Considering investing in data center real estate? According to many industry experts, it’s a smart idea. As digital data becomes increasingly critical to both business operations and end consumers, our national need for data centers is continuing to rise as well. This growing demand presents a hot opportunity for commercial real estate investors seeking to earn steady, long-term returns.
The Rise of Data Centers in the U.S.
As more companies transition to cloud computing, it’s easy to assume that equipment storage needs would decrease. That said, all of this data still needs to live somewhere, hence the rise of data centers. These warehouses securely store and process data for public cloud providers like Facebook, Amazon, and Google, but also for smaller companies as well.
The demand for cloud storage is rising rapidly, which has led to a boom into commercial real estate designed for this purpose. Amazon Web Services (AWS) currently has cloud infrastructure in 22 regions, and has predicted that new data centers may be needed in hundreds of regions to keep up with demand.
This forecast aligns with recent reporting from the International Data Corporation. According to their report, public cloud spending will double from $229 billion in 2019 to nearly $500 billion in 2023, a span of just four years. Much of this investment will go towards building new data centers near population centers, in order to effectively serve consumer needs. Most of these data centers will range between 50,000 and 100,000 square feet.
Smaller existing data centers are also being renovated to accommodate new technology and innovation. Yet less than 5% of the 1000+ data centers in the United States have been renovated since 2000. In other words, much of the market potential for commercial real estate investors remains untapped.
An Unprecedented Opportunity
One interesting consideration is how the COVID-19 pandemic may impact the demand for data centers in the long term. More employees are currently working from home than ever before in U.S. history, and while many of these workers will head back to the office when it’s safe to do so, other companies may continue to embrace the cost-saving benefits of a remote workforce.
As a result, more companies will seek to offload their in-house cloud storage to offsite data centers, in order to keep up with the mass quantity of data being processed. Combined with Cisco’s prediction that cloud data centers will process a whopping 94% of U.S. workloads in 2021, this shift could create a golden opportunity for those who are considering investing in data center properties.
Also consider the fact that there will be an estimated 20 billion devices connected to the Internet of Things by the end of 2020, and that this number is expected to balloon to 50 billion by the end of the decade. With more devices drawing data from cloud services comes the need for even more facilities to store and distribute that data.
Data centers are experiencing a boom right now, and expert predictions indicate that this surge in demand will continue for the foreseeable future. Investors interested in riding the data center wave should consult with a qualified commercial real estate expert before moving forward with any plans, to help ensure maximum returns.
To learn more about how CRESCO, Greater Cleveland’s leading commercial real estate company, can help you with your property needs, contact us at 216.520.1200, or fill out the form below. A CRESCO professional will contact you shortly.