Virtual boom good for industrial real estate
● Demand for industrial-zoned land for data centres is on the rise in SA and the rest of Africa, as 5G technology gains momentum around the world and more services and commerce move online.
Johann Nell, national asset manager for industrial property at Redefine Properties, said the group has experienced “quite a bit of activity in the Western Cape and Gauteng” in terms of demand for land for the development of data centres for data service providers.
The group has sold about 10ha of industrial land for data centres in the industrial areas of Atlantic Hills and Brackengate 2 in the Western Cape, and leased a further 3ha.
Currently under negotiation is the sale of 10ha for data centres, of which the largest portion is in Gauteng at the S&J Industrial Park in the southern part of Germiston near the intersection of the N3 and M2. Redefine said this new industrial park holds about 1.6million square metres of developable land.
Nell said data service providers prefer to buy the land or sign a long-term land lease, in terms of which the client owns all infrastructure installed on the site.
Redefine declined to disclose the names of the clients who have purchased or leased the land.
Nell said data centres are heavy users of power and have helped to pick up the slack from manufacturing, which has been in steady decline for a number of years.
“About five years ago there was some concern about what you would do with all this power infrastructure in these industrial nodes because manufacturing had really declined,” said Nell. “Since the likes of Amazon Web Services started establishing themselves in SA, they are picking up the slack where you would have thought you had redundant power on major substations.”
Nell said he believes that as technology improves there will be more demand for data. This will drive not only fibre rollout but also the need for online document storage.
Globally, 5G technology “is driving the internet-of-things, from smart cars to online shopping to online meetings and data streaming for news and entertainment. The market is expanding exponentially and behind that you need the servers and technology,” said Nell.
Steve Brown, CEO of Fortress, which has a large industrial and logistics property portfolio, said the group is selling land in one of its big logistics parks near Johannesburg’s OR Tambo International Airport to a data service provider to develop a data centre. Fortress holds about 2-million square metres of developable logistics land.
Brown, who declined to disclose the name of the data service provider, said data centres are “very capital intensive” and “hugely expensive and difficult to build”.
Because of the large capital layout, it is “entirely possible we could see a data centre” real estate investment trust (REIT) come to market in SA in future because of the need to access funding.
Fortress, which also develops industrial properties, said data-centre development is too “specialised for us” but that it can assist with turnkey developments. Mostly it would want to rather sell land to the data centre user, which would then secure the services of a specialist developer.
Stef Contardo, CEO of industrial property developer Improvon, said the development of data centres is definitely a “new trend in the market”. He said he could also see data centres becoming a “class of REIT” that could find traction on the JSE, especially if there is sufficient demand.
“Once the data providers have invested in the property, you have a tenant for a long time,” said Contardo. “Vacancies would be relatively low and the returns should be good over the long run. It would form the basis of quite an attractive class of investment.”
Contardo said bigger groups like Amazon prefer to own the land and the infrastructure on it, but there are other data service providers who are willing to enter into leases for the land.
Jon Tullett, senior research manager at the International Data Corporation, said data centres are “popping up like mushrooms” all over Africa, including in Kenya and Nigeria.
He said that most of the time big data providers prefer to own their properties, including the land, because of the extensive sums of money that are invested in them.
“For a big player, any time someone else has any control over infrastructure there is a risk,” said Tullett. He said sometimes data service providers are willing to share space or “co-locate”, but this generally applies to those wanting to enter a market quickly.
Tullett said companies such as Amazon, for instance, prefer to search for the real estate first and own their own data centres.
Amazon has two data centres in Cape Town, while Teraco has four nationwide, with its larger sites in Johannesburg.