- Data center REITs are commanding the second-highest enterprise values across asset classes, trailing only tower REITs, while boasting the lowest implied cap rates at 4.4%.
- Investor interest is driven by massive development pipelines, consolidation opportunities, and potential for IPOs amid strong public market momentum.
- Secondary markets are catching up to major metros as municipalities with land and power access attract billions in investment.
Sector On The Rise
Still in a growth phase, data centers have quickly become one of the most sought-after asset types for institutional investors, reports GlobeSt. According to a Colliers analysis led by Aaron Jodka, Director of US Capital Markets Research, the sector now holds the second-highest average enterprise value, following only tower REITs. That figure surpasses the collective enterprise value of all industrial REITs and underscores the asset class’s rapid ascendancy. Data centers offer the lowest implied cap rates at 4.4%, signaling strong investor demand and highly competitive yields.
Why They Stand Out
Data center REITs such as Digital Realty, Equinix, and Iron Mountain are attracting strong investor interest across commercial real estate. With implied cap rates at just 4.4%, they are also delivering the lowest yields among all major real estate sectors—a signal of high investor confidence and competitive bidding for assets.
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A Platform For Growth
Jodka notes that portfolio aggregation followed by IPOs presents a strong path to value creation. “Historically, portfolios trade at a premium to individual assets,” he said. This makes aggregation and exit via the public markets an appealing strategy, despite the high capital costs and operational complexity involved.
Development Pipeline And Market Expansion
Billions of dollars in development are currently underway to meet escalating demand. While core markets continue to scale, secondary cities with access to land and power infrastructure are becoming new hotspots. These emerging markets are rapidly building out data center capacity, often with municipal backing and favorable zoning.
The Bigger Picture
As AI technologies and cloud computing drive exponential data consumption, demand for new digital infrastructure is expected to accelerate. This transformation presents not only ongoing growth for existing REITs but also a potential increase in M&A activity, privatizations, and new public listings.
Outlook
With strong fundamentals, rising valuations, and robust capital inflows, data center REITs are positioned for continued momentum. The sector is increasingly seen by investors as a high-potential, with data centers posting an implied cap rate of just 4.4%—the lowest across all commercial real estate asset classes.
