Clouds and their silver linings: Risks and opportunities in data center investment

Many characteristics of data centers make them appealing investments.

Attractive supply-demand fundamentals, high barriers to entry, and valuation attributes that are both defensive, and complementary, relative to traditional real estate portfolios are all attributes of the sector.

As with other niche property types, however, data center investing includes some unique risks. These potential hazards have left many investors on the sidelines, as they seek to better understand this fast-growing property sector.

When considering data center investing, technological obsolescence is one of the first potential risks that comes to mind. Given the breakneck speed of technology change, this is a reasonable concern for potential data center investors.

The servers and other equipment most susceptible to technological obsolescence, however, are owned, maintained and managed by tenants — not data center owners. In addition, the fastest-growing segment of data center