Bold Investors Like Goldman See Opportunities In Data Centres

For traditional real estate investors, getting involved in the data centre sector can be hard. But investors looking to back and build companies can find ways into a sector where occupational growth is set to continue to rise.

That was the view of panellists at Bisnow’s first London Data Centre Investment Conference & Expo, hosted by Sungard Availability Services.

Building and buying individual assets is difficult, Greenberg Traurig shareholder Kemal Hawa outlined in a keynote address: The service agreements taken by occupiers don’t share many of the properties of a typical real estate lease, and thus can make individual assets hard to finance with lenders.

But firms with a private equity mindset are backing data centre companies. One of them is Goldman Sachs, which is looking at opportunities to build and back companies in Europe after successes in other parts of the world, conference attendees heard.

Goldman and TPG were part of a consortium of investors which in April provided A$481M (£257M) of equity and debt to Australian data centre company AirTrunk. The company is building data centres in its home market and is branching into Asia with a new facility in Singapore. It is looking to raise new investment, according to Deal Street Asia, and could be valued at more than £1B.

In 2017 Goldman also provided a $15M (£12M) loan to Russian data centre company IXcellerate which can be converted into equity in the company.

“As this industry grows, we think you will see more M&A,” Goldman Sachs Managing Director Fabrizio Grena said. “We’ve set up companies in Australia and Russia that deal with co-location and development, and it is something we are looking at in Europe, too.

“All of the big U.S. operators are coming to Europe and are interested in buying existing companies,” he added.

The need for data centres is inevitably going to grow, given the way that technology is advancing.

“You talk to customers, and 10 years ago they might have said to you, I think I need 10 facilities,” ServerFarm Business Leader Arun Shenoy said. “Today they think they might need 1,000, but they don’t know where they need them.”

It will be impossible, for logistical and technical reasons, to satisfy this ever-growing demand in traditional large data centres, so edge and point of presence data centres — smaller facilities that are usually nearer the source of data generation or usage — will play a big part in meeting supply.

Edge data centres in particular are operationally intensive businesses, so are more likely to be provided by private equity firms than real estate companies, Grena said.