Data Center REITs: Big-Tech Looms Over Cloud Boom
After jumping 50% between 2016 and 2017, data center REITs delivered an uncharacteristically weak 2018, dipping 14% last year despite a continued boom in data center demand.
Data center leasing smashed records in 2018, jumping more than 30% for data center REITs, powered by a nearly 50% surge in capex spending from hyperscale providers.
A concern for investors, the competitive landscape is quickly shifting as these "big tech" hyperscale providers are increasingly dictating the terms of the still-symbiotic relationship between REITs and their tenants.
Digital Realty expects half of all data center servers to be operated by just a half-dozen hyperscale providers by 2021, up from 25% today, increasingly resembling cell tower industry dynamics.
For now, the substantial secular tailwinds driving data demand and network densification including 5G, artificial intelligence, and blockchain technologies are enough to keep hopes high for continued growth.