Modern Technology is Driving Digital Infrastructure Growth
Data centers, cell towers, and other forms of digital infrastructure are supporting the onset of the modern world's 5G connectivity, Internet of Things, and cloud functionality. As a result, demand for this type of infrastructure is likely to grow and to offer investors profitable opportunities in the form of real estate investment trusts (REITs). This article by Global X examines digital infrastructure investment.
Data centers are large warehouse-like buildings that house computer servers for the tenants of that building. Tenants pay rent based on their power usage and receive all the technical and practical support necessary to maintain and run their servers in the data center.
Data centers can be wholesale, dedicated to big businesses (including giants such as Google, Amazon, and Facebook), or retail, dedicated to smaller businesses.
The desirability of a data center depends upon its location. For example, the energy costs, population density, and access to multiple Internet service providers provides more affordable, flexible, and faster access to the information on the servers. In addition, due to the time-intensive process involved in building new data centers, existing centers command high rents and enjoy high demand.
Cell towers provide rented space on the tower to telecom companies. While the number of telecom companies who rent this space is limited, the demand for cell towers is growing steadily, thanks to the increasing presence of smartphones and the growth of the Internet of Things.
Similar to data centers, the difficulty of building new cell towers makes existing towers increasingly valuable. For example, cell towers grew by 8% between 2019 and 2020, while mobile data usage grew 29% in that same time period.
For cell towers, increasing tenants increases profitability without raising what are typically fixed costs. As a result, the more tenants a tower can serve, the more profits it enjoys. As a result, multi-tenant rent scenarios are the most appealing for most cell towers, and their investors.
Digital Infrastructure Hardware
As the demand for digital connectivity grows, so does the demand for the hardware that drives that connectivity. For example, semiconductor revenue has grown by 12% annually since 2018.
As data processing technology advances, the field of digital infrastructure hardware should continue to grow. This growth is also fueled by the continual upgrading of the hardware that must occur to keep it capable of handling the high demands of the modern digital age.
For investors who are looking for growth opportunities that serve as a fixed income alternative, digital infrastructure such as data centers and cell towers are a promising solution. As people transition from shopping and working in public buildings to completing those same tasks in their own homes, the demand for digital infrastructure will continue to increase.
As digital infrastructure benefits from the onset of the Internet of Things, remote work and shopping, 5G, and increased connectivity, investors would be wise to consider adding this potentially profitable investment opportunity to their portfolios.