On Wednesday, Ascendas REIT, Singapore’s largest industrial and business space real estate investment trust and manager of properties valued at S$13.7 billion (about $10 billion), announced plans to acquire a portfolio of European data centers from subsidiaries of Digital Realty Trust, the world’s second largest data center REIT and holder of 8 percent of the global server colocation market. The portfolio, which spans 11 data centers in the U.K., Netherlands, France and Switzerland, is to be sold for S$904.6 million (about $672 million), marking Ascendas REIT’s first-ever investment in European digital real estate.
“This acquisition gives us a unique opportunity to own a portfolio of well-occupied data centers located across key markets in Europe,” Ascendas REIT CEO William Tay said in an official comment. “It complements our existing data center portfolio in Singapore and will increase the sector’s contribution to S$1.5 billion or 10 percent of investment properties under management. We see good potential in the data center business and will continue to source and make further acquisitions when the opportunities arise.”
Ascendas expects data center demand to increase in coming years, driven by increasing resilience on data and accelerating digitization across multiple industries. The demand outlook is supported by more widespread adoption of cloud computing, an increasing number of internet users and mobile devices, increasing data storage requirements, and the emergence of several new, transformational trends, including 5G, Internet of Things (IoT), big data analytics, streaming media, and more. Ascendas REIT also expects European data sovereignty laws (as outlined in the EU’s General Data Protection Regulation (GDPR) to benefit European data centers, in particular, due to regional storage requirements.
As was indicated by Ascendas CEO William Tay, the European acquisition will boost the REIT’s data center allocation to 10 percent (S$1.5 billion) of its S$15 billion total investment portfolio. The deal will also diversify its geographic exposure, with 60 percent of its total portfolio in Singapore, 14 percent in the U.S., 14 percent in Australia and 12 percent in the U.K./Europe.
Most (93 percent) of the target portfolio properties–which are occupied by 14 “high-quality and established customers,” are located in London, Amsterdam and Paris, which are the leading data center markets (first, third and fourth, respectively) in Europe. Ascendas cites data from commercial real estate investment firm CBRE that found take-up of data centers in Europe’s strategic FLAP markets (i.e., those in Frankfurt, London, Amsterdam, and Paris) easily outpaced new supply in 2020, tightening the vacancy rate to 19 percent (down from 21 in 2019). This figure is expected to fall once again, to a projected 17 percent in 2021.
Research released earlier this year from private industry research provider ResearchandMarkets found that data centers in the FLAP cities are currently able to charge a substantial price premium compared to the national average for colocation space in their respective national markets. London and Slough lead the segment with a 16 percent premium to the U.K. average. By comparison, that research found, Frankfurt data centers typically charge an 11 percent premium, while server space in Paris is seven percent more expensive than the national average.
