Acquirers have spent more than $3.5 billion in data center transactions in the two years since the financial crisis took hold, according to Jim Kerrigan of Grubb & Ellis, who this week provided an analysis of recent investment in the sector. The Grubb & Ellis data reinforces a trend we’ve highlighted : The data center industry has been one of the most resilient performers during the economic downturn, buoyed by the relentless growth of the Internet, and the capacity for IT operations to help streamline costs for budget-conscious companies.
Kerrigan, the Director of the National Data Center Practice at Grubb & Ellis, put together a chart of recent industry deals, along with the transaction value as a multiple of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). A key driver of this activity has been the strong performance of data center companies and assets compared to other investment options. See Data Center Deals for 2010 for additional background on recent M&A activity.
“Data centers are one of the only types of real estate to have experienced any appreciation during the last three years,” writes Kerrigan, “The state of data center space is vastly different than that of the late 90s, and most experts believe that it would take more than $5 billion of investment to over-saturate the market. That is unlikely to occur during the next 10 years.”
Kerrigan notes that vacancy rates at data center have remained steady as more than 5.5 million square feet of stand-alone third-party data center space has been built in the past three years. Grubb & Ellis projects that demand will remain steady over the next two years, with digital television and social networking emerging as key demand drivers in 2011, while demand from the health care industry is likely to surge in 2012. See the Grubb & Ellis data center blog for the complete analysis.