Sources suggest interest in the fund could reach, or exceed, €1 billion
Real estate investor PIMCO has currently raised around €300m for its first dedicated data centre fund which will build hyperscale data centres in secondary markets across Europe, according to an exclusive report by Private Equity Real Estate (PERE) (registration required).
The company – which set up data centre operator Apto last September, stuffed with seasoned executives, to operate its facilities – is targeting €750m for the European Data Centre Opportunity Fund but PERE has discovered that investor interest could see that reach €1bn before closing in the coming months.
The report lists PIMCO’s German insurance company owner Allianz Group as a seed investor and suggests other investors originate mostly from Europe, with others from the Middle East, Asia and the US. According to a sustainability disclosure document dated December 2023, new data centre developments will comprise at least 70 percent of the fund’s total invested capital once deployed. In this filing, it also suggests Apto’s data centres will target a power usage effectiveness score below 1.35.
“We at PIMCO see data centres as a secular growth theme globally and therefore making both debt and equity investments both in the US and Europe. In Europe, we see the opportunity set as more attractive compared to the US as the market is more under-supplied and lagging US by approximately five years as it relates to the installed data centre capacity in the largest European data centre markets like Frankfurt, London, Amsterdam and Paris,” said PIMCO EVP and portfolio manager Kirill Zavodov (above) when the company launched Apto.
“With tier two and tier three markets even further behind. And this is where we see and expect most of the growth opportunity to play out over the coming years,” he said.
“I think if you look at many of the major markets are now power constrained, we’re seeing an increase in deployment of low latency applications that need capacity in more geographies and GDPR, data sovereignty is driving increased demand across Europe,” said Apto CEO Russell Poole, previously the long-serving UK managing director at Equinix.
Zavodov added: “That’s why we see the opportunity in tier two and tier three markets as the most interesting at the moment as these markets represent a considerable whitespace for developing new data centre capacity… we have been using our on the ground sourcing capabilities to assemble a pipeline of development opportunities in the data centre space of about €4 billion of all-in cost. In fact, we have already acquired our first asset and have started the development works on site.”
According to PERE, that site is Madrid. Other markets in PIMCO’s sights include Madrid, these include Milan, Berlin, Zurich, Warsaw, Athens and several cities in Scandinavia.
European catch-up time
Morgan Stanley’s European telecom team head Emmet Kelly echoed Zavadov’s comments, suggesting that people are under-estimating the size and scope of the potential data centre growth in Europe. He suggested three factors will drive it.
“The primary driver of data centre demand today is cloud and digitalisation,” he said. “Cloud represents the lion’s share of data centre growth in Europe on our numbers. Roughly 60% of growth by 2035. The second driver is AI. What’s interesting is training AI models needs to be done within a single data centre and that’s driving demand for large data centre campuses across the globe.”
He said the third factor is data sovereignty. “Essentially, consumers want their data to be stored at home, and they want this to be subject to local law,” he said. “A common parallel I’ve received is: would you want your bank account to be stored in a different country? The answer is probably no. And therefore, we believe that data will be increasingly near-shored across Europe.”
Kelly also suggests that the various infrastructure constraints like power in some of the so-called FLAP-D markets – Frankfurt, London, Amsterdam, Paris, and Dublin which represent most of the overall European DC market – will mean secondary markets will see growth that will outstrip larger capitals.
His team’s data centre market report in February suggests over the next decade the European data centre market will expand fivefold to around 20,000MW which is larger than US growth in that period, albeit a more mature market. Will FLAP-D markets will still be 60% of growth in the next decade the bank suggests secondary markets like Milan, Madrid, Warsaw and Scandinavia will see 22% growth versus 16% in FLAP-D.