As the world continues to embrace digital transformation, the demand for data centres is skyrocketing.
With Singapore establishing itself as a hub for data centres in the Asia-Pacific region, investors are increasingly looking at Singapore REITs (S-REITs), with exposure to data centres, as a lucrative investment opportunity.
However, S-REITs with data centres have been struggling over the last year amid concerns on potential vacancy risks.
News of tenants cutting back on space, and the risk of their financial health amid the collapse of Silicon Valley Bank, have also raised concerns on leasing risks for data-centre S-REITs.
With so much uncertainty in the near term, I believe this has presented an opportunity for investors to buy into S-REITs with data centre exposure at reasonable value for their long-term investment portfolio.
So, here are five reasons why S-REITs with data centre exposures are a smart buy right now.
1. Strong demand for data centres
The exponential growth of data-driven technologies – such as cloud computing, Artificial Intelligence (AI), and the Internet of Things (IoT) – has led to an increased need for data centres to store, process, and manage this information.
This has created strong demand for data centres across the globe, with Singapore being a prime location due to its strategic position in the Asia-Pacific region, robust digital infrastructure, and stable political environment.
Despite the near-term headwinds faced by the technology companies, long-term structural growth remains intact as smaller businesses migrate to the cloud.
The rise of AI will further drive demand for data centres.
By investing in Singapore REITs with exposure to data centres, investors can capitalise on this growing demand.
2. Attractive rental yields
Data centres command premium rental rates due to their specialised requirements, including high power capacity, advanced cooling systems, and robust security measures.
As a result, Singapore REITs with data centre exposure can provide investors with attractive rental yields compared to traditional commercial and retail properties.
This offers the potential for steady income streams, making these REITs an appealing investment option.
3. Government support and incentives
The Singapore government recognises the importance of data centres in supporting the country’s digital economy and has introduced several initiatives and incentives to attract more data centre investments.
These include tax exemptions, grants, and customised assistance packages for data centre operators.
This government support has further fuelled the growth of the data centre industry in Singapore and bolstered the appeal of REITs with exposure to this sector.
4. Growing global connectivity
As a critical node in the global data network, Singapore is well-positioned to benefit from the ongoing expansion of international connectivity.
Singapore is a hub in the submarine networks for connections from East Asia to South Asia, Persian Gulf, Mediterranean, and Europe regions, and vice versa.
Many submarine cables have been developed and are being developed into Singapore.
The Info-communications Media Development Authority (IMDA) is the lead agency for facilitating the deployment of submarine cable systems into Singapore.
This includes the deployment of submarine cables and the establishment of strategic partnerships with global data centre operators.
As of September 2016, Singapore is connected to 17 active submarine cable systems with a potential bandwidth capacity of more than 410 Tbps.
By investing in Singapore REITs with data centre exposure, investors stand to benefit from the increasing global connectivity and the country’s growing reputation as a leading data centre hub.
5. Defensive nature of data centres
Data centres are considered a defensive asset class due to their long-term lease structures and the necessity of their services for businesses across various industries.
This makes them less vulnerable to economic downturns compared to other property sub-sectors.
Singapore REITs with exposure to data centres can offer investors a relatively stable and low-risk investment option, making them a valuable addition to a diversified portfolio.
Opportunity to ride the digital wave with S-REITs
Investing in Singapore REITs with exposure to data centres offers a unique opportunity for investors to capitalise on the growing demand for data storage and management services.
With attractive rental yields, government support, increasing global connectivity, and a defensive asset class, these REITs present a compelling case for inclusion in any investment portfolio.
Don’t miss out on the opportunity to ride the digital wave and consider adding Singapore REITs with data centre exposure to your investment strategy.
If you are looking for a pure-play data centre S-REITs, you can consider Keppel DC REIT (SGX: AJBU) or Digital Core REIT (SGX: DCRU).
Meanwhile, if you prefer a more diversified S-REIT with exposure to data centres, Mapletree Industrial Trust (SGX: ME8U) and CapitaLand Ascendas REIT (SGX: A17U) are some of the best-quality names that long-term investors can look to.
Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.
