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01/10/20 Five 9s Digital Research

2019 DATA CENTER REAL ESTATE ACQUISITIONS REPORT - YEAR END


Data center 2019

Data Center Activity Remained Robust in 2019

Data center real estate acquisition activity for the full year of 2019 yielded approximately $2.763 Billion of data center real estate transactions totaling 7,989,202 SF. In comparison, full year 2018 total activity was $3.089 Billion of transactions and 8,055,356 SF of total space.

Pricing

Interest rates came down throughout 2019 after several bumps in 2018. Due to current borrowing costs, cap rates have gradually compressed over the past 12 months for good quality data center assets. Data center assets in Tier 1 and Tier 2 markets are trading in the 6%-7% cap rate range pending overall lease dynamics, asset quality and market fundamentals. Data center assets with shorter term leases, multi-tenant occupancy and lack of clear tenant credit are trading in 6.75%-7.5% cap rate range with various factors that push acquisition pricing outside of this range.

M&A

M&A activity continued to be robust with an estimated 18% increase in the number of deals for the first half of 2019. Since 2015, over 300 deals have closed with an aggregated estimated value of over $65B, which is evenly mixed between public and private buyers.

Trending

The enterprise sector continues to gradually divest of their corporate-owned data centers as they transition IT workload to the cloud and other third-party data center operator solutions. Corporations continue to see value in selling their data centers to high quality data center operators and right-size their utilization in the facility while transitioning the day-to-day operations, capex and opex to an a data center operator. Data center operators recognize immediate value in these transactions as they gain an anchor tenant via the partial-leaseback and have additional data center space to accommodate new customers.

Recent data center sale-leaseback or partial-leaseback transactions include PNC Bank, Bank of America, Perspecta (DXC), NTT, Ensono (WiPro), Sungard AS, and Nationwide Insurance with several other deals pending with closings expected in Q1 2020.

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