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Why are data center sale-leaseback deals increasing?

Why are data center sale-leaseback deals increasing by GCC Business Finance

If you’re involved with an enterprise company, you’ll know what a prized position the data centre has held in the industry mindset for years. Often seen as a symbol of prestige, large data centres were once touted as the future.

But now, they’re not needed as much – and the rise in data centre sale-leaseback cycles is a clear signal that times are changing. But what exactly is a data centre sale-leaseback, why are they on the rise, and what can we expect as 2018 marches on?

What is a data sale-leaseback?

With cloud computing on the rise and the data centre sale-leaseback cycle becoming more common, you may find yourself wondering what exactly this phenomenon is. Sale and leaseback cycles have a lot of common characteristics. Usually, it begins by the enterprise company identifying that they have a large – in some cases too large – data centre, and so they start searching for a way to get maximum value out of their centre. Often enterprise companies have over-committed themselves to large centres in the past due to the feverish excitement around the data business years ago, only to find they can’t fill the space due to the rise of cloud computing.

As a result, they sell the centre to a landlord like a pre-existing data centre provider. But as part of the deal, both sides agree that the enterprise company rent out the amount of space they need in the centre (the “leaseback” part of the transaction) for their own activities. This works well for everyone involved. The enterprise company gains by releasing the equity they had in the unused space, while the new owner gains by owning an asset which not only has a guaranteed tenant (the enterprise company) but can also generate more cash by renting to the many others who require data centre space.

Data centre sale-leasebacks on the rise

Statistics show that the number of data centre sale-leaseback deals are on the up.In particular, it’s believed that the Asia Pacific region may well be one of the key areas to watch when it comes to working out how the data centre sale-leaseback cycle will pan out.

Figures predict that the entire Asia Pacific region’s data centre market is going to rise over the next four years or so at a huge compound yearly level of 14% as more and more companies decide to opt for data centre rentals, giving landlords who hope to own data centres their cue to find financing for their investments.