Once a narrow niche in the REIT space, data center REITS have benefited from several economic and industry-related factors, becoming a top-performing sector over the past two years.
Posting returns of 28.36% in 2015 and 26.41% in 2016, data center REITs have reached the top rungs of the REIT industry ladder, according to a report by REITCafe. Only the single-family home sector and the industrial sector did better last year, achieving 26.65% and 30.72% total returns, respectively.
“Last year, the data center market saw big deals from major players, new economic and regulatory policy, and the wild card that is strategic cloud adoption,” said financial and professional services firm Jones Lang Lasalle (JLL) in its 2017 Data Center Outlook report. “These factors are changing the rules of the game, from data center pricing models to location selection tactics – and everything in between.”
Soaring internet use and data consumption have propelled the sector forward and upward, with the world using over a zettabyte of data – roughly equivalent to 250 billion DVDs’ worth – in 2016, according to Cisco Systems.
“User demand for smart data center solutions will only continue to heat up, with operators feeling the pressure to deliver more data, faster and more flexibly than ever,” said JLL Managing Director and Data Center Solutions Market Director Jon Meisel.
However, there are possible speed bumps on the road ahead for data center REITs. Emerging issues identified by Commercial Property Executive include stricter data regulations, such as the requirement for Canadian companies to store their data within the country.
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