Following well over $2B worth of data center real estate acquisitions in our EOY 2012 REPORT, acquisition activity for the 1st quarter of 2013 is yielding a healthy amount of data center transactions. Geographically, acquisitions are spreading out with activity witnessed in multiple Tier 2 cities with the focus being placed on the underlying tenancy, lease term and quality of the facility.
The largest Q1 transaction in total cost was the acquisition of a 3 data center portfolio sale-leaseback by Digital Realty Trust in Paris, France valued at $80.3M. The 700k SF acquisition of a former semi-conductor plant by QTS was the largest transaction as measured by square feet and slated for conversion to a data center. The average price per SF for Q1 was considerably lower than 2012 EOY average due to the acquisition of vacant facilities earmarked for conversion and substantial investment.
As the data center real estate market continues to be recognized as a desirable asset class, new players continue to enter the market in search of suitable data center investments. REITs and other private equity funds historically focused on office and industrial real estate assets are dedicating capital to the data center sector. This new capital is competing with the established data center investment groups and typically yielding higher prices for current owners with stabilized assets. A steep learning curve for this highly technical asset class and the willingness to stomach the high price per square foot transactions will throttle some desires of the new players.
As a whole, the data center market in 2013 is very active with many of the sidelined expansion and development projects becoming a reality. Data center operators such as colocation, managed services and cloud operators that have been at the edge of expansion into new markets are finally making some decisions. Build-to-suit and conversion activity is rapidly gaining momentum due to the lack of options in certain markets, the continued growth and need for data centers, and the desire of operators and corporations to gain the benefit of new and efficient data center designs. Much of this expansion activity anticipated during 2012 will be witnessed in 2013.
New data center projects will provide a reasonable amount of new supply to the data center real estate investment groups as they pursue pre-purchasing and offering financing for development, conversions and build-to-suit projects.