Data Center REITs: Sunlight Through The Clouds
Surging more than 40% this year, Data Center REITs have bounced back in 2019 following the worst year for the sector since NAREIT formally began tracking the group in 2015.
Storm clouds have been building around the high-flying technology-focused sector as intense competition and furious supply growth have weakened pricing power.
Global IT spending has slowed significantly in 2019 as businesses temper growth plans, citing macroeconomic and trade uncertainty. Despite this, data center REITs have outperformed.
Second-quarter earnings results brought a ray of sunlight through the clouds. Leasing activity, the most closely watched metric, was significantly better than expected.
Operating in a highly competitive industry, value creation isn't coming as easy as it once was. While robust demand for data center space will continue, the outlook for the REITs themselves remains cloudy.
The home of the "cloud," Data Center REITs are the physical epicenter of the internet. Typically housed in windowless industrial-style buildings surrounded by massive generators and cooling equipment, data center REITs provide the infrastructure - power, cooling, and physical rack space - to a variety of customers with different networking and computing needs, who install and manage their own server and computing equipment in the facilities. Typically housing millions of terabytes of mission-critical data for thousands of individual customers, physical data security and operational reliability are crucial attributes of data center facilities. Data center REITs consume roughly three percent of all electricity generated on the planet.
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