Real Estate Investment Trusts Poised to Benefit from Data Center Demand Surge
As data center demand continues to surge, you may be interested to know that two real estate investment trusts are well positioned to benefit from this trend. According to Moody’s Ratings, the surge in demand is driven by various factors such as the increasing computing needs of artificial intelligence and cryptocurrency, as well as the presence of large tenants like cloud service providers and social media companies. Moody’s senior credit officer, Ranjini Venkatesan, highlighted these points in a recent note.
Investment Opportunities in Data Center REITs
If you are considering investing in real estate investment trusts that are focusing on data centers, Digital Realty Trust and Equinix are two names to keep an eye on. These companies are actively investing in projects globally to meet the growing demand for data center capacity. Let’s explore the key points to consider when looking at these potential investment opportunities:
- Digital Realty Trust is currently up more than 9% year to date with a 3.32% dividend yield.
- Equinix, on the other hand, has faced some challenges, losing nearly 4% year to date and offering a 2.19% dividend yield.
Factors Driving Demand for Data Centers
Understanding the driving forces behind the increasing demand for data center capacity is crucial when evaluating investment opportunities in this sector. Some of the key factors contributing to this trend include:
- Massive computing needs of artificial intelligence and cryptocurrency sectors
- Presence of large tenants such as cloud service providers and social media companies
Investment Strategies of Data Center Landlords
In response to the growing demand for data center capacity, Digital Realty Trust and Equinix have implemented various strategies to capitalize on this trend. These strategies include:
- Increased use of joint venture arrangements
- Preleasing of capacity under construction
- Achieving good returns on new investments
Attractiveness of Digital Realty Trust and Equinix for Data Center Tenants
Both Digital Realty Trust and Equinix are positioned to attract data center tenants due to their property pipelines and diverse portfolios. The following points make these companies appealing to prospective tenants:
- Ownership of a combined total of about 71 million square feet of data center space
- Long-standing relationships with hyperscalers
- Diverse tenant rosters
Revenue Distribution and Global Presence
Understanding the revenue distribution and global presence of Digital Realty Trust and Equinix can provide valuable insights for potential investors. Here are some key details to consider:
- Digital Realty generates 59% of its revenue from the Americas, 31% from EMEA, and the rest from APAC regions
- Equinix obtains 44% of its revenue from the Americas, 34% from EMEA, and 22% from APAC
Opportunities in Emerging Markets
As countries implement data privacy and sovereignty rules, the demand for data centers in various locations is expected to increase. This presents opportunities for companies like Digital Realty Trust and Equinix to expand their operations in emerging markets and attract new clients. By leveraging their global track records and established relationships with hyperscalers, these companies are well positioned to capitalize on this trend.
Hot Take: Seizing the Data Center Investment Opportunity
If you are looking to capitalize on the growing demand for data center capacity, investing in real estate investment trusts like Digital Realty Trust and Equinix could be a strategic move. These companies are actively investing in projects to meet the surging demand and have established themselves as key players in the data center market. By considering their investment strategies, revenue distribution, and global presence, you can make informed decisions on how to leverage this investment opportunity for potential long-term growth.
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