Here's why Keppel DC REIT can expect robust growth in key markets

In Singapore, there is higher demand from hyperscale cloud players.

Keppel DC REIT is poised to reap benefits from the solid growth potential of the data centre industry, underpinned by expected increases in data creation and outsourcing trends.

According to OCBC Investment Research, for the key cities in which Keppel DC REIT has an exposure to, the new demand by BroadGroup Consulting is expected to grow at a compound annual growth rate (CAGR) of between 4.7% in Frankfurt and 14.7% in Dublin from 2016 to 2021.

Notably, new demand CAGR in Singapore is also forecast to jump 12%, driven by the firm support from the government, stable political climate, and higher demand from hyperscale cloud players.

“For the 10 cities which KDCREIT has assets in, new demand is expected to exceed the incremental supply for six and eight of them in 2017 and 2018, respectively," said OCBC Investment Research.

Meanwhile, OCBC Investment Research reckons that Keppel DC REIT's soon-to-expire four major leases will form the bulk of its 14.5% of lettable area due for renewal this year.

"From our understanding, management has secured agreements in principle to renew three of the four leases. For the fourth, which is at its Basis Bay Data Centre in Malaysia, we expect the tenant to extend the lease. Thereafter, there are minimal lease expiries in FY18 (0.6% of lettable area), FY19 (2.1% of lettable area), and FY20 (1.6% of lettable area)," stated the brokerage firm, noting that this makes Keppel DC REIT one of the most defensive REITs within the S-REITs space, with a portfolio weighted average lease expiry of 9.6 years.