Data Centers: Best-in-Class Operators with Strong Demand and Operational Performance

Data center REITs own and manage highly specialized facilities that house the critical IT infrastructure that powers today’s economy. These properties include a variety of features to help keep servers and data safe, including uninterruptable power supplies, air-cooled chillers, and physical security. A wide variety of companies including Amazon, Apple, AT&T, Google, IBM, Meta, Microsoft, Oracle, and others lease REIT-owned data centers.

The Nareit Actively Managed Real Estate Fund Tracker tracks quarterly investment holdings for the largest actively managed real estate investment funds focusing on REITs. As of the first quarter of 2025 (the latest data available), data centers accounted for 10.5% of aggregate assets under management; a level 1.4 percentage points higher than its sector weight in the FTSE Nareit All Equity REITs Index. This overweight highlights active REIT managers’ continued bullishness on data centers.

Data from the Nareit REIT Industry Tracker for the first quarter of 2025 (the latest data available) shows that data center REITs delivered strong operational performance. Data center REITs experienced year-over-year funds from operations (FFO) growth of 21.3%. Additionally, on average, data center stats show that net operating income (NOI) experienced a 7.2% year-over-year gain, underscoring that data center REITs have more than amply kept pace with inflation.

Despite economic uncertainty and financial market volatility related to new directions in tariff policies, data center REITs have been able to muster strong investment performance. Since the reciprocal tariffs announcement (April 2), data centers REITs posted total returns of 6.4% through the end of June; the second-best performing REIT sector. Although the specialty sector was the top-performing sector, it can currently be viewed as a proxy for data centers as one of its constituents with increased activities in data centers has been driving sector total returns.

REITs are often viewed as best-in-class operators due to their sector specialization, operational expertise, disciplined balance sheets, and access to cost-effective capital. With these characteristics in mind, GIC and the Canadian Pension Plan Investment Board recently chose to partner with the data center REIT Equinix, Inc. (Nasdaq: EQIX) for a joint venture that plans to raise over $15 billion to expand hyperscale data centers and support AI and cloud innovation.

• 8: According to CBRE, the top eight primary markets for data centers are Northern Virginia, Atlanta, Chicago, Phoenix, Dallas – Ft. Worth, Silicon Valley, Hillsboro, Oregon, and the New York Tri-State area.
• 60: Data center inventory is measured in gigawatts (GW); one GW equals one billion watts. According to Green Street, global center inventory stands at 60 GWs, with approximately one-third of data centers user owned.
• 78%: In the latest McKinsey Global Survey on AI, 78% of respondents reported that their organizations use AI in at least one business function, up from 72% in early 2024.