The exponential progress of artificial intelligence (AI) and machine learning is expected to create unprecedented demand for global data centres, noted JLL in its Data Centres 2024 Global Outlook.

Data centre storage capacity is expected to grow from 10.1 zettabytes (ZB) in 2023 to 21.0 ZB in 2027, or a five-year compound annual growth rate (CAGR) of 18.5 per cent. Hyperscale data centres are also projected to increase their rack density at a CAGR of 7.8 per cent.

Despite challenges around economic slowdown, higher property expenses and even some tenant defaults, data centre-focused S-Reits were the best performing sub-industry in 2023. Portfolio occupancy levels also remained resilient above 95 per cent on average. 

Digital Core Reit (DCReit) FY2023 gross revenue decreased 4.8 per cent year on year to US$102.6 million, following bankruptcy filings in June 2023 by its second-largest tenant, which accounted for 22.4 per cent of its annualised rental revenue.

DCReit’s net property income (NPI) for FY2023 decreased 9.1 per cent year on year to US$63.1 million, further hit by higher property-related expenses.

As a result, distribution per unit (DPU) was lower for the year, at 3.70 US cents, compared to 3.98 US cents in FY2022. 

DCReit recently announced a series of agreements to resolve the tenant’s bankruptcy, including an agreement to sell two Silicon Valley facilities for US$160 million in January 2024.

Upon completion, the Reit expects that it will lower pro forma aggregate leverage to 33.5 per cent, from 40.5 per cent as at December 2023. DCReit’s portfolio occupancy is at 97.0 per cent as at Dec 31, 2023, with a weighted average lease expiry of approximate 2.8 years.

Aside from earnings highlights in last week’s Reit Watch, Keppel DC Reit (KDCReit) also noted that its portfolio occupancy remained healthy at 98.3 per cent (as at Dec 31, 2023), driven by active asset management and positive reversions achieved from renewals.

It continued to see strong demand for data centres, and has secured new, renewal and expansion contracts for its data centres in Singapore, Australia, Ireland and the Netherlands with positive reversions.

Mapletree Industrial Trust’s (MIT) Q3FY23/24 gross revenue and NPI rose by 2.0 per cent and 0.8 per cent year on year to S$173.9 million and S$129.9 million respectively. The Reit mainly attributed the increase in revenue contributions to the acquisition of a data centre in Osaka, Japan in September 2023 and new leases from a redevelopment project at Kallang Way.

MIT’s portfolio occupancy for its data centre segment is at 91.0 per cent (as at Dec 31, 2023), 2.4 percentage points lower quarter on quarter.

Both KDCReit and MIT echo that the rapid growth of artificial intelligence workloads is fuelling data centre development activity. These include modern technologies such as streaming, gaming and autonomous driving which are expected to underpin continued strong demand for data centres.

In Japan, MIT further noted that according to DC Byte, demand for data centre capacity remained strong, with demand in the Greater Tokyo and Greater Osaka areas expected to grow at a CAGR of 13 per cent and 14 per cent respectively, between 2023 and 2027.

CapitaLand India Trust (CLINT) which has four data centre developments in India, updated in its FY2023 release that its data centres in Navi Mumbai and International Tech Park Hyderabad have commenced superstructure works, while the development of the data centres in Chennai and International Tech Park Bangalore are expected to commence in the first half of 2024. 

Source: SGX Research S-Reits & Property Trusts Chartbook.

REIT Watch is a weekly column on The Business Times, read the original version.

Enjoying this read?

• Subscribe now to the weekly SGX My Gateway newsletter for a compilation of latest market news, sector performances, new product release updates, and research reports on SGX-listed companies.
• Stay up-to-date with our SGX Invest Telegram channel.