Data Center REITs Anticipate Growth

With internet traffic growing at record high speeds, the demand for data center REITs' space is growing as well.

"One of the challenges has been keeping up with the increasing demand for product," said Bill Stein, chief financial officer of Digital Realty Trust (NYSE: DLR), in an interview with "In certain markets, we are fully out and we're working hard to produce enough products for that demand."

Stein added that based on his experience, data centers appear to be relatively insensitive to downswings in the economic cycle: "The last time we had a recession in 2008 our business actually picked up."

These high-tech storage companies, responsible for housing computer systems and the supporting infrastructure, are poised to take advantage of the growing needs of their customers. In addition to Digital Realty Trust, there are currently two other REITs that focus on data centers, CoreSite Realty Corp. (NYSE: COR ) and Dupont Fabros Technology Inc. (NYSE: DFT). While there are new entrants into the sector, Stein said there's not much mortgage financing or private debt available.

Digital Realty recently expanded it's offerings in Singapore and entered the Australian market this year with two new sites in Melbourne and Sydney. Global financial services and information technology services are the primary drivers of demand for data center space, as well as some internet hosting, according to Stein. Stein noted that the rise of "cloud computing" for both businesses and individuals is helping to drive demand in the sector as well.

Dupont Fabros is also expanding. The company announced last month the opening of two data centers: one in Ashburn, Va., a suburb of Washington, and the other in Santa Clara, Calif. The company's California data center is one of the largest in Silicon Valley.

"We design and build our facilities with our tenant's requirements in mind. Our data centers provide the optimal environment for cloud and other high-density server and storage applications being developed," said Hossein Fateh, president and CEO of Dupont Fabros.

Stein said he anticipates that at some point, data centers will become a core asset category.

"They are so essential to the function of the corporate enterprise today, frankly more essential than an office building or warehouse," he said. "It's very hard to move your applications once they're in the data center. I think these data centers will grow as an asset class."