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  • Alex Pettee, CFA

Data Center REITs: Battle Of The Clouds

  • Data Center REITs - the physical epicenter of the "cloud" - continue to ride the substantial secular tailwinds behind the “big-data" and cloud computing boom, surging nearly 50% in 2019.

  • Storm clouds have been building around the high-flying technology-focused sector, however, as intense competition and furious supply growth have weakened pricing power.

  • Investors have been unfazed by the mounting competitive threats, even after CyrusOne announced plans to cut 12% of their workforce, citing "continued moderation in demand from hyperscale customers."

  • Responding to pressure from the hyperscale giants – Amazon, Microsoft, and Google – data center operators have turned to M&A to regain pricing power, a trend we expect to continue.

  • While we expect continued robust demand for data center space, the outlook for the REITs themselves remains cloudy, but consolidation and "next-generation" cloud applications could favorably shake-up the competitive dynamics.

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