Investing in data centers from an investor’s standpoint is akin to investing in real estate. Data centers are considered a unique subset of real estate, leading to companies that own and operate them being labeled as real estate investment trusts (REITs).
If you are interested in delving into the data center industry through investments, one option is to purchase shares in a data center REIT. However, depending on your investment goals, exploring other avenues such as ETFs may be more beneficial.
To gain insights into investing in data center REITs, it is crucial to understand what these entities are, how they function, and the advantages and drawbacks they present from an investment perspective.
What Exactly is a Data Center REIT?
A data center real estate investment trust, or REIT, is a company that possesses and manages data centers. Typically, these REITs lease out space in their facilities to other businesses for server hosting purposes.
While most data center REITs do not directly operate servers and IT infrastructure, there are exceptions like Equinix. Equinix mainly offers colocation space but also provides bare-metal-as-a-service products.
REITs were established in 1960 to enable investors to acquire shares in diversified commercial real estate portfolios rather than investing solely in individual properties. Data center-focused REITs are a subset of this investment vehicle.
List of Data Center REITs
Currently, there are two major data center REITs, Equinix and Digital Realty, which manage extensive global portfolios of data center facilities.
Additionally, there are REITs like Iron Mountain that primarily focus on data centers but also offer data management solutions. Some companies, such as Rackspace, operate data centers but are not structured as REITs. Investment firms like BlackRock and JLL also have substantial data center investments but are not REITs.
Pros and Cons of REITs for Data Center Investing
From an investment perspective, data center REITs offer a straightforward way to invest in the industry. By purchasing shares in an REIT, investors gain partial ownership in numerous data centers operated by the REIT. However, the diversification offered by data center REITs is limited compared to data center ETFs, which typically hold shares in multiple companies.
Data Center REITs vs. Data Center ETFs
Data center ETFs are an alternative investment option for the data center industry. These ETFs often include data center REITs among their primary holdings, providing investors with exposure to the sector. Data center ETFs generally offer more diversified holdings, encompassing companies involved in cellular network infrastructure, cloud computing, and IT hardware in addition to data center REITs.
When selecting between a data center REIT and an ETF, consider whether you prefer to invest solely in one data center company or opt for a more diversified investment centered around the data center industry.
How to Invest in a Data Center REIT
To invest in a data center REIT, you typically purchase shares in the REIT through a stock exchange with the assistance of a brokerage. Retirement accounts may also offer exposure to REITs, including mutual funds or ETFs with data center REIT holdings.
It’s important to note that this article serves for informational purposes only and should not be construed as financial advice. Always consult a financial advisor to align investment decisions with your financial objectives.
In conclusion, data center REITs provide a gateway for investors to participate in the data center industry, offering a simplified approach to investing in this sector. Consider your investment goals and risk tolerance to determine whether investing in a data center REIT or exploring ETFs is the right choice for you.
