What is a Data Center?
A data center houses computer systems and associated components like telecom infrastructure, servers, and storage. It stores, processes, and manages vast amounts of digital data, supporting applications, databases, and critical business information. Businesses, governments, and any entity needing secure data access rely on data centers.
Designed for high security and resilience against threats like theft, fire, and cyberattacks, data centers ensure continuous operation with redundant power, cooling, and backup network infrastructure for optimal uptime and availability.
Data Centers Explained
Types of Data Centers
A variety of data center types and service models exist, classified based on ownership (single or multiple organizations), integration into existing data center topologies, the computing and storage technologies employed, and their energy efficiency levels. These are the types of data centers Aphorio Carter invests in:
- Enterprise Data Centers
- Wholesale Data Centers
- Colocation Data Centers
- Switch Centers
What Makes Data Centers Good Investments?
Data centers offer several characteristics which may make them an attractive investment option:
Mission-Critical Infrastructure
Properties that are “essential” to a tenant’s success and typically serve as a key asset in the tenant’s revenue generation activities.
Inflation Hedge
Annual rent escalators are typically built into data center tenant leases, which tend to be long-term leases.
Credit-Worthy & Long-Term Tenants
Many tenants are Fortune 500 companies or national/regional operators supporting these companies and have long-term triple-net leases in place which provides a stable income stream.
Limited Supply
Lending for speculative developments is virtually nonexistent, forcing developers into an all-equity capital stack. Data centers require significant upfront capital investment, which creates high barriers to entry for new competitors. This severely limits new projects and keeps supply muted.
High Renewal Rates
The average shell investment ranges from $250-$350 per square foot, with tenants usually investing 2-3 times that in infrastructure. Renewal rates often surpass 95%, ensuring predictable revenue streams for easier forecasting and management.
Skyrocketing Demand
With the exponential growth of digital data, data centers have become essential for storing, processing, and managing large volumes of data. The increasing reliance on cloud computing, big data analytics, and the Internet of Things (IoT) is driving the need for more data centers.
Historically Stable
Data centers have been historically stable, as witnessed during the COVID-19 pandemic. The usage of cell phones, credit cards, the internet, and other data center-dependent devices are not affected during economic downturns.
Scalability
Data centers can be easily scaled up or down to meet changing demand, making them a flexible investment. As demand for data storage and processing increases, data centers can expand their capacity to meet this demand, providing investors with growth opportunities.