CB Richard Ellis has proposed new methods for valuing data centers by valuing the various types of cash flow generated by data centers and reducing the level of subjectivity.
Take up again increased in Q2 2006, with total take up for the year (Q1 & Q2) standing at 269,000 sq ft. As demand in the data center market is likely to increase due to the continuing digitalization of business and society, the growing regulatory and corporate focus on business continuity and the return of specialist investors to the market, who are attracted by comparable returns to mainstream real estate assets.
In the past, data center valuation has encountered hurdles including:
Higher levels of valuation uncertainty
Limited market information
The absence of comparables
Complicated cash flows I
n the past, the methodology used pricing signals from similarly traded cash flows. Based on the "law of one price, it drew on the premise that two identical future cash flows must have the same value now.
However, the CBRE approach proposes that the expected cash flows of data center assets are analysed over the life cycle of the building, with corporate bond yields used to provide a proxy for the appropriate discount rates for lease income. Since liabilities are quite diverse, a number of proxies can be suggested as discount and capitalization rates, including index-linked, fixed interest and zero-coupon bonds. Although there are rarely assets that have identical cash flows and come approximate is necessary, the level of appraiser subjectivity is dramatically reduced. The resulting greater transparency of cash flow assumptions should, in turn, increase the confidence of market participants in pricing assets and increase investment interest from capital sources.