data

Data Takes Center Stage

Thriving technologies such as virtual reality, artificial intelligence, and cloud computing are leading to rapidly increasing global demand for faster connectivity and data storage.

Though still considered a relatively young asset class, investor appetite for data centers—the gigantic warehouses that hold vast numbers of computer servers that store, process, and distribute data—continues to grow in line with technology, which has impacted upon many areas of modern life and business. 

North American data center investment volume totaled more than $12 billion in 2018 (inclusive of single-asset, portfolio and entity-level transactions), according to CBRE research. Capital availability remained abundant throughout the year, with 33 percent of total investment volume focused on single-asset and portfolio transactions. This year’s volume is anticipated to total more than 2018 levels with several large M&A transactions closing.

Kristina Metzger, who oversees the Data Centers specialty practice for Capital Markets at CBRE, focuses her time advising domestic and offshore investors in the disposition and acquisition of these properties across North America.

Metzger has extensive knowledge and experience in data center real estate, having represented clients in transactions totaling more than $3 billion. Capital Watch caught up with Metzger to discuss this growing sector of commercial real estate that is rapidly moving into the mainstream, her career to date with CBRE, and how she balances work and family. 

What Does Your Role at CBRE Involve?

I collaborate with our investment sales, Debt and Structured Finance, and colleagues in the data center leasing space on the acquisition, disposition and recapitalization of data centers and telecom facilities across North America. I also work with our Global Workplace Services account relationships to execute monetization strategies for enterprise-owned facilities.

What is CBRE’s approach to Data Centers Capital Markets?

We engage the best team of diverse subject matter experts on each and every project. This often times means collaborating with our local office or industrial professionals, market leasing specialists, as well as data center facilities management and construction management. I am continuously impressed and motivated by the industry-leading talent at CBRE and so grateful to be able to work with these leaders.

What’s Been Your Biggest Success This year?

Growing CBRE’s market share and presence. In our first 12 months, we will achieve a 400% increase in transaction volume in data center asset sales. Our high percentage of the overall market share gives us a distinct advantage in driving value for our clients and achieving the best outcomes.

What’s Been Your Biggest Challenge?

Getting the word out about CBRE’s capabilities in the data center capital markets space. It is widely understood within the data center community that CBRE is the world’s largest data center facilities manager and we have a great team of real estate leasing specialists. Our access to global capital and investment banking capabilities are less known. We are working tirelessly to grow our brand recognition in these areas. 

Are There Any Industry Misconceptions About the Sector That Need to Change?

I am frequently asked if cloud computing will eliminate the need for data center facilities moving forward. It is quite the opposite. Cloud computing is driving the need for more data centers. As we all increasingly access information remotely all of that data needs to be stored. Around 90% of the world’s data was created in the last three years – the data center market continues to see exponential growth as a result.

How Do You Achieve a Successful Work/Life Balance?

I am fortunate to have a great support network of friends and family both inside and outside of the office. Our household is very dynamic as my husband and I both work full-time and equally parent our two sons, Gavin (3) and Conor (1). We would not be able to do it without the great support of close friends, family and incredible colleagues. Our boys do a great job of keeping me balanced and reminding me what is most important, to stop and smell the roses, or in our case, to run around and play in the dirt.

Urban Big Data and Real Estate Markets

Most real estate value is created at the urban level, but some of the most expensive cities in the world are the least well-functioning.  So, it does not follow that improvements in the ways cities are run will flow directly into increased real estate value, but they might.

Big data techniques are increasingly being adopted by city governments to improve the urban environment and reduce the cost of doing so.  The initial results are very encouraging from an urban perspective.  Whether big data mean big gains for real estate owners is less clear.

Big data has three dimensions:  Volume, Velocity and Variety.

Volume: big data is large—often measured in petabytes or more.

Velocity: big data is frequently generated continuously, in or near real time. Twitter posts, cell phone location data, and information from weather and air quality sensors are examples.

Variety: big data comprises numbers, text, images, video, audio and other kinds of data. Analysis needs to be flexible enough to deal with any mix of types.

According to Glaeser, Kolko and Saiz rents in any location are a direct function of wages, jobs and amenities. Where big data can generate productivity or amenity gains in cities there will be a proportionate rise in real estate values.

Urban big data is comparatively new, so the scope of initiatives pursued in different parts of the world varies widely. Below are some examples.

NEW YORK CITY, NY, USA:

The Health and Human Services Connect initiative allows clients to walk into different agencies without duplicating paperwork. It allows the city to save costs, provide better services and even fraud.

SANTA CLARA, CA, USA:

The drought in California prompted Santa Clara to retrofit its municipal irrigation system with sensors to more efficiently manage limited water supplies. The system is expected to save 180 million gallons of water.

LONDON, UK:

Transport for London (TFL) uses ticketing data to build travel patterns across its rail and bus networks. This information helps in improving the network and assessing the impact of closures and diversions.

YINCHUAN, CHINA:

Yinchuan is a smart city pilot project in China, with features such as facial recognition on buses, grocery delivery via apps and an online portal connecting doctors with patients.

RIO DE JANEIRO, BRAZIL:

IBM has designed for the city an operations center that integrates data from 30 different agencies. These provide a foundation for public safety services, including an early warning and evacuation system for Rio’s favelas.

SPAIN:

Spain’s tax agency analyzed data from unmanned drones surveying 4000 municipalities. It discovered 1.69m properties paying insufficient taxes on new construction, expansion and pools. The initiative brought in 1.2bn euros in additional taxes.

The data, for big data analysis is derived from a wide array of sources.   Many cities are undertaking the digitization and compilation of existing administrative data, such as property tax records. Sensors in roads and buildings measure such elements as flows of people and cars, air quality, light availability and temperature.  Apps on iOS or Android platforms can be used by citizens to input data, for instance on road conditions.  Smart devices, such as inhalers used by asthmatics, can provide sophisticated up to the minute data on air quality.  Big data techniques allow, data sets to be geocoded and integrated.

Our understanding how big data affects cities, which is not yet complete, is key to predicting the real estate outcomes.  There are at least four effects:

If the city level benefits of big data are positive but localized, the global pattern of adoption shows unexpected results.  Asia for instance, with its rapidly rising standard of living but tendency towards autocracy is furthest ahead in the adoption of big data techniques, particularly the use of sensors at the urban level.  In Africa, the highly advanced state of mobile telephony, is allowing big data techniques to improve transportation in the informal sector.  Although super star cities in the West, for instance New York, are moving ahead in the utilization of big data for city management, pressure on budgets, as well as well-founded concerns about privacy stand in the way.

Investors could make gains from aligning strategy with city big data initiatives, but as always with real estate, a localized case by case approach is required.

By Richard Barkham, Global Chief Economist, CBRE.

Urban Big Data, City Management and Real Estate Markets, the full report, can be accessed here.

Getting Good Data

It was my privilege recently to moderate a panel discussion on the topic of Getting Good Data: The Impact of Market Studies on New Development and How Projects are Designed and Underwritten, at the InterFace Seniors Housing Southeast conference.

This panel of industry leaders included the SVP & Treasurer of PruittHealth, Dominic Romeo; CEO of Shepherd Senior Living, Joe Jasmon; President of Formation Development, Mark Spiegel; and VP of Market Analysis at ProMatura Group, Bryon Cohron. Each of these panelists provided invaluable insight into not only their uses of third-party market studies, but how they perform internal market analysis on prospective projects.

Throughout the day, discussion from all panels resulted in a number of common industry themes including the proliferation of capital flowing into the seniors space, some concerns of overbuilding, the challenge of obtaining and retaining quality staff, and the importance of an experienced operator with a strong track record.

As institutional capital has run into compressed returns from traditional real estate asset classes, seniors housing has become an increasingly attractive space to chase alpha. One panelist opined this influx of capital is expected to continue growth over the next 20 years; this is a reasonable comment based on the aging of the baby boomers during this forecasted timeframe, leading to predictability, a paramount consideration for all equity sources. As for interest rates, the threat of continued increases did not appear to be a significant concern, with one panelist stating that rates would have to increase greatly to have a meaningful impact on their strategy.

Surprisingly, the concerns of overbuilding were somewhat limited. Most spoke of crowding from folks with little to no experience in development and/or seniors housing. Others see this interest as a future opportunity, implying that there will be an opportunity to acquire these assets after the inexperienced developer/operator has failed.

Staffing was a principal concern among all panelists throughout the day. As part of a market analysis, our panelists discussed how they have succeeded by looking outside of the seniors housing industry to fill staffing needs, including expanding the talent search to hospitality and service industries. An additional staffing consideration is the availability of transportation, for all levels of staff; some operators utilize a staff shuttle service as well as increased compensation to account for commute times. It is notable that this competition among operators has escalated staffing costs, participants quantified year-over-year increases to start around 10% and up to 25% in some instances.

A common question posed by attendees was regarding the standardization of market studies. This question appeared to be from an equity-partner perspective, which is consistent with the entry of new equity sources flooding the space. As those outside of the industry attempt to approach seniors housing as a traditional real estate asset class, it is natural to expect the desire for market studies to achieve a level of standardization.

Our panelists addressed this line of thinking by discussing the extensive number of variations in care levels and unit rate structures, among other factors, as well as the lack of consistency across operator offerings, all of which reduce the ability to standardize. Further, as a young industry, operators are continuously testing new concepts, a practice that does not lend itself to standardization. Each of our panelists expressed the desire to have market-study providers further customize reports, resulting in less standardization, to incorporate only the content they deem pertinent to those that will be using the report, reducing boilerplate and global data that is not directly relevant to the project. An option for blending these two viewpoints is the suggestion that a firm build a relationship with a third-party provider who can consistently provide a report in a standardized format.

It was a pleasure spending this time with some of the industry’s leading experts and hearing their thoughts regarding market studies; a topic that is exceedingly important in the current development cycle. Additionally, thank you to Eric Goldburg and Richard Kelley for putting the InterFace Seniors Housing Southeast conference together.

By James Graber, Vice President, Seniors Housing & Healthcare, CBRE.

Masters of All We Survey?

One of the quiet revolutions in economics over the last 20 years has been the growing use of surveys.

For timely data on everything from consumer sentiment to investment plans and export volumes, survey data are more easily compared across countries than actual economic data, because the method of collection is consistent.

I pay particular attention to the PMITM (Purchasing Managers’ IndexTM) surveys of manufacturing and service sector activity, published by IHS Markit. The top table below shows the results of the latest manufacturing survey compared to one year ago, while the second table shows the service sector. A score of over 50 means that output is growing.

This time last year, manufacturing output was stagnant in the developed economies and falling in the emerging markets, and corporate sentiment was weak.

Over the last 12 months there has been a pronounced bounce-back in activity, particularly in the large developed economies.

The resurgence is less strong in the key emerging markets, but Russia and China have moved out of manufacturing recession and Brazil is heading in the right direction. Manufacturing PMI, Advanced Economies and BRICS

There has also been a notable pick up in the service sector, particularly in the U.S. and Euro Area.

Activity is a little weaker in India and China, with the former adjusting to the impact of demonetisation. Russia however, has surged and Brazil looks like it will exit recession in 2017. Services PMI, Advanced Economies and BRICS

On balance, the global economy is expanding nicely.

Conditions are as healthy as they have been since the end of the financial crisis, but real estate investors are uneasy.

CBRE also uses surveys to assess real estate market conditions. Our Global Investor Intentions Survey 2017, released last week, is rich in detail on investors’ changing sector and region preferences, and it also covers sentiment.

Investors remain positive towards real estate, but seem decidedly cautious on the global economy.

Investors are no longer looking for capital growth: Yield, or income return, is the main motivation for investing in 2017. Their main concern is that a global economic shock will undermine occupier demand, and their second main concern is that interest rates will rise more quickly than expected!

Investor caution at this stage of the cycle is understandable, with the events of 2008 still fresh in the mind. This caution will prevent excesses—of leverage, for instance—which is not necessarily a negative outcome. My view is that real estate values only decline in periods of recession, and the global economy is well capable of absorbing shocks in 2017 and 2018.

For the time being, investors should take comfort in improved economic news as revealed by surveys.

By Richard Barkham, Global Chief Economist, CBRE.