Our Digital Lives Drive a Brick-and-Mortar Boom in Data Centers

Goldman Sachs announced in October an investment of up to $500 million in data center infrastructure, and the private equity firms Blackstone and KKR have recently announced data center investments.

Real estate investment trusts focused on data centers delivered returns of 19 percent in the first half of 2020 — one of only two REIT sectors that showed growth, according to a recent report by JLL. (The other sector, industrials, yielded a modest 2 percent return.) By comparison, returns for hotel and resort REITs plunged 49 percent, those for retail fell 37 percent and office space dropped 25 percent.

“It’s an acknowledgment that this is not a niche real estate market anymore,” Mr. Lynch said.

Data centers have emerged as a critical part of the digital infrastructure that connects people and businesses to one another and the rest of the world, said Jon Lin, president for the Americas region at Equinix, one of the largest global data center companies.

“We’re the foundation, in a lot of ways, for that digital infrastructure,” he said.

That infrastructure is no longer just the purview of technology companies. The Sept. 11, 2001, terrorist attacks and Hurricane Sandy in 2012 prompted many companies across a variety of sectors in New York, like finance and media, to rethink their information technology as a hedge against future disasters or damage. Now, pandemic-induced office closures and remote work arrangements are spurring corporations to re-evaluate where and how they house their central nervous systems.

“A lot of companies had been moving into cloud-based services before, but the lockdown forced them to move to cloud-based a lot faster,” said Keith Snyder, an equity analyst at CFRA Research, an investment research firm.

Demand for space in data centers is also being fueled by the growing number of businesses that use cloud services to manage their operations without having to buy, maintain and update hardware and software. Many providers of these services want to have electronic outposts near their clients’ servers.