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  • Alex Pettee, CFA

Data Center REITs: Cloud Is Getting Crowded

  • Data Center REITs - the best-performing property sector of 2020 - have stumbled over the last quarter as lukewarm earnings results and intense competition have clouded the outlook for 2021.

  • The vaccine-driven sector rotation within the REIT sector has further pressured these "work from home winners." These REITs have pulled back 10% this past month and are nearly 20% below recent-highs.

  • Leasing activity - the most closely-watched earnings metric - disappointed in Q3, pulling back from the record-highs. Even so, all five data center REITs boosted full-year FFO guidance.

  • The Cloud Is Getting Crowded. Risks remain as intense competition from the hyperscale giants – Amazon, Microsoft, and Google - and relentless supply growth have pressured pricing power and AFFO growth.

  • All five data center REITs have now boosted their dividend in 2020. The pullback does appear to be a long-awaited buying opportunity, but further growth won't come as easy in the 2020s as it has over the past decade.

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Disclosure: A complete list of holdings and Real Estate and Housing Index definitions and holdings are available at HoyaCapital.com. Hoya Capital Real Estate advises an Exchange Traded Fund listed on the NYSE. Hoya Capital is long all components in the Hoya Capital Housing 100 Index.

Additional Disclosure: It is not possible to invest directly in an index. Index performance cited in this commentary does not reflect the performance of any fund or other account managed or serviced by Hoya Capital Real Estate. Data quoted represents past performance, which is no guarantee of future results. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy.

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Hoya Capital Research & Index Innovations is an affiliated index provider and research firm that builds custom indexes tracking U.S. commercial and residential real estate sectors, including indexes tracked by exchange-traded funds (ETFs). 

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