By Osvaldo Coelho, Business Development Manager, Eastern and Southern Africa, Senmarck Energy Ltd
The recent collapse of Silicon Valley Bank has drawn attention to a critical issue in the commercial real estate sector: approximately $2.1 trillion in commercial estate debt is projected to mature by the end of 2025. This impending deadline poses significant risks for banks and other lenders, who are now scrambling to mitigate their exposure to these debts. In response, there has been a noticeable shift away from traditional commercial real estate investments towards more stable and promising sectors, particularly data centers. This transition, while promising, faces a major hurdle: ensuring a reliable electricity supply to power these new facilities.
The commercial real estate market in the United States has been under pressure, exacerbated by the pandemic’s impact on office spaces. Office vacancies have soared, and values for properties in central business districts have plummeted by 52% from their peak, according to MSCI Inc. In stark contrast, data centers have experienced unprecedented growth and demand. Scott Kelley, CEO of Aetos Capital Real Estate, highlighted this trend in an August 30th Bloomberg interview, stating, “If you want to go by category, offices got issues, retail has got issues, increasingly apartments do, to some extent, but data centers have just been on fire.” Despite this surge in interest, powering these facilities presents a significant challenge. Kelley pointed out that while investors might have the financial resources, the logistics of securing electricity are daunting, noting that “it takes 15 years to get approvals and build a power line in the United States.” This realization underscores the urgency for alternative solutions, positioning Africa as a potential hotspot for data center expansion, provided it can develop the necessary infrastructure and regulatory frameworks to support such growth.
Historically, the relocation of industries in response to energy crises is not unprecedented. The Oil Shocks of the 1970s, for example, prompted significant adjustments. In response to soaring energy costs, Japan undertook a major shift, relocating its energy-intensive industries such as aluminum and copper smelting abroad. During this period, Japan reoriented its economy towards energy-efficient technologies and industries, focusing on integrated circuits, computer machines, and industrial robotics. This historical precedent provides a relevant context for Africa, which faces a crucial decision regarding its role in the data center sector. Should other institutional investors follow the lead of Canadian pension funds and direct more investments in
Africa’s data centers and energy infrastructure? Canadian pension funds have recently been involved in several significant deals, such as CPP Investments acquiring a 12% stake in AirTrunk and Brookfield Asset Management partnering with the Ontario Teachers’ Pension Plan to acquire Compass Data Centers. Another avenue worth exploring is the use of green bonds as a financing mechanism. Companies like Raxio Data Centres have already begun leveraging green bonds, securing over $110 million in recent investments to fund sustainable projects.
To attract mainstream institutional investors and close the perception gap, Africa must focus on de-risking its projects and showcasing its investment potential. James Mworia of TRIFIC emphasized this point, recounting a recent visit by a US healthcare executive: “When hosting a US healthcare executive visiting TRIFIC, I asked what more we could do to attract US companies. He said, ‘The biggest issue is the perception gap. Once they visit, they realize the opportunities.’” Bridging this gap is essential for unlocking Africa’s growth potential and positioning the continent as a pivotal player in the global data center landscape. By addressing the challenges of power supply and infrastructure, Africa can capitalize on the growing demand for data centers, transforming itself into a key destination for investment and development in this sector.
