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.