Data centers surge to top of buying lists for REITs
Retail sector also shows strong growth, trade group says
costar.com
The Big Techs lease about 50% of their data centers. These could be the bag-holders if there is a bubble burst.
In a reversal of a long-standing trend, some big tech companies are selling off data centers to reduce costs, focus on core services, and optimize for more advanced technology like artificial intelligence (AI). Rather than owning and operating entire physical facilities, they are increasingly relying on specialized data center operators and leasing arrangements.
Reasons for the shift
- Financial optimization: Operating massive data center facilities is extremely capital-intensive. Selling off existing data centers allows tech companies to free up capital, which can be redirected toward strategic investments in high-growth areas like AI development.
- Focus on core competencies: Companies are shifting their focus away from the physical infrastructure business and concentrating on their core strengths, such as software development, cloud services, and AI platforms. They can still deliver these services to customers by leasing space from dedicated data center providers.
- AI-driven infrastructure: The infrastructure needs of AI are significantly different from traditional computing. AI requires highly specialized hardware, such as graphics processing units (GPUs), and different cooling systems. As a result, companies are shedding older, less-efficient facilities in favor of more modern, AI-optimized data centers built by specialized providers.
- Asset optimization: Large tech companies are evaluating their vast real estate portfolios to find inefficiencies. By selling off redundant or underutilized data centers, they can streamline their operations and lower overhead costs.
Examples of recent activity
- American Tower: This company, which historically owned and operated cell towers, has been actively acquiring and developing data center properties. It has partnered with other firms to help sell and manage its edge data center portfolio. This allows big tech customers to offload data center ownership while still leveraging the necessary infrastructure.
- Google, Amazon, and Microsoft: While these companies are still among the world's largest builders and buyers of data centers for their hyperscale cloud services, they are also adapting their strategies. Recent reports indicate that they are pausing new data center deals in some regions, like India, amid trade uncertainty. They are strategically evaluating where and how to build out new capacity, and may choose to lease in certain markets rather than build from the ground up.
Key takeaways
The trend of big tech companies selling data centers is not a sign of them abandoning infrastructure. Instead, it indicates a strategic evolution of their business models. They are moving from being sole owners and operators of every facility to becoming more flexible, leveraging expert partners, and focusing their resources on developing cutting-edge AI and cloud technologies. This approach allows them to reduce financial risk while still maintaining their dominant position in the technology sector. |
