The emergence of data centres as an innovative alternative property sector
| Pages | 140-152 |
| DOI | https://doi.org/10.1108/JPIF-08-2018-0064 |
| Date | 11 February 2019 |
| Published date | 11 February 2019 |
| Author | Muhammad Jufri Marzuki,Graeme Newell |
| Subject Matter | Property valuation & finance,Property management & built environment |
The emergence of data centres
as an innovative alternative
property sector
Muhammad Jufri Marzuki
Department of Business, University of Western Sydney,
South Penrith, Australia, and
Graeme Newell
Department of Economics and Finance, University of Western Sydney,
South Penrith, Australia
Abstract
Purpose –As one of the increasingly important alternative property sectors, data centres are a technology-
focused property sector that is taking advantage of the growing investment intensity in technology-related
infrastructure, against the backdrop of constant innovation and advancement in technology. The purpose of
this paper is to assess the preliminary risk-adjusted performance and portfolio diversificationbenefits of data
centre Real Estate Investment Trusts (REITs) in the USA, Australia and Singapore. The strategic
implications going forward for data centres as an innovative property sector in the property investment space
are also highlighted.
Design/methodology/approach –Using monthly total returns, the average annual return, annual risk,
risk-adjusted performance and portfolio diversification benefits of data centre REITs in the USA, Australia
and Singapore over 2016–2018 are assessed. Optimal asset allocation analysis is performed to investigate the
value-added role of data centre REITs in a mixed-asset portfolio.
Findings –Data centre REITs delivered strong average annual return performance, outperforming the
composite REITs in all three markets. This also sees data centre REITs being riskier than the overall REIT
sector due to the non-traditional and maturing status of the data centre property sector. On a risk-adjusted
basis, competitive performance was recorded for data centre REITs, with data centre REITs in the USA and
Singapore outperforming their respective composite REITs. This performance is also delivered with
significant portfolio diversification benefits with the stock market, resulting in data centre REITs
contributing to the US mixed-asset portfolios across a diverse risk spectrum.
Practical implications –Institutional investors are now giving increased emphasis to alternative property
sectors with better risk-return trade-offs. Improved performance and diversification benefits are achieved by
supplementing existing property portfolios with non-traditional property sectors with counter-cyclical
risk-return profiles, one of which is the data centre property sector. This sees data centres as an important
alternative property sector, having technology-based drivers and being recognised as having a clear path
towards institutionalisation with the major investors in the near future.
Originality/value –This paper is the first published empirical research analysis that specifically assessed
the preliminary performance and diversification benefits of data centre REITs in the USA, Australia and
Singapore. This research enables empirically validated, more informed and practical property investment
decision making by institutional investors regarding the future strategic role of the data centre property
sector as an innovative sector in the institutional property investment space.
Keywords Data centres, Alternative property sector, Risk-adjusted returns, Innovation, Institutional investors
Paper type Research paper
Introduction
The institutional property investment space has experienced many innovative
developments in recent years, one of which is taking shape in the form of the alternative,
non-traditional property sectors; either presented as social infrastructure (e.g. aged-care
facilities, student housing, education facilities, healthcare facilities) or niche property assets
(e.g. data centres, self-storage). The compelling investment case for these alternative
property sectors, such as unique performance drivers, attractive yield and counter-cyclical
nature (IPF, 2015), has resulted in the increase in the availability of institutional-grade
Journal of Property Investment &
Finance
Vol. 37 No. 2, 2019
pp. 140-152
© Emerald PublishingLimited
1463-578X
DOI 10.1108/JPIF-08-2018-0064
Received 28 August 2018
Revised 7 December 2018
Accepted 7 December 2018
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1463-578X.htm
140
JPIF
37,2
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