Technology has disrupted many industries but commercial property isn’t one of them. Buildings are still buildings, and the predictability of the rents is the source of the stable, reliable returns property trust investors demand. Disruption is, however, creating an opportunity with all the attractions of traditional commercial property plus richer growth prospects.
How so? Think of the data – pictures, documents, contacts, emails, music – on your phone, laptop and desktop computer that’s now “in the cloud”, which, in reality, is a large, bespoke, air tight, air conditioned facility somewhere on planet earth, housing networked computers storing it all securely and cheaply.
Companies once stored this data themselves, using their own servers and employing IT staff to manage them. Advances in Internet speed, greater processing power and the increasingly specialised nature of IT support has now made third-party providers more attractive.
This has seen the emergence of a new kind of property trust; data centre landlords that generally lease out a building to a data centre operator, which manages the servers and partitions data centre capacity to the end client. This is a low risk venture for the landlord, delivering stable returns. Alternatively, a landlord can lease out data centre space directly to the client, allowing them to store their own servers in the building. This involves a little more operational risk in return for a typically higher rent.
The APN Asian REIT Fund has recently been holding a position in one such landlord, which we’ll discuss in detail in a few weeks. First, it’s useful to understand why this emerging sector is more attractive than many investors believe.
1. Data usage is growing exponentially
Growing internet penetration rates, online commerce, social networking, file sharing, and financial transactions, all of which need to be stored and backed up, means data usage is growing exponentially. This table from Cisco tells the story.
Table 1. The Cisco VNI forecast: historical internet in context
|Year||Global Internet Traffic|
|1992||100 GB per day|
|1997||100 GB per hour|
|2002||100 GB second|
|2007||2,000 GB per second|
|2016||26,600 GB per second|
|2021||105,800 GB per second|