The sector returned more than 41% during the first 11 months of 2019.

Green Street Advisors analyst David Guarino says that data consumption trends will accelerate in the future. This provides support to his thesis that data center demand will increase. It also signals that investors will continue to pour capital into associated real estate assets like data center REITs.

Green Street Advisors on Data Center REITs

Guarino, who covers the lodging and data center markets, made his comments in a video interview during Nareit’s REITworld: 2019 Annual Conference in Los Angeles.

He noted that the uptick in institutional investment has helped attract capital from investors around the world.

“Investors have caught onto this favorable growth story and stocks trade at a premium valuation today,” Guarino said.

Still “they are priced to deliver risk-adjusted returns in the high 5% range, slightly lower than the private market, but if you compare that to other public market alternatives it’s still a pretty attractive investment overall,” he said.

Guarino highlighted the centralization of data centers in populated areas where demand remains high and economies of scale can become achieved. He cited Northern Virginia as an example market.

Data center REITs have been a top-performing asset over the last year.

These REITs own and manage facilities that firms use to securely store data. Their services include uninterruptable power supplies, air-cooled chillers, and physical security.

From January 2019 to November 2019, the five data center REITs averaged a total return of 41.13%, according to Nareit. That figure also represented a sharp turnaround from the 14.11% loss realized in 2018.

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