Data Centers

Overview

Specialized facilities housing servers, networking equipment, and IT infrastructure. A relatively new entrant to the DST market. Most DST data center offerings are single-tenant or anchor-tenant deals leased to hyperscalers (AWS, Microsoft, Google, Meta), large colocation providers, or telecom companies.

Analyst Notes

Understand the power story. How many megawatts? Where does it come from? Is it a pass-through to the tenant or a fixed cost? Check fiber connectivity and the number of carriers serving the building. Look hard at the tenant credit. Hyperscaler leases are extremely valuable but rare in the DST market, so what you usually get is a step or two below that. Be skeptical of older "enterprise grade" data centers that have been retrofitted for DST distribution. They may not compete for next-generation tenants when the current lease rolls.

Advantages

  • AI, cloud computing, and digital infrastructure demand are creating extraordinary tailwinds for the sector.
  • Lease terms are often very long (10 to 20 years) with creditworthy tenants who view their data center space as mission critical.
  • Switching costs for tenants are enormous. Once a tenant builds out a facility with their hardware, cooling configuration, and connectivity, they almost never move.

Disadvantages

  • Power is the gating factor. Available megawatts of power, the source, the cost, and the reliability of that power, all determine whether the property can serve modern demand. Many markets are constrained.
  • Functional obsolescence happens faster than in other property types. Cooling technology, power density requirements, and connectivity standards keep evolving.
  • Concentration risk on both the tenant level and the sector level. AI capex assumptions are baked into a lot of valuations, and that could moderate.

Frequently Asked Questions (FAQ)

Property Type Performance Averages

Historical Benchmarks

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