Unlocking Alternatives: Investing Beyond the Major CRE Asset Type

DATA CENTERS: DEMAND DRIVERS New factors joining historic growth in data consumption and storage needs

• Data traffic (and corresponding data storage) growth is a result of increasing digitization in emerging / rural markets, 5G rollouts at scale and growing enterprise use of the cloud. • A greater portion of the sector (estimated at over 50%+ by 2027) is catering to hyperscale tenants—cloud providers such as Amazon AWS, Google Cloud, Microsoft Azure, Oracle and other large data users such as Meta. Each of these platforms is increasingly doing site sourcing and development in-house, leading to longer-term questions on the opportunities that developers and landlords will see from this significant tenant base over the next decade. • Major headwinds in the space currently are a dearth of power availability in key markets and increasingly limited developable land. Notably, Northern Virginia (the largest market in the U.S.) is experiencing a 2-3 year pause on development in top submarkets as local utility Dominion Energy is upgrading infrastructure to be able to distribute the necessary power for data centers. Other markets have begun to face constrictions in available power, and developers are seeking earlier commitments from utilities to satisfy demand. Land has also become increasingly difficult to acquire with increased competition and the need for larger parcel sizes (50-100+ acre sites with dedicated substations and longhaul fiber). • Growth in AI interest has boomed recently, having received hundreds of billions in funding in recent years. Hyperscalers are rapidly growing portfolios to meet demand.

Global Internet Data Traffic

Investment in AI / Machine Learning Companies

$300

30

28

$250

25

25

21

$200

20

17

$150

Billions

15

14

Zettabytes

$100

12

10

9

$50

7

5

$

0 - 499K 500K - 0.9M 1M - 4.9M 5M - 9.9M 10M - 24.9M 25M+

0

Q1 2016

Q1 2017

Q1 2018

Q1 2019

Q1 2020

Q1 2021

Q1 2022

Q1 2023

Source: IPI Partners, Pitchbook, Cushman & Wakefield Research

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