by Mercedes Ruehl and Jordan McMullen

Originally published on AFR here: http://www.afr.com/real-estate/commercial/sales/supermarket-giant-woolworths-poisted-to-sell-eastern-creek-data-centre-20160323-gnp5dm#ixzz44EngHlp8

Supermarket giant Woolworths is poised to sell one of its Sydney data centres developed several years ago to an offshore company in a sign that the asset class is gaining increasing investor interest.

DCI Data Centers, a subsidiary of the US-based DCI Technology Holdings is negotiating to buy the Woolworths data centre at Eastern Creek, sources say.

Woolworths has been looking at selling the three-hectare site for some time and price guides had been $60 million to $70 million.

DCI, which late last year established a business in the Asia-Pacific, is a developer of data centre projects throughout the region. Market sources said the group may have secured a co-investor and Blackstone was one name that was suggested.

Yields in data centre transactions have tightened over the last several years given the typically long leases to blue chip companies.

However, it is difficult to put an accurate yield on the site given the Woolworths’ lease only covers about a third of the roughly 12,000 square metre property.

The deal, which is not yet complete, is being brokered by Sashi Makkapati and Nick Potter of Cushman & Wakefield. Both agents declined to comment when contacted by The Australian Financial Review.

Woolworths, who will lease back the property, and DCI were also contacted, but did not comment.

Data centres have becoming increasingly popular as an investment destination thanks to the rapid growth in secure information storage requirements among companies.

Financial services, cloud computing users and telcos have become major tenants in data centres around Australia. Companies like Woolworths are also increasingly storing data off-site.

In one example, alternative property investment vehicle the Asia Pacific Data Centre Group was one of the best performing real estate investment trusts on the ASX, delivering a 28 per cent total return last financial year.

The Woolworths data centre at Peter Brock Drive has operated for a number of years.

The retailer contracted Watpac Construction to build the centre for about $50 million back in 2009 and was reportedly completed in 2010.

There are three main storage halls containing computers, servers and equipment to cater to Woolworths’ businesses locally and internationally.

However, it is understood Woolworths leases less than half of the space creating opportunity to value add for prospective buyers.

The Eastern Creek site was one of two purchased by Woolworths a number of years ago.

There is also another site at Erskine Park that has development approval for a data centre but at this stage remains vacant land.