这是用户在 2024-8-26 14:42 为 https://www.wsj.com/real-estate/commercial/data-center-owners-get-an-edge-over-big-tech-tenants-fina... 保存的双语快照页面,由 沉浸式翻译 提供双语支持。了解如何保存?
  • Conversation
  • What to Read Next
  • Most Popular News
  • Most Popular Opinion
  • Recommended Videos

Data-Center Owners Get an Edge Over Big Tech Tenants, Finally

An AI land grab is lifting shares of the centers’ landlords, like Equinix, after years of mediocre rent growth

ET

Space in data centers is hard to come by. Photo: Jason Henry for The Wall Street Journal

This column is part of the eighth annual Heard on the Street stock picking series.

Tech giants have been a mixed blessing for data-center owners. They are ravenous for space but powerful enough to drive a hard bargain on price. This dynamic held back rent growth for stocks such as Equinix EQIX 1.10%increase; green up pointing triangle for a long time, but things are changing. 

Advertisement

Data-center landlords used to have to offer enticing deals to tech tenants who were leasing space in bulk and could cherry-pick locations because of ample supply. As more companies moved their data from on-site storage to the public cloud, big cloud providers gained even more leverage. Amazon AMZN 0.52%increase; green up pointing triangle.com pays about half the rent per kilowatt that a small corporate or government tenant does.

This weighed on rent growth. Between 2013 and 2021, rents per kilowatt in top U.S. data-center markets fell 3% on average each year, according to David Guarino, analyst at real-estate research firm Green Street.  

Today, space in data centers is increasingly hard to come by. Vacancy rates for primary data-center markets in North America hit a record low of 2.8% in the first half of this year, based on data from real-estate services provider CBRE. This helps landlords to push up prices. Rents for hyperscale tech tenants in North America rose 19% in the first half of 2024 compared with a year earlier, data from research firm datacenterHawk shows.

An artificial-intelligence land grab is turbocharging demand. Alphabet GOOGL 1.11%increase; green up pointing triangle, Amazon, Microsoft MSFT 0.30%increase; green up pointing triangle and Meta Platforms META -0.74%decrease; red down pointing triangle poured more than $50 billion combined into capital-spending projects in the second quarter of this year, according to FactSet. Although not all of it went on data centers, AI-related initiatives are becoming a bigger share of outlays, based on comments made on earnings calls.

The wave of spending is a good sign for one of the world’s biggest data-center operators, Equinix. Its xScale business, which caters to hyperscale tech tenants, recently secured land and power for a huge data-center campus in Atlanta. Most of the AI-related demand Equinix is experiencing is happening in this division as tech companies race to train their models. But demand is also strong from smaller corporate and government customers who, either for reasons of security or regulations, don’t want to move their data to the public cloud and therefore lease capacity directly from Equinix. 

Advertisement

The company recently raised its full-year profit guidance after increasing adjusted earnings before interest, taxes, depreciation and amortization by 17% in the second quarter compared with a year earlier. Its stock is up a modest 1.7% so far this year. The shares fell from record highs in March when a short-seller report accused the company of including maintenance spending in its growth investments to avoid recording these expenses in its calculation of adjusted funds from operations. The Justice Department is investigating the short sellers’ claims, although an independent review commissioned by the company found no wrongdoing. 

Data centers have become so critical for tech companies that they are increasingly building their own. Oracle ORCL 0.80%increase; green up pointing triangle Chairman Larry Ellison told investors on the company’s latest earnings call that it is building a huge AI data center in the U.S. “where we [could] park eight 747s nose to tail.” But they can’t build them quickly enough to meet their needs, leaving them reliant on third-party landlords for about half their data-center footprint for the foreseeable future. 

There is plenty of development under way. Investors are pouring capital into data centers, especially as other commercial-real-estate bets such as offices and multifamily have soured. Blackstone said in July that it has a prospective development pipeline of data centers valued at more than $70 billion. Amazon plans to spend $100 billion on data centers over the next decade. 

Advertisement

SHARE YOUR THOUGHTS

What is your outlook on data-center stocks? Join the conversation below.

But the market isn’t likely to have a glut soon because “under-construction data centers are 80% preleased in North America, predominantly to investment-grade tenants for 10-to-15-year contracts,” says Kristina Metzger, vice chairman at CBRE Data Center Capital Markets.

Construction delays and power-supply challenges will limit how much new space comes on line. Building is taking longer because of supply-chain bottlenecks for data-center components such as generators, chillers and transformers. Power utilities are struggling to build transmission lines as fast as data-center operators need them. A facility that had a construction timeline of roughly three years in 2022 can take as long as seven today in particularly constrained markets. 

Investors are getting nervous about how much money tech companies are spending on AI initiatives, and wondering when the splurge will pay off. A wider AI rollout would significantly boost data-center demand. But even if this takes longer than expected to materialize, regular storage needs are rising quickly too. In such a tight market, the days of weak rent growth are over for data-center landlords. 

Write to Carol Ryan at carol.ryan@wsj.com

Advertisement

Copyright ©2024 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Appeared in the August 24, 2024, print edition as 'Everyone Needs Space At the Data Center'.

Advertisement