Cantor Fitzgerald Sees Data Center REIT Sector “Maturing”

Wed, March 25, 2015

On Monday, Cantor Fitzgerald released key takeaways from an interview with Bryan Loewen, executive managing director of the NGKF Data Center Consulting Group, regarding the U.S. data center landscape.

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The Cantor Fitzgerald data center coverage universe includes:

Digital Realty Trust, Inc. (NYSE: DLR) – Sell rated; $61 PT
DuPont Fabros Technology, Inc. (NYSE: DFT) – Buy rated; $35.50 PT
CoreSite Realty Corp (NYSE: COR) – Hold rated; $38.00 PT

Tale Of The Tape:

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Cantor Fitzgerald – Key Takeaways:

The data center REIT sector is maturing and “likely entering into a phase of ‘productization,’ as landlords tailor their offerings to the ever-evolving tenant base.”

The Next Phase – Productization: Loewen is “seeing a noticeable increase in demand for ancillary services from enterprise tenants, as they look to further outsource IT requirements and better spend IT dollars.” Cloud service providers are the fastest growing vertical for wholesale data center space landlords.

Fundamentals: Most markets “continue to improve from the perspective of landlords […] Loewen expects to see rent levels continue to grow through 2015 due to the timing of the anticipated development deliveries.

“With regard to renewal spreads, the tenants’ level of expertise, as well as its usage of a broker […]30 – 40 percent of wholesale and 70 – 80 percent of retail leasing do not involve a broker, likely shielding the tenant from actual market conditions.”

Development: “Development activity is evident across all sizes, products and markets, though there are limited near-term deliveries. Notably, Mr. Loewen is seeing significant activity in second- and third-tier markets, as companies look to move from higher-cost markets into locations with lower overall costs and/or with proximity to their corporate locations.”

Transaction Activity: Buyer interest in data centers “remains robust and unchanged from last year, with private equity players being the most aggressive.  The increased interest in Data Center CMBS could push cap rates lower going forward, in Mr. Loewen’s view.”

Also Of Note: Loewen also mentioned AT&T having $2 billion of data centers for sale and his expectation of “increased M&A activity” in the space.

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About Five 9s Digital, LLC

Five 9s Digital is a data center real estate company offering data center development, investment sales, real estate advisory, and colocation and wholesale data center selection and procurement services. Five 9s Digital has been involved in the development and ownership of multiple mission critical facilities from single user build-to-suit facilities to multi-tenant data centers. Five 9s Digital brings a wealth of experience, background and expertise in providing solutions to the data center arena. Due to the specific and yet evolving requirements of mission critical end users in today’s world, Five 9s Digital is able to offer real solutions, real facilities, and real choices due its extensive and up-to-date knowledge base. Five 9s Digital is a Best Data Sites Certification Alliance™ member.
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