The main part of this thesis will be a comprehensive empirical analysis of the performance, risks and portfolio benefits of data center REITs relative to other commercial REIT sectors and major financial asset classes. The focus will be on the comparison of REIT sectors respectively property types, as this topic has rarely been dealt with in literature so far.
Following research questions were formulated:
How do investments in data center REITs compare to investment in other REIT sectors and major financial asset classes in terms of risk and return?
How do data center REITs act in a portfolio and which benefits can be gained from including them in a portfolio of different REITs respectively different financial assets?
Due to the facts that data center REITs specialize in in a property type, which requires tremendous specific knowledge and the simultaneously very supporting settings stated above, the following hypotheses will be examined:
Data center REITs achieved higher returns but also higher risk than other REIT sectors and financial assets in the past.
Data center REITs play a substantial role in a portfolio, that can be at-tributed in particular to the outperformance of other REIT sectors and financial assets.
Contents
1. Background and Overview
2. History of Data Centers
3. Basic Characteristics of Data Centers
3.1. Shell and Core
3.2. Technical Fit Out
3.3. Site Requirements
4. Data Centers Through a Real Estate Lens
4.1. Data Center Types
4.2. Real Estate Specifics
4.3. Data Center Investment
5. Introduction to Data Center REITs
6. Literature Review and Data Basis
6.1. Excursus: Total Return
6.2. Literature Review on the Performance of Data Center REITs
6.3. Data Basis
6.3.1. Data Center REITs Index
6.3.2. FTSE NAREIT US Real Estate Index Series
6.3.3. 1-Month Treasury Rate
6.3.4. Stocks and Bonds
6.3.5. Fama/French Research Factors
7. Performance Analysis
7.1. Data Center REITs vs. other REIT Sectors
7.1.1. Descriptive Analysis: Total Return, Risk and Sharpe Ratio
7.1.2. CAPM and Carhart Four-Factor Model
7.2 Data Center REITs vs. Stocks, Bonds and Cash
8. Portfolio Benefits
8.1. Theoretical Foundations
8.1.1. Modern Portfolio Theory
8.1.2. Overall, Diversification and Return Benefits
8.2. Correlations
8.3. Data Center REITs in a REIT Portfolio
8.3.1. Portfolio Optimization
8.3.2. Overall, Diversification and Return Benefits
8.4. Data Center REITs in a Mixed-Asset-Portfolio
8.4.1. Portfolio Optimization
8.4.2. Overall, Diversification and Return Benefits
9. Summary and Limitations of Empirical Findings
10. Conclusion and Outlook
Research Objectives & Topics
The primary objective of this thesis is to provide a comprehensive empirical analysis of the performance, risks, and portfolio benefits of data center REITs relative to other commercial REIT sectors and major financial asset classes, addressing the research question of how data center REITs compare to other investments and how they function within a diversified portfolio.
- Evolution and characteristics of data centers as a specialized real estate asset class.
- Performance analysis using the CAPM and Carhart Four-Factor Model.
- Empirical assessment of diversification and return benefits of including data center REITs in portfolios.
- Comparison of data center REITs with stocks, bonds, and traditional real estate sectors.
- Strategic impact of data center REITs as either return enhancers or diversifiers.
Excerpt from the Book
3.1. Shell and Core
From the outside, data centers are relatively unsightly, windowless buildings that do not look inviting at all. That's exactly what they are not supposed to be, because they are not designed for people, but solely for machines. On their external appearance, data centers are most similar to warehouses and therefore are also allocated to the industrial real estate segment. Because both share many external characteristics, it is not surprising that in the past, data centers were set up in former industrial or logistics buildings. Another possibility is the purpose-built construction. The choice between new construction and conversion can have a significant impact on construction and management costs as well as operational flexibility. Today, preference is given to purpose-built data centers that are optimally adapted to data center operations. Although the building structure of a data center only represents a small part of the overall investment costs, it has to meet a few requirements. Preference is given to buildings with large open floor surfaces, that allow for flexible and efficient division of space. Due to the heavy technical equipment a high floor loading capacity of 1 ton per square meter is required. A ceiling height of at least 3.5 meters must be provided, although higher spaces are desirable because of the massive heat generated. Furthermore, the building should have physically secure boundaries.
Summary of Chapters
1. Background and Overview: This chapter introduces the rapid growth of data usage and the increasing demand for data center facilities as a critical component of modern digital infrastructure.
2. History of Data Centers: This chapter provides a historical overview of how data centers evolved from mainframe computing in the 1950s to their current role as essential internet nodes.
3. Basic Characteristics of Data Centers: This section details the specific technical and physical requirements, such as power supply, cooling, and security, that distinguish data centers from other property types.
4. Data Centers Through a Real Estate Lens: This chapter examines the diverse types of data centers and the unique real estate valuation and leasing aspects associated with them.
5. Introduction to Data Center REITs: This section introduces publicly traded data center REITs, outlining their market position and significance within the broader REIT universe.
6. Literature Review and Data Basis: This chapter discusses existing research and explains the construction of the bespoke data center REIT index used for the empirical analysis.
7. Performance Analysis: This chapter evaluates the performance and risk of data center REITs using descriptive statistics and time-series regressions like CAPM.
8. Portfolio Benefits: This chapter applies Modern Portfolio Theory to assess the diversification and return benefits of adding data center REITs to both REIT-only and mixed-asset portfolios.
9. Summary and Limitations of Empirical Findings: This chapter summarizes the empirical results while discussing methodological constraints and areas for potential future research.
10. Conclusion and Outlook: This chapter provides final insights on the role of data center REITs in the context of recent macroeconomic events like the COVID-19 crisis.
Keywords
Data Center REITs, Real Estate Investment Trusts, Portfolio Diversification, Modern Portfolio Theory, CAPM, Carhart Four-Factor Model, Asset Allocation, Total Return, Risk-Adjusted Performance, Tech-Infrastructure, Digital Economy, Market Volatility, Cloud Computing, Investment Strategy, REIT Performance
Frequently Asked Questions
What is the core focus of this thesis?
The work focuses on the empirical analysis of data center REITs, investigating their financial performance, risks, and how they function as an investment alternative within diversified portfolios.
Which thematic fields does the thesis cover?
The thesis covers the technical fundamentals of data centers, their evolution, their unique real estate characteristics, and their comparative performance against other REIT sectors and financial assets like stocks and bonds.
What is the primary research goal?
The primary goal is to determine if data center REITs provide significant performance and diversification advantages to investors compared to traditional commercial real estate and major financial asset classes.
Which scientific methods are employed?
The analysis utilizes descriptive statistics, such as total return and Sharpe ratios, alongside sophisticated financial models including the CAPM and the Carhart Four-Factor Model to account for risk and abnormal returns.
What is covered in the main section of the work?
The main section performs a comprehensive empirical analysis using a constructed bespoke index to track data center REIT performance from 2005 to 2019, including portfolio optimization tests.
Which keywords best characterize this research?
Key terms include Data Center REITs, Portfolio Diversification, Risk-Adjusted Performance, Modern Portfolio Theory, and Investment Strategy.
How do data center REITs differ from traditional real estate during market cycles?
The study suggests that data center REITs show lower correlation with broader market factors and traditional property types, often acting as a return enhancer in various portfolio settings.
Why are data centers considered a niche asset class?
Data centers are highly specialized technical facilities where the majority of investment costs reside in the technological fit-out rather than the building shell, requiring specific management expertise.
- Citar trabajo
- Tobias Hagenah (Autor), 2020, Data centers as an asset class. Evaluation of specialized REITs, Múnich, GRIN Verlag, https://www.grin.com/document/1117514
