M&A deals reshape the listed real-estate space
A fresh round of takeovers has turned the spotlight on data-center landlords, reflecting a significant data center REIT boom. In late May, Digital Core REIT accepted a $14 billion cash-and-stock offer from a private infrastructure fund. Two weeks later, Equinix announced plans to buy a regional U.S. colocation firm for $3 billion. The combined value of announced deals now tops $22 billion for 2025, the strongest first-half total on record. Each deal pushed data-center share prices higher. The FTSE Nareit All REITs Index gained 4.3 percent in June even as the 10-year Treasury yield ticked above 4.6 percent.
Rate backdrop raises funding hurdles
Rising yields usually hurt property stocks, yet the current rally shows nuance. Data-center rents link to power costs and long-term cloud demand, so cash flows feel less rate-sensitive than office or retail income. Buyers finance most mergers with equity and strategic partners, not just debt. The largest acquirers also hedge interest costs with forward-starting swaps. As a result, higher coupons have not derailed the data center REIT boom. In contrast, mortgage REITs and mall owners lagged the index by eight percentage points this quarter.
Winners and laggards within the index
Digital Realty, Equinix, and CoreSite together now exceed nine percent of the FTSE Nareit weighting. Their combined market value jumped by $18 billion since the first offer hit the tape. Cold-storage and industrial landlords gained as well, riding the same logistics trend. Hotel REITs fell after weak spring occupancy data, and healthcare facilities drifted sideways. The divergent paths show how the data center REIT boom can mask softness in other real-estate groups.
Investor flows confirm the rotation
Global real-estate exchange-traded funds recorded $2.1 billion of net inflows in the last four weeks. More than half targeted U.S. data-center names. At the same time, broad bond funds lost $3 billion, as investors sought inflation-linked growth rather than fixed coupons. Options data echo the story. Call volume on Digital Realty doubled its 20-day average, while put volume stayed flat. Traders lean bullish yet avoid heavy short-volatility bets, hinting at respect for rate risk.
Deal math shows value in scale
Why pay a rich premium in a high-rate world? Buyers argue that hyperscale tenants prefer multi-campus providers with global reach. Operating margins improve with scale because power contracts, fiber links, and cooling systems spread across more rentable megawatts. Analysts forecast that the Equinix deal could lift funds-from-operations per share by six percent in year one, even with a blended funding cost near six percent. Margins depend on seamless integration, but history suggests that cloud demand fills space fast.
Risks that could cool the data center REIT boom
Nothing moves in a straight line. Three threats stand out. First, a sudden drop in AI or cloud spending would trim leasing velocity. Second, local power-grid constraints might delay expansions in key markets like Northern Virginia. Third, regulators could review foreign ownership of strategic data hubs, slowing approvals. Any of these events could halt the strong run and widen credit spreads for new debt deals.
How rising rates still matter
Even the best data-center strategy cannot ignore higher coupons forever. Fixed-rate debt costs about 150 basis points more than two years ago. Property firms will face heavier interest payments when current notes mature in 2026-2027. Those cash needs could limit dividend growth. Companies with a laddered maturity schedule and ample unused revolvers look better placed than peers that loaded up on cheap five-year bonds in 2021.
Portfolio tactics for the next phase
Investors who want exposure but worry about timing can use a barbell approach. Hold core data-center names with solid balance sheets and pair them with self-storage or cell-tower REITs, which tend to lag during early tech surges but catch up as cycles mature. Covered-call strategies on the sector ETF can add income while tempering volatility. For rate hedging, some managers short intermediate Treasuries equal to half their real-estate duration, reducing price swings if yields pop again.
Outlook into 2026
Cloud providers still plan aggressive capital spending. Microsoft, Alphabet, and Amazon together budgeted more than $200 billion for data centers and AI hardware over the next three years. That pipeline should support high-single-digit rent growth. Supply remains tight because zoning and grid upgrades take time. Analysts now model 10 percent annual funds-from-operations growth for the largest landlords through 2027. Valuations have risen but sit below the 2021 tech-rate euphoria peak.
The broader FTSE Nareit All REITs Index, up five percent year-to-date, could keep climbing if yields stabilize and leasing demand holds. Yet the gap between winners and laggards may stay wide. Investors should follow power-cost trends, AI adoption rates, and merger pipelines to gauge the next leg. For now, the data center REIT boom shows that even in a high-rate world, selective real-estate plays can outrun macro headwinds.