- Data center REITS were highest-performing REIT sector in 2020
- According to CBRE, data centers primed to set growth records in 2021
Data Center Real Estate Houses Necessary Infrastructure
According to the commercial real estate company CBRE, data centers are on trajectory of record growth this year. Why? Because these big, nondescript buildings are homes to essential infrastructure required for everything from online shopping to remote working.
Data Center Growth Measured in Power, Not Square Footage
CBRE believes that demand is verging on “booming.” Spencer Levy, senior economic advisor with CBRE, said, “We know there’s already 500 megawatts of new build coming online now, almost 70% of which is pre-leased. And so we do believe that 2021 might be the record year, and then we’ll accelerate thereafter.”
Levy continued. “What’s going to be happening soon is the rise of what’s known as edge computing, getting closer to the consumer, because of self-driving cars, because work from home. It’s yet another accelerant of the need for more data center space.”
Northern Virginia Now World’s Largest Data Center Marke
Just 30 minutes outside of downtown Washington DC in North Virginia are over a dozen data centers huddled close to each other and more are being built. Northern Virginia now accounts for more than +60% of the current data center construction pipeline in the US.
These closely proximate data centers enable faster communication, networking, access to the cloud and access to cheap power.
Demand to Grow as Economy Reopens
Despite the pandemic forcing data centers to reduce their growth by -11% in 2020 because companies froze their IT budgets, the pandemic also forced millions of people to work remotely. That increased remote work pushed exponential demand for data despite those -11% IT reductions. Balancing IT freezes with increased remote work brought overall growth within this data center sector to +5.9%.
Demand is expected to grow as the economy reopens this year. Workers will go back to offices but they will also continue to work from home. They’ll also use more streaming services for entertainment. On top of that, data demand will swell as the use of 5G technology and self-driving vehicles grows.
Levy said, “We expect rents to stabilize and then… (fluctuate)…in the short term. But in the long term we expect rents to rise.”
Major Names among Highest-performing REIT Sector in 2020
The highest-performing REIT sector in 2020 ended the year up +21%. Names to know among this sector include CoreSite Realty, CyrusOne, Digital Realty, Equinox and QTS Realty Trust.
Thanks to CBRE, Millionacres and CNBC.
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