Data center real estate investment trusts (REITs) present a compelling opportunity for investors to gain exposure to the thriving data center market. With the digital transformation driving demand for data storage and processing solutions, data center REITs offer a promising investment avenue for those looking to benefit from the ongoing data revolution.
As technology continues to evolve and businesses increasingly depend on digital infrastructure, investing in data center REITs can provide investors with a reliable source of income and the potential for long-term capital appreciation.
What is a Data Center REIT?
Data center REITs develop, acquire and operate data servers and networking equipment that store and regulate big data. Commercial real estate properties are equipped with uninterruptible power supply and heating, ventilation, and air conditioning (HVAC) systems to ensure smooth operations. Data centers are surrounded by 24/7 security and are constantly monitored because of the sensitive data stored on servers.
Benefits of Data Center REITs
- Robust Demand: Data centers are crucial infrastructure that supports the growing digital economy, and as society becomes more reliant on technology, the demand for data center services continues to increase. This growing demand is driven by trends such as cloud computing, big data analytics, Internet of Things (IoT), and artificial intelligence, which require vast amounts of
- Recession Proof: Data center REITs offer investors the opportunity to invest in a recession-proof sector of the real estate market. Data centers are essential infrastructure for storing and managing digital information, making them in high demand regardless of economic conditions. During times of recession, businesses and consumers rely even more on data centers for storing critical data, conducting online transactions, and accessing cloud computing services.
- 5G Adoption: Thanks to faster speeds, users who have 5G connectivity consume roughly 2.7 times more mobile data compared to 4G users. As companies attempt to leverage the faster network to create smart cities and high-tech cars, data usage is expected to rise substantially in tandem with commercial 5G deployment, thereby increasing the need for data center REITs.
Risks of Data Center REITs
- High Competition: Numerous tech companies specialize in data center operations. Given the immense growth prospects, recession-proof business model and high profit margins, several REITs are branching out to acquire and manage data center properties. Competition is significant in this space, and REITs have to streamline their operations to boost efficiency and mitigate expenses to remain competitive.
- Expensive Operations: Data centers that store and transmit big data through their servers have intricate state-of-the-art cooling and HVAC systems to prevent overheating. They also require a stable and uninterruptible power source and regulated temperature to ensure optimal performance. REITs specializing in this sector often incur high operating, maintenance and management expenses.
How to Invest in Data Center REITs
Publicly traded REITs list their shares on stock exchanges and can be traded during stock market hours through online stock brokers. Several exchange-traded funds (ETFs) and mutual funds also invest in data center REITs.
Largest Data Center REITs
Digital Realty Trust
Digital Realty Trust is a prominent real estate investment trust that specializes in providing data center solutions to businesses worldwide. It has positioned itself as a leading provider in this space by offering a comprehensive suite of services tailored to meet the evolving needs of companies across various industries.
Digital Realty Trust's state-of-the-art facilities are designed to ensure high levels of security, reliability, and scalability, allowing clients to easily expand their operations as their business grows. In addition to providing physical space, Digital Realty Trust offers a range of managed services and connectivity options to enhance the performance and efficiency of its clients' IT infrastructure.
| Ticker | Company | ±% | Price | Invest | ||
|---|---|---|---|---|---|---|
| DLR | Digital Realty Trust | 1% | $178.57 | Buy stock | ||
Equinix
Equinix is a leading global interconnection and data center company that empowers businesses to grow, innovate, and connect with customers and partners around the world. Its strategic locations and network-neutral approach offer unparalleled connectivity options, allowing businesses to exchange data and access a wide range of cloud, network, and IT service providers within Equinix's ecosystem.
By colocating within Equinix's secure and reliable data centers, organizations can benefit from low-latency connections, improved network performance, and cost savings. Equinix's commitment to sustainability and environmental responsibility also sets them apart, as they strive to operate their data centers efficiently and reduce their carbon footprint.
Data Center REIT ETFs
Data center REIT exchange-traded funds (ETFs) invest a majority of their funds in publicly traded data center REITs. Investing in ETFs can help you diversify your portfolio with relatively lower capital investment. Some of the most prominent data center REIT ETFs are:
- Global X Data Center REITs & Digital Infrastructure ETF (NASDAQ: VPN)
- Pacer Data & Infrastructure Real Estate ETF (NYSEARCA: SRVR)
- iShares Cohen & Steers REIT ETF (BATS: ICF)
Industry Overview
| Number of REITs | 2 |
| Dividend Yield | 2.56% |
| YTD Total Return | 3.50% |
| January Total Return | 3.50% |
| 2023 Total Return | 30.08% |
Quarterly Performance Data
| Financial Metric | Q4 2023 | 2023 |
|---|---|---|
| FFO ($M) | $1,008 | $4,046 |
| NOI ($M) | $1,896 | $7,495 |
| Dividends Paid ($M) | $792 | $2,909 |
Investing in Data Center REITs
Investing in data center REITs can be a smart and lucrative choice for investors looking to diversify their portfolios and capitalize on the growing demand for digital infrastructure. Data centers have become essential in today's digital age, serving as the backbone for storing, managing, and distributing vast amounts of data for various industries.
Frequently Asked Questions
Are data center REITs a good investment?
What are the top data center REITs in 2024?
How do data center REITs work?
Data center REITs operate by investing in and managing a portfolio of data center properties to generate income for their shareholders. These companies own or lease data center facilities that provide the infrastructure for hosting servers and other critical IT equipment.