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Data centres are becoming an important asset for institutional investors seeking to diversify their real estate portfolios.

The data centre asset class was valued at an estimated US$301.8 billion as of 2023, according to researcher P&S Intelligence, which also noted the value is expected to increase to US$622.4 billion by the end of 2030. Indeed, a report by Hazelview Investments found the cost to establish a modern data centre capable of producing 100 megawatts could reach $850 million or higher due to inflation pressures and limited available land and power.

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Demand for data centres has grown due in part to the lingering reliance on remote workplaces resulting from the coronavirus pandemic as well as a boom in artificial intelligence ventures, says Samuel Sahn, managing partner and portfolio manager at Hazelview Investments. These infrastructure assets host computing services to store and manage significantly large amounts of digital information.

“[Institutional investors are] interested [in] and want exposure outside of traditional property types,” he says, noting AI solutions require even more space than conventional data centre uses, such as cloud computing technologies, social media data storage and online gaming infrastructures.

Hazelview’s report noted there are three different types of data centres — retail co-location, enterprise wholesale and hyperscale — designed for different types of customers, ranging from small companies to businesses with larger-scale data centre solutions to the biggest technology corporations.

As employers enhance their network capabilities and migrate onsite servers to the cloud, there has been a significant increase in demand from enterprise users in these spaces, Sahn adds.

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However, he says the environmental footprint for modern data centres can be significant, as the structure relies on high amounts of energy and water to guarantee services, which is why many data centre operators look to secure access to electricity even before breaking ground on a potential new location. What’s more, these centres’ access to power is usually negotiated with local municipalities that tend to have existing constraints on their power grid.

Over the next five to 10 years, Sahn expects to see more operators leaning heavily on renewable energy solutions. “There’s going to be more green solutions that are going to filter through to the power equation around data centres.”

North and South America account for the largest market of power capacity, representing 48 per cent of the supply power market, said Hazelton’s report, noting the Asia-Pacific region, which currently accounts for 25 per cent of the supply power market, will overtake Europe, the Middle East and Africa (27 per cent) due to under-developed territory opportunities.

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