As the demand for data centers continues to surge, driven by the increasing computing needs of artificial intelligence, cryptocurrency, cloud service providers, and social media companies, the need for more data center capacity is becoming urgent. According to Moody’s Ratings, data center capacity will need to more than double by 2028 to keep up with the escalating demand. This presents a significant opportunity for real estate investment trusts (REITs) to invest in projects that cater to this growing need.
Investment Opportunities for REITs
Two REITs, Digital Realty Trust and Equinix, are well positioned to benefit from the increasing demand for data center capacity. Digital Realty Trust, with its diversified data center portfolios across the globe, has seen a more than 9% increase in its performance year to date and offers a 3.32% dividend yield. On the other hand, Equinix, despite facing challenges and accusations from short sellers like Hindenburg Research, has maintained a strong global presence and offers a 2.19% dividend yield.
To meet the growing demand for data center capacity, both Digital Realty Trust and Equinix are actively investing in joint venture arrangements, preleasing of capacity under construction, and new investments that promise good returns. Moody’s senior credit officer, Ranjini Venkatesan, believes that these sustainable growth strategies will help the REITs maintain their credit ratios and strong liquidity in the face of rapid technological innovations.
Digital Realty Trust and Equinix boast a combined total of approximately 71 million square feet of data center space, with a significant presence in the Americas, Europe, the Middle East, Africa, and the Asia-Pacific region. Their long-standing relationships with hyperscalers and diverse tenant rosters make them attractive options for data center tenants looking for reliable and secure infrastructure.
As countries implement data privacy and sovereignty regulations that require data to be processed and stored within their borders, the demand for data centers located in specific regions will only increase. Both Digital Realty Trust and Equinix are well-equipped to capitalize on these opportunities, given their proven track records in serving global markets and meeting the evolving needs of large hyperscaler clients.
The future of data centers looks promising, with opportunities for real estate investment trusts to benefit from the growing demand for data center capacity. By strategically investing in sustainable growth strategies, maintaining diverse portfolios, and leveraging their global reach, REITs like Digital Realty Trust and Equinix are poised to thrive in the evolving data center landscape.