and CBRE's data indicated 60% of the data centers under construction in primary markets were in Manassas. Phoenix was next on the list, accounting for 16%.

And, some of the data centers in Manassas are gigantic. For example, plans are underway to create a data center campus containing a building of at least 4 million square feet, spanning 125 acres. The first phase of the data center stretches across 25 acres and 700,000 square feet. It may be finished as early as this year. 

Real Estate Investors Are Getting Creative When Looking for Data Center Land

The data center real estate market doesn't always involve building new facilities. Some investors would rather repurpose what's there. For example, many struggling shopping malls get new lives by serving as coworking spaces or office buildings. As early as 2013, former retail spaces such as Sears stores became data centers. 

That transition is one example of adapting a building to meet current needs. Another, more recent example of such repurposing involved a development purchasing a 135-acre New York facility that formerly produced coke, a derivative of coal. Reports indicate the site may become a data center, following a trend that became apparent in the Empire State during the summer of 2019. Then, two other coal plants were under consideration for becoming hyperscale data centers.

New York is one of many states moving away from coal power. As that trend continues, more parties in the real estate market within that state and elsewhere may continue eyeing coal plants for their data center plans. One of the advantages of buying a space to turn it into something more relevant is that investors may be able to get an appealing deal on the land. 

Many people in the market for homes learn that they'll usually pay between 3-6% of the purchase price in closing costs. Investors need to be aware of closing costs, too, and looking for appealing deals could reduce their overall investment expenses. 

Data Center REIT Stocks Giving Attractive Returns

Statistics show that the sector average for returns on data center REITs is 40%. Investment analysts wonder whether the trend has staying power, but something they're more certain about is that IT-related investments will continue at a healthy pace. That belief bodes well for people who want to invest in data center real estate. As tech investments rise, people typically need data centers that can support that growth. 

Also, a February 2020 Nasdaq analysis illuminates the link between data center growth and cloud  computing. As well-known companies invest in new data centers or expand existing ones, the authors speculate that such activity will continue to spur the success of data center REITs. 

Some brands simultaneously plan add-ons and new buildings. Microsoft recently announced its intentions to move ahead with a $28 million expansion to an existing data center in San Antonio, Texas. It also wants to erect two new data centers at the site. 

A recent survey from Vertiv and Forbes Insights showed that 71% of IT decision-makers said their current data centers did not meet their needs. Such a result suggests inadequate planning, but it also means that construction in the data center market should continue, which would be a good sign for people who invest in data center REITs.

India Is Shaping up as an Appealing Data Center Real Estate Market

As 2020 continues, evidence shows that India may emerge as a powerful presence for enticing real estate investors who are interested in data centers. One of the reasons for that is that the country has local data storage requirements for financial information. As such, many companies cannot have their files stored in other countries.

Also, numerous multinational and local brands are either setting up data centers in India or expanding them. They recognize a need in the market and want to fill it. Investors should keep an eye on what develops in the country and perhaps set their sights on investing there if the growth continues. 

Compelling Developments in Store

This overview shows that real estate investors have much to watch for in the real estate market. These trends and others could impact whether those entities decide to invest and when.

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