Data centers are potentially an excellent real estate investment for buyers who know where to look. Thanks to the AI revolution and demand for information processing, facilities equipped to house server racks and computer towers are in high demand. What will be the emerging trends in real estate 2023?
From the outside, most data centers seem utterly nondescript. Many reside inside former offices or purpose-built buildings with secure locations.
With that said, they continue to play a pivotal role in society’s evolution. The facilities are making waves in every field imaginable, from materials science to sociology. And they are doing it because of their ability to house machines that can crunch unfathomable quantities of data.
But why are data centers a good real estate investment? You’re about to find out by checking out the emerging trends in real estate 2023.
Steady Income Generation
One reason is their data income generation. Unlike many other markets in the sector, data centers operate on long-term leases. Clients might sign up for five years or more to get the best deals, especially if they believe their businesses are viable long-term.
For this reason, investors often make decent returns. While monthly yields might seem comparatively low, ROI including void periods is often high.
Data centers are also fast becoming essential infrastructure. Companies, governments, and individuals all rely on them to maintain operations and services.
Again, this means that they benefit from “autonomous demand.” Owners don’t need to sell their benefits to attract customers. Eventually, a business or brand will show up at the right price.
Limited Maintenance Costs
As The Ultimate Guide to Raised Access Flooring Systems Maintenance and Care by Computer Floor Pros points out, data centers require some maintenance, but less than you think. Most facilities are custom-built and minimalist, requiring few, if any modifications. Those residing in commercial offices often require small changes, but not significant ones, meaning you can welcome new tenants in weeks, not months. And you can afford to charge competitive rentals, securing business for you.
Positive Industry Outlook
Another reason to invest in data centers is the positive industry outlook for investors. Experts believe that data centers will play an increasingly valuable role in the digital economy, meaning that demand is likely to be high today and in the future.
The market could be similar to the 1980s office boom, or the drive toward malls and casinos in the 1990s. The new use case is catching many long-term industry participants off-guard, meaning there are opportunities for outsized returns going forward.
Related to the last point, demand for real estate development is currently off the charts. Companies are desperate for serviced buildings that can help them meet the demands of the public who are looking for faster and better services across a range of tech and AI-related domains.
Finally, many investors are putting money into data centers as an inflation hedge. Leases often take into account the underlying inflation rate when setting prices over the course of the contract. And real estate returns are often independent of inflation because of these clauses.