Private equity investors are transforming the data centre landscape, report finds

Private equity (PE) and sovereign wealth investors (SWI) are providing new impetus to hyperscale data center investments, and have become key players in the introduction of new facilities and the acquisition of existing data centers.

This is according to DCP's latest research. The report finds that additionally, established data center providers, including Digital Realty and Equinix, are using partnerships with PE and SWI funds to fund entry into new markets or provide investment in dedicated hyperscale data centers (as xScale Data Centers).

The DCP Private Equity - Sovereign Wealth Investors - Data Center Investment report concludes key findings, including the following:

• Privacy equity providers investing in data centers are now doing so at a large scale.
• The number of new private equity investors is increasing.
• Private equity investors now account for a large share of new data center developments.
• Most new data centers that are being built in new metro markets and are being built by private equity investors.
• The data center industry is set for further forecast growth as more private equity investors enter the space.

According to the report, the scale of the data center investments can be huge - running into billions of US dollars for a large campus-based facility - such as the Start Up campus (Sines 4.0) in Portugal at US$3.97 billion when complete.

DCP states that real estate companies such as Lendlease are creating joint ventures with a SWF (Sovereign Wealth Fund) or more often via a private equity partner to spread the cost and risk of large hyperscale data centers investment in new markets.

In a number of country markets, DCP finds that private equity investors account for the majority of new data center developments - for example boosting data center power capacity by 6 times in Portugal, 1.9 times in Ireland, almost 1.5 times in Brazil, almost 1.2 times in Indonesia and more than 0.8 times in Poland.

It is significant that private equity funds are willing to invest in large-scale hyperscale facilities in relatively new markets, with new power per facility of 50 MW to 100 MW or more - whilst established data center providers typically invest in their existing metros as a lower risk strategy.

The report also finds that private equity funds are focusing on markets where there is a shortage of high-quality hyperscale data center capacity with new space being built outside the main capital city area.

This means they can advantage of lower land costs. DCP states, in effect private equity funds can take more risk on a longer time-frame than the established data center provider.

Finally, DCP forecasts that the amount of private equity data center investment is forecast to increase from US$8 billion up to US$13.3 billion from the end of 2021 to the end of 2025 - an overall growth of 66% over the four year period.

Private equity funds have identified the data center segment as able to generate above average growth from cloud and content users coupled with stable tenants, with low churn levels, and are attracted to those markets with low hyperscale data center penetration, according to DCP.