The Rise of Data Centres: A New Era in Asset Valuation

The Rise of Data Centres

The commercial real estate landscape is undergoing a seismic shift. While traditional sectors such as office and retail face declining demand, data centres have surged ahead, establishing themselves as a dominant and highly lucrative asset class. The explosion of data consumption, driven by AI and cloud computing, has fuelled this rapid expansion, making data centres one of the most attractive investments in today’s market.

The Driving Forces Behind Data Centre Growth

Over the past 15 years, the demand for data storage and processing has grown exponentially. This trend shows no signs of slowing down, particularly with the continued rise of AI and machine learning applications. According to Statista, global data consumption is expected to nearly double from 150 zettabytes in 2024 to an astonishing 394 zettabytes by 2028.

A key indicator of this growth is NVIDIA’s meteoric rise. As a leader in AI computing, the company’s market value has skyrocketed by 900% in just two years, highlighting the vast potential of AI-driven data processing. This revolution is not just reshaping technology—it is redefining real estate investment opportunities.

Segro’s Role in the Data Centre Boom

Property giant Segro, the UK’s largest Real Estate Investment Trust (REIT) by market value, has strategically positioned itself to capitalise on this demand. With the creation of Europe’s largest hub of data centres in Slough and the development of new fully fitted centres across the continent, Segro is reinforcing its role as a key player in the data centre market.

In its latest financial report, Segro announced a 7% increase in net rental income to £628 million for the year ending 31 December. The additional benefit of lower interest rates drove adjusted pre-tax profits up 15% to £470 million. Despite a share price drop over the past year, Segro remains confident in its growth prospects, particularly as demand for modern, sustainable industrial and data centre spaces continues to rise.

Capital Value Returns: Outpacing Traditional Sectors

Even as mainstream commercial real estate markets experience a downturn, data centres continue to demonstrate strong capital value returns. The RICS Global Commercial Property Monitor forecasts a 3.2% increase in global data centre capital values over the next 12 months, outstripping returns from other sectors.

Leasing activity in the sector has doubled year-over-year, setting new records across the US, Europe, and APAC. With revenue per available metre increasing by approximately 8% annually across key markets, investment in data centres is expected to remain robust. Projections suggest that performance metrics will continue to climb, with revenue per square metre set to rise by 12% in 2024 and over 10% in 2025.

Challenges and the Future of Data Centre Locations

Despite this positive outlook, the rapid expansion of data centres faces significant challenges, particularly in energy consumption and sustainability. In 2022 alone, data centres consumed an estimated 460 TWh globally—a figure expected to exceed 1,000 TWh by 2026, placing enormous strain on power grids.

This energy demand, coupled with high land and construction costs, is prompting a shift in development locations. Established hubs like Amsterdam, London, and the Bay Area are facing power constraints, leading investors to explore alternative markets such as Prague, Berlin, and the US Midwest, where energy availability and land costs are more favourable. The same trend is expected in APAC, with Southeast Asia emerging as a key target for new data centre developments.

The ESG Consideration: Balancing Growth and Sustainability

While data centres present an unparalleled opportunity for investors, they also raise concerns about sustainability and environmental impact. The industry is under increasing pressure to transition towards renewable energy solutions to mitigate its carbon footprint. Companies investing in innovative cooling technologies, energy-efficient infrastructure, and sustainable power sources will be better positioned to navigate regulatory challenges and long-term sustainability goals.

Implications for Asset Valuation

As the data centre market continues to evolve, asset valuation methodologies must adapt. The increasing diversification of data centre locations means valuation will depend not only on traditional real estate factors like land and infrastructure but also on energy accessibility, sustainability measures, and regulatory frameworks.

With data centres poised to outperform traditional commercial real estate sectors, investors and asset managers must stay ahead of market shifts to capitalise on emerging opportunities. Understanding the nuances of data centre valuation will be critical in assessing long-term investment potential.

Contact Our Experts

The rapid rise of data centres presents both opportunities and challenges in asset valuation. Whether you are looking to invest in this booming sector or need insights into emerging valuation trends, our industry experts at Hickman Shearer are here to help. Contact us today to discuss how we can assist with your asset valuation needs in this evolving landscape.

About Hickman Shearer

At Hickman Shearer, we specialise in delivering exceptional RICS and ASA certified capital asset valuation, management, and sales services. Our expertise span a wide range of global industries, ensuring that we provide tailored and insightful commercial valuations and equipment valuation services to meet your unique needs. With a strong track record of delivering robust and independent advice, Hickman Shearer is committed to supporting businesses in achieving their strategic objectives. Find out more here >> About Us

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