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  • Alex Pettee, CFA

Data Center REITs: Sunlight Through COVID Clouds

  • A "cloudy" future lies ahead, but that's good news for data center REITs. The physical epicenter of the "cloud," data centers have been the best-performing property sector amid the pandemic.

  • Clear winners of the work-from-home era, corporations will increasingly shift spending on physical office space towards "digital office space" through investments in remote-work infrastructure.

  • Leasing activity - the most closely-watched earnings metric - surged in the second quarter to the highest level on record as the sector continues to ride substantial secular tailwinds.

  • Battle For the Clouds. Risks remain as intense competition from the hyperscale giants – Amazon, Microsoft, and Google - and relentless supply growth have weakened pricing power and AFFO growth.

  • Data center REITs have made the right moves to fend-off competitive threats through consolidation and internal development. While expensive, the "essential" property sectors - technology, housing, and industrial - are the lone areas of reliable growth within the REIT sector.

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