MAP Market Insight
The digitalization of more and more areas of modern life is leading to an ever-increasing demand for computing power and more intensive data traffic via the internet. This requires enormous growth in the underlying infrastructure, such as data centers and connection nodes. Against this backdrop, the fundamentals of the data center asset class are good from the perspective of the real estate industry and offer solid prospects for a further increase in demand. Stability is also ensured by the fact that the costs of migrating a data center are very high and therefore the reliability of rental agreements over the usual term of at least 10 years is high. This guarantees a stable cash flow.
On the other hand, the barriers to entry into the sector are quite high. Construction costs are considerable due to the complexity of the buildings, management is very complex and generally only profitable for specialized operators. In addition, the rapid technological development of the sector leads to short life cycles and high maintenance and modernization costs.
In a series of two Market Insights, we analyze the market for data centers and supplement these with the latest findings presented at the Data Center Strategy Summit 2023, the industry gathering hosted by the Vogel IT Academy in Bad Homburg in October 2023. As usual, we look at the context from the perspective of a real estate investor.
In this first part of the series, we provide an overview of market developments in the recent past and explain the reasons that justify the overall positive outlook for the future. We analyze the global market and the German market in particular. In the upcoming second part of the Market Insight, we will look at selected topics that will become increasingly important on the German market in the future. These include the challenge of maintaining the security of a low-carbon energy supply with high growth, issues relating to the path to climate neutrality and increasing energy efficiency in the sector and much more.
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