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3-5 min to read
Why is digital infrastructure so important for
real estate investing?
The digital revolution represents a shift in the way we live and work, and offers a
compelling, long-term global investment opportunity.
08-03-2021
The future is digital, and the Covid-19 pandemic has both highlighted the importance of the digital
transformation and accelerated its development. This transformation – the adoption of digital technology
for business or services – is impacting every industry, and almost every country in the world now has a
digital strategy to ensure their economy remains competitive.
Digital technologies came to the fore during the pandemic, with millions of people successfully working
from home, schoolchildren being taught remotely, consumers buying their groceries online and people
maintaining social contact via social media and Zoom calls.
- Read more: Why emerging markets could be the next digital frontier
The digitisation of almost every aspect of our lives means that we are now reliant on the infrastructure
that enables this connectivity. The ‘mission critical’ nature of this infrastructure is perhaps best
highlighted by the categorisation of digital infrastructure staff as ‘key workers’ during the pandemic.
It is clear that digital infrastructure such as data centres, fibre optic cable and mobile phone masts are
now so essential to the global economy and society, as a whole, that they are considered as the fourth
utility (in addition to water, gas and electricity).
The digital revolution represents a seismic shift in how we live and work and as investors in global cities,
we believe that this presents a compelling, long-term investment opportunity.
What is digital infrastructure?
Digital infrastructure is the foundation of the digital economy, it enables the connectivity that we all
enjoy and take for granted. The physical assets include data centres, macro towers, small cells, fibre optic
cables and sub sea cables.
Information travels from our home or workplace along fibre optic cables into data centres where it can
be transferred to the end user. Fibre optic cable will also connect a data centre to a macro tower to
enable transmission of data to our mobile devices. When we connect internationally the vast majority of
all internet traffic will be via sub sea cables that will ‘land’ in a data centre. Small cells are essential for
the roll out of 5G; the 5G radio frequency has less propagation (which means it cannot travel as far and
therefore, will require a higher number of points to transmit efficiently).
Demand for digital infrastructure will grow
exponentially
Structural trends are driving the strong growth in demand for digital infrastructure. The use of
connected devices, such as smartphones, is likely to continue expanding. In 2018, 22 billion connected
devices were in use around the world. This is predicted to grow to 38.6 billion by 2025 and 50 billion by
2030.
The data consumed by these devices is also growing rapidly. In 2010, 2 zettabytes of data were
consumed. This grew to 33 zettabytes in 2018 and is expected to reach 74 zettabytes by the end of 2021.
By 2024, this figure is predicted to reach 149 zettabytes, more than double the 2021 estimate.
Digital transformation will affect every industry
Every sector is digitising due to the efficiencies that can be realised. The roll out of 5G will enable the
transfer of larger amounts of data at faster speeds across significantly more devices. For example, it can
take as long as 10 minutes to download a film using 4G, whereas with 5G it should take less than 5
seconds.
The most dramatic impacts on our lives are likely to be made in medicine, agriculture and
manufacturing. For example, connected devices will allow doctors to monitor patients remotely; high
definition cameras on drones will allow farmers to see the moisture content of soil in an area; and
connected devices will ensure parts are replaced in factories before they break.
Digital infrastructure is the fourth utility and is
mission critical to society
The pandemic has highlighted the importance of digital infrastructure assets, such as mobile phone
masts and data centres. Moreover, the crisis has also accelerated its development. During the Covid-19
crisis people were able to successfully work from home, do their grocery shopping online and keep in
touch with friends, family and colleagues via online video platforms.
School children and university students were also able to continue with their studies via remote learning
platforms. All of this would have been unthinkable only a few years earlier. As the digital transformation
accelerates further in the next few years, digital infrastructure will become even more vital for the
effective functioning of businesses and society.
Digital transformation is also driving
improvements in energy efficiency
Digital infrastructure is also helping to drive the improvements in energy efficiency, the responsible use
of natural resources and decarbonisation. Approximately 10 years ago, data centres were predicted to
consume about 15% of the world’s energy, today that figure is only 2%. It is estimated that the digital
infrastructure industry has eliminated 80% of energy losses over the last 15 years.
In addition, we are now seeing artificial intelligence used to maximise efficiencies with regard to energy
consumption. We believe advances in energy efficiency will stay ahead of the growth in demand and use
of data, therefore keeping energy consumption static.
The impact of digital infrastructure on society cannot be underestimated. Providing people with the
ability to access education, welfare and banking (to name but a few) will dramatically improve their lives.
This is why governments around the world prioritise digital connectivity for their citizens. It is clear that
access to digital connectivity will help to close the ‘digital divide’ which currently affects many countries.
One of the best examples of digital infrastructure enabling society to operate in an efficient manner is
seen in India. As part of the ‘Digital India’ policy, the government has rolled out a welfare app called
Aadhaar, which allows the population to access crucial government departments such as, pension
payments, healthcare and banking.
Investment opportunity is global
Not only is there a clear path of structural growth for this asset class, as we create and consume more
data, but there is also an insufficient quality and quantity of the necessary digital infrastructure needed
to enable this digital transformation.
The clearest evidence of this comes from analysing national infrastructure policies. Almost every country
in the world now has a specific digital strategy. There are two key reasons for this. Firstly, to ensure that
the country can compete in the global economy and secondly, to ensure citizens have access to
connectivity to improve their lives and close the ‘digital divide’.
Perhaps it is no surprise to see that the three largest trade areas have the most ambitious digital
infrastructure policies: the US, EU and China.
In the US, $2.8 billion has been allocated to spending on digital infrastructure from President Biden’s $2
trillion infrastructure spending plan. The EU plans to spend $200 billion over the next 10 years through its
Digital EU programme. Meanwhile, China, with perhaps the most ambitious global policy, plans to spend
the most on digital infrastructure, with $1.4 trillion allocated from a total spending plan of $2.1 trillion.
For investors in global cities like us, the digital revolution creates an array of investment opportunities.
Tom Walker
Co-Head of Global Listed Real Assets
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