Digital Realty Trust storms into Africa with a majority stake in Teraco

Texas-based REIT taps into fast data center services growth on the continent fueled by the pandemic

A. William Stein (Bill), chief executive officer, Digital Realty (iStock, Digital Realty)
A. William Stein (Bill), chief executive officer, Digital Realty (iStock, Digital Realty)

Digital Realty Trust is making a big bet on Africa.

The Austin, Texas-based real estate investment trust, aiming to cash in on pandemic-era demand for data centers, bought 55 percent of Johannesburg’s Teraco from investors that include Berkshire Partners and Permira, Reuters reported. The deal values Teraco at about $3.5 billion.

Digital Realty, which has 280 data centers across the world, is making the purchase as
infrastructure and real estate funds snap up multi-billion-dollar deals for warehouses filled with computing and data storage systems.

Africa’s data center market is expanding as companies turn to local cloud storage to cut costs by renting storage rather than relying on other nations or building their own servers. At the same time, data consumption on the continent is rising as tech companies and carriers roll out fiber optic cables to provide faster and more stable internet connections that need secure local data hosting.

Teraco operates seven data centers in Johannesburg, Cape Town and Durban, serving more than 600 clients that include global internet companies.

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The Teraco deal would add regional scale with a “network-dense portfolio in South Africa’s most strategically important metros,” said Digital Realty CEO William Stein.

As the pandemic unfolded in 2020, economic volatility prompted companies to freeze information technology budgets, sending demand for data centers down 11 percent. Even so, 2020 was still the second-best year on record for leasing, according to CBRE.

Data center real estate investment trusts were also the best performing REIT sector. While the real estate investment trust market declined 12 percent, data center real estate investment trusts rose on average 25 percent.

Digital Realty Trust, a $41 billion real estate company and one the nation’s largest data-center developers, began development of a 600,000-square-foot compound in 2020.

[Reuters] – Dana Bartholomew