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.