David Guarino, a Green Street Advisors analyst covering data centers and lodging, participated in a video interview at Nareit’s REITworld: 2019 Annual Conference in Los Angeles.
Guarino provided an overview of how a data center actually functions. He also noted that the location of data centers is determined in large part by access to inexpensive power and that over time, data centers have clustered in key markets creating economies of scale. Northern Virginia, he noted, is a key example of that trend and is the largest and most important data center market in the world.
Looking ahead, Guarino sees no sign that data consumption trends will do anything but accelerate.
Meanwhile, Guarino noted that over the past few years the data center sector has become increasingly institutionalized, attracting capital flows from across the globe.
“Investors have caught onto this favorable growth story and stocks trade at a premium valuation today,” Guarino said. However, “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 added.