Explosion in data
As the volume of data grows exponentially, more data centres will need to be built. All data generated requires storage and secure data centres in stable regions are vital pieces of digital infrastructure.
In the last twelve months alone, Australian investors have deployed significant capital into the data centre sector. In April 2020, Macquarie Infrastructure and Real Assets (MIRA) acquired an 88 per cent interest in AirTrunk, the owner and operator of five hyperscale data centres across Australia, Singapore and Hong Kong. In September 2019, Australia’s sovereign wealth fund, the Future Fund, made its first direct data centre investment, acquiring a 24.1 per cent stake in Canberra Data Centres.
The capital intensity of hyperscale-enabled data centres, which support cloud providers such as Microsoft Azure, Google Cloud and Amazon Web Services, is particularly attractive to pension and superannuation funds. According to Synergy Research Group, capital expenditure on hyperscale-enabled data centres totalled over $US120 billion in 2019. These investors find the ongoing capital expenditure required to grow data centre platforms to be a good match with their interest in ongoing investment over time into assets already owned and understood, given pressure to invest continual fund inflows.
Over time, we expect to see data centres become more diverse. This includes ‘edge’ data centres –smaller facilities located as close as possible to the community they serve – as well as sustainable data centres, which use electricity derived from renewable resources.
Fibre is mission critical
Investment in terrestrial fibre networks is also crucial to support our increasingly connected societies.
These networks can broadly be split into the ‘last mile’ capillary networks that run through our suburbs connecting our homes with high-speed internet, and enterprise point-to-point fibre networks servicing the growing data demands of government and enterprise clients.
In the last 24 months alone, there has been investor interest in both of these asset classes including the sale of NZ-based last mile fibre operator Ultrafast Fibre to First Sentier; Vodafone NZ to Morrison & Co and Brookfield Infrastructure Partners and Zayo in the US to Digital Colony and EQT.
Increased demand for capital partners
Historically, telecommunications networks have been owned by telecommunications firms, predominantly incumbent vertically integrated players. With these firms facing mounting pressure to reduce costs, while also needing to fund 5G, fibre rollouts and further innovation, they are looking for alternative sources of capital. In addition, some listed operators are becoming increasingly aware of the ability to unlock value for shareholders by monetising parts of their infrastructure.
This has resulted in opportunities for specialist infrastructure investors to partner with telecommunications operators to derive long term, stable returns matching the liabilities of their underlying Limited Partners (pension funds and insurers).
In addition to opportunities with telecommunications firms, similar opportunities are also emerging in new digital infrastructure businesses founded by industry veterans. Data centre, terrestrial fibre and subsea cable operations, are areas where demand for capital partners is likely to continue to grow.
The next frontier in digital infrastructure investment
Assets such as data centres, fibre broadband businesses and telecom towers have dominated transaction activity. However, while physical assets may be the most obvious examples of digital infrastructure, the category is poised to broaden in scope.
For instance, digital infrastructure will increasingly be used to help traditional infrastructure assets operate more efficiently and at greater scale and capacity.
Endeavour Energy has built a ‘digital twin’ in the form of a 3D model of its power grid and the physical items surrounding it, such as trees. It uses this, along with aerial survey data to monitor its network and understand the health and status of vegetation, including potential bushfire risk. Digital twins are also already being used at airports, railways, transmission grids, wind farms and ports.
With the pace at which we are transitioning to an ever more digital world, and buoyed accelerated by the impacts of COVID-19, digital infrastructure has well and truly solidified its proven its value to role for infrastructure investors as an essential part of a well-diversified portfolio and an asset class that will continue to develop at pace.
For more information please contact:
Head of Infrastructure and Energy and Co-Head of Macquarie Capital, Australia and New Zealand
+61 2 8232 5049
Global Head of Private Capital Markets, Macquarie Capital
+61 2 8232 9906