FILE PHOTO: The skyline of the banking district is seen during sunset in Frankfurt, Germany, April 21, 2024. REUTERS/Kai Pfaffenbach/File Photo
(Reuters) -Aroundtown, one of the largest German-listed landlords, is planning to convert office spaces into data centres as demand for them grows in Europe, the group said on Wednesday after announcing it had tripled its first-quarter profit.
Aroundtown has been facing higher vacancy rates in its office spaces, the biggest segment of its portfolio, since the COVID-19 pandemic led to a shift to remote work.
It has already been converting some of its less sought-after office rentals into serviced apartments, most of which are expected to enter operation in 2026.
Timothy Wright, Aroundtown's Head of Investor Relations, said the Luxembourg-based company was in the early stages of obtaining regulatory approvals for data centre conversions and it hoped to team up with more specialised companies.
Potential tenants could be companies active in businesses ranging from cloud computing to autonomous driving, he said.
"In five years time, let's hope we have some data centres in our portfolio," Wright said in an interview. "It's a different asset class for us ... We need to build up the IT know-how for the setup."
The main challenges for data centre conversions in Germany include municipal regulatory permit approvals and obtaining confirmation from power providers that required energy needs can be met, he said.
"It takes a few years until we can get to, let's say, crystalising the gains," Wright said.
So far Aroundtown has received one regulatory permit to convert an office space into a data centre in Frankfurt, though it has not yet received the go-ahead for its electricity usage.
Upon obtaining the required approvals, Aroundtown could either sell the properties for quick cash or undertake the conversions itself, Wright said.
Data centre tenants typically have their own specific requirements, he added, so Aroundtown would aim to ensure they are already leasing the properties before the construction to convert them begins.
"You can build a data center and go to Amazon, and they're like, 'Yeah, actually, this is not really what we need,'" he said.
(Reporting by Marleen Kaesebier in Gdansk; Editing by Joe Bavier)
