Global investment in data centers more than doubled in 2021

Law firm DLA Piper's latest global survey has found that the total investment in data center infrastructure worldwide rose from USD $24.4 billion in 2020 to USD $53.8 billion in 2021.

The report, Data Center Investment Outlook, also found the total number of data center transactions increased by 64% in the same period, up from 69 in 2020 to 113 in 202.

The company says record-breaking demand for data centres has been driven by the growth of hyperscalers, such as Facebook, Google and Microsoft, which have thrived amid the transition to cloud service.

It says that itself has been escalated by the pandemic, and this growth is expected to continue, with 45% of developers, 56% of debt providers, and 67% of equity investors planning to invest in four or more data centre projects in the next 24 months.

DLA Piper says that's up from 10%, 27%, and 37%, respectively, who invested in four or more data centers in the past 24 months.

The report also found that although data centre investment has been mainly targeted in the United States and Europe, the APAC region is expected to be the largest source of future growth. Despite 70% of respondents considering US data center assets to be overvalued, the country accounts for almost half of global hyperscale capacity and has the biggest pipeline of data centre projects.

However, 79% of respondents chose China as one of the top three countries they expect to see the biggest growth in investment over the next 24 months, followed by India (56%) and the US (54%). DLA Piper says this shift towards investment in APAC can be attributed to the rise of Chinese hyperscalers, including Alibaba, Tencent and ByteDance.

Energy security and ESG viewed as significant factors in data center investment

DLA Piper says 90% of equity investors, 89% of developers, and 85% of debt providers would pay a premium to invest in a site with a good and cost-effective power supply.

Global gas and electricity prices have soared in the past 12 months, significantly impacting data centre operating costs. By region, senior executives in APAC are most likely to pay a premium for energy security, at 98%, compared to 82% in Europe and 80% in the US.

The report suggests APAC's willingness to pay a premium for energy security may result from rolling power outages in China and India in the second half of 2021.

ESG is another key area for investment. According to the report, almost all senior executives (94%) say that scrutiny and due diligence surrounding ESG issues has increased in the past 24 months. So much so that 75% of debt providers and equity investors and 70% of developers would pay a premium to invest in a site with very good to excellent ESG credentials.

However, the level of commitment to ESG varies between regions. For example, the survey found that 84% of those in Europe and 80% in the US are willing to pay a premium for a site with very good to excellent ESG credentials. For APAC, that's just 56%.

DLA Piper says the increased importance of ESG in Europe and North America reflects regulatory requirements and industry-led initiatives such as the Climate Neutral Data Centre Pact, launched in January 2021. The agreement set a target to achieve climate neutrality in the European data centre sector by 2030. The company's partner and global co-chair of data protection, privacy and security practice Carolyn Bigg says this report reveals record-breaking investment in data centers fueled by the growth of hyperscalers and the transition to cloud services that has been accelerated by the pandemic.

"Although there is no apparent end to this demand, data centres are energy intensive concerns and, therefore, rising energy prices and the question of security of supply are playing an increasingly important part in the decision process of where and how centres are developed," she says.

"An energy-efficient data centre is attractive to customers and easier to commercialise and if the energy used is also renewable then it becomes an even more attractive proposition from an ESG perspective, especially to senior executives in both Europe and North America."

DLA Piper's partner and co-chair of its global real estate sector Susheela Rivers says there are different attitudes toward ESG considerations between Europe and the US, with their tougher environmental regulations and industry-led initiatives, compared to the Asia Pacific region.

"However, this is coupled with increased interest in expansion in China and India where the enforcement and monitoring of environmental standards is less stringent," she says.

"It will be interesting to see if any geographical shift results in a change in industry attitudes towards how data centers are developed in the future."