As data becomes an integral part of everything we do, data center real estate investment trusts (REITs) have become more important. Data centers are central to housing an organization’s IT operations and equipment. Investing in them can provide steady returns as this sector grows.
The data center REIT sector is relatively new compared to other REITs. Most data center REITs were founded around 2000 and make up a small percentage of REITs overall.
There are five data center REITs in the market today and they're primarily based in the United States. Public cloud providers such as Apple, Amazon, Facebook, Google, and Microsoft are spending big bucks on data centers and have helped fuel their growth.
These five REITs have a total market cap of $89,473,000,000 and a 44.76% total year-to-date return as of Oct. 31, according to data from the National Association of Real Estate Investment Trusts.
Data center REITs are enjoying a rebound in stock prices this year after big gains in 2016 and 2017 before falling off some in 2018.
One of the good things about data center REITs is that their growth isn’t dependent on consumers spending money. This can be the downfall of retail and hotel REITs. Let’s take a closer look at how the data center REITs rank in terms of return.
Top data center REITs
|REIT||Headquarters||One-Year Total Return|
|Equinix, Inc. (NASDAQ: EQUIX)||Redwood City, California||41.39%|
|QTS Realty Trust (NYSE: QTS)||Overland Park, Kansas||40.84%|
|CyrusOne Inc. (NASDAQ: CONE)||Dallas, Texas||31.06%|
|CoreSite Realty Corporation (NYSE: COR)||Denver, Colorado||29.87%|
|Digital Realty (NYSE: DLR)||San Francisco, California||19.56%|
Equinix is headquartered in Redwood City, California, and operates in 52 markets around the world. This REIT had a one-year total return of 36.93% at the end of September.
It was founded in 1998, as the internet was primed to revolutionize how people interacted and shared information. Just this summer, Equinix opened its 11th data center in Tokyo, which is its largest in Japan so far.
QTS Realty Trust
This Overland Park, Kansas, real estate investment trust has 25 data centers throughout North America. It was founded in 2003 and has been an advocate for data centers in the Midwest. The company had a one-year return of 27.83% at the end of September.
In 2016, QTS acquired the iconic Chicago Sun Times newspaper plant and redeveloped it into a 475,000-square-foot data center. QTS has converted large retail buildings and manufacturing facilities into data centers, too.
CyrusOne Inc. is based in Dallas, Texas and has approximately 45 data centers worldwide. Of its 1,000 customers, almost a quarter are Fortune 1,000-size companies. The data center REIT said the rollout of 5G should translate into increased demand for the next decade. The company also expects to see more demand in the European markets.
CyrusOne was founded in 2001. The company’s total one-year return as of the end of September was 29.23%.
CoreSite Realty Corporation, located in Denver, Colorado, has data centers in eight markets in North America. The data center REIT launched in 2001 and represents more than 40 industries.
The company is expanding its Reston, Virginia, data center by 50,000 square feet; opened a new data center in downtown Washington, D.C,; and is breaking ground near downtown Chicago on a 169,000-square-foot data center. The company’s one-year return was 15.15% as of the end of September.
This San-Francisco-based REIT has data centers based throughout North America, Europe, Asia, and Australia. Digital Realty recently expanded its presence in Northeast Asia with a 129,000-square-foot, carrier-neutral facility in Seoul.
The company was launched in 2001. Executives say recent strategic acquisitions have led to significant growth in their colocation and interconnection capabilities. Digital Realty’s one-year return was 19.64% as of the end of September.
Forecast for data center REIT investing
Long-term trends appear to be good for the sector. Milena Petrova, associate professor of finance at Syracuse University's Whitman School of Management, said in an interview with U.S News earlier this year that data centers are a safer bet than investing in technology stocks. “The attractiveness of data REITs is in their high dividend yield, in contrast to most firms in the tech sector,” she said.
Analysts forecast that investors expect more digital connections to drive hybrid cloud commuting and interconnectivity.
Give data center REITs a look
After facing some temporary challenges last year, data centers saw a rebound in stock prices in 2019.
The forecast for data centers is positive thanks to a number of demand drivers that will likely keep data center REITs growing and expanding their operations.