Institutional real estate investors are increasingly turning their attention to data centers, particularly those in Latin America. Brazil stands out among the candidate countries, particularly in areas such as Rio de Janeiro and Ceará, and has seen several multi-billion transactions over the last two years. As a result, this type of investment is driving up land prices in Brazil.
Strong appetite for data centers
According to the CBRE 2023 Datacenter Investment Sentiment Survey Market Outlook, data centers are more popular than ever before among institutional real estate investors. Latin America is one of the focal investment points, particularly in Brazil, Chile, Mexico and Peru.
The CBRE survey includes some of the world’s largest institutional investors in real estate and found that 89% of respondents plan to increase their investment in data centers this year. In addition, the percentage with less than 5% exposure to this type of asset class will drop from 37% in 2022 to 16% in 2023. CBRE says that this change shows “the anticipated material increase in investment”.
Driving land prices in Brazil
One of the knock-on effects of the increase in investment interest in data centers is the surge in land prices in target countries. CBRE reports that “investor interest in edge computing has led to a rapid increase in land values”. In addition, it has led investors to new markets.
In the case of Brazil, investors have turned their attention to several areas, including Brasilia, Fortaleza and Porto Alegre. As a result, these markets are all experiencing “heightened land valuations”.
When choosing a location for data center Investment, other factors also come into play. They include market demand, electricity supply and connectivity infrastructure.
Fortaleza in Ceará ranks particularly well in connectivity since the city is already home to several data centers. It’s also the base for submarine cables and currently has the second most in the world.
However, according to CBRE, the price of land “has become increasingly important”. The company attributes this importance to the “appreciation of land and buildings in the region’s main urban areas”.
2022 big year for data center investment
CBRE reports that last year saw “elevated investor interest in the Latin American datacenter market”. As a result, total capacity increased by 4%, and totalled 672MW by the end of 2022.
Among notable transactions last year was the purchase of Odata, a Brazilian data center operator, for US$1.8 billion. Aligned Data Centers were behind the acquisition, a Macquarie-backed company, already with a presence in Ceará through green hydrogen investment.
In addition, Digital Realty and Ascenty announced investment of US$290 million in datacenter development in Brazil, Chile and Colombia.
Buoyant outlook for data centers in Latin America
2023 has already seen several major activity across the continent. For example, CloudHQ broke ground on its US$3 billion, 228MW campus in Brazil and Ascenty gained US$1 billion to fund its expansion in Brazil.
As a result, CBRE predicts a rosy future for the sector “for years to come”. “Attractive risk adjusted returns and the prospect for elevated long-term growth continue to drive global investor interest in the Latin American region,” said Alison Takano, head consultant at CBRE Data Center Solutions LatAm.