Brendan Lynch, co-head of U.S. equity REIT research at Barclays, discussed data center REITs on the latest REIT Report episode, noting that the sector is rebounding as enterprise AI demand accelerates, leasing pipelines grow, and investors seek more direct exposure. Lynch said the recent Blackstone Digital Infrastructure Trust (NYSE: BXDC) IPO shows “there are investors who are looking for a specific type of exposure,” in the data center sector, notably stabilized assets. Meanwhile, record demand should support revenue growth, margin expansion, and cash flow growth as operators scale, he said. Development yields have improved from 6% to 7% in 2021–2022 to low double digits and, in some cases, the mid-teens, although customers’ ability to self-build limits the upside. Power remains a key constraint, Lynch observed, but operators are getting more creative through retrofits, grid solutions, and behind-the-meter options. On regulatory pushback, “a lot of the things that are the cause of NIMBYism, I think, are misunderstandings about how data centers can fit into a given environment,&quot; he said. Chapters: 00:00 AI CapEx Runway 00:39 Welcome to REIT Report 00:58 Data Center REIT Comeback 02:39 Leasing Pipelines Growth 03:08 Development Yields Shift 04:28 Power Constraints Markets 05:38 Creative Power Solutions 06:06 NIMBY Pushback Regulation 07:41 Winners Ecosystem Pricing 08:49 Is Now Good Entry 09:53 Data Centers in Space 10:53 Wrap Up Subscribe

Barclay’s Brendan Lynch on Data Center REITs’ Extended Growth Opportunity Amid AI Demand

Nareit's REIT Report Podcast

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**Podcast:** Nareit's REIT Report Podcast

## Transcript

When we look at the AI trajectory and the Capdex that is anticipated from the largest hyperscalers in the market now, there does seem to be a very long runway of additional spending and investment in data center demand.

So I do think over the long term, these are still relatively attractive investment opportunities and the constraint on supply is only contributing to pricing power going forward. Hello and welcome to the REIT Report. I'm your host, Sarah Borgson-Kito. In today's episode, we're taking our monthly look at a REIT sector.

For July, that's data centers. And with me to share his insights is Brendan Lynch, co-head of U.S. equity REIT research at Barclays. Brendan, welcome to the podcast. Great. Thank you, Sarah. So, Brendan, last year, data center REITs were the worst performing part of the REIT market. And this year, they're up more than 30% year to date. We're also seeing jumps in real estate fund allocations and a $1 billion plus IPO from Blackstone. What does that tell you about where the market is right now?

Good question, Sarah. So when we look back over the last 18 months, there was some caution at the beginning of that period over the role that the public data centers were going to play in the AI buildout. There seemed to be a little bit of a slow demand environment for enterprise AI and the smaller type of deployments that were in theory going to accompany the AI buildout, specifically on AI inferencing.

But what we've seen over the last 6 to 12 months is that there's been an acceleration in that enterprise demand. And the public companies are benefiting from that in both their bookings, momentum, and their revenue growth. In terms of the Blackstone IPO, I think that highlights how investors have relatively few ways to play the data center buildout directly through data center exposure.

And they're looking for additional ways to express the view on the data center buildout. It also highlights that there are investors who are looking for a specific type of exposure, notably stabilized assets, as opposed to the public companies that were available prior to the IPO that had a mix of development and stabilized assets. So there's a niche for all types of investors. And I think the IPO Blackstone, there's just more ways to play the space.

And as you look at these record leasing pipelines, what is that telling you about whether that demand is going to translate into more durable long-term cash flow growth? Certainly, as we see these leasing pipelines just grow and the bookings momentum accelerate, we do anticipate that we will see that translate not only to revenue growth, but some element of margin expansion and additionally cash flow growth as these companies get even greater scale than they have already.

And Brendan, there's also been a lot of focus on capital spending and development costs in the data center space. How should investors think about d...

Barclay’s Brendan Lynch on Data Center REITs’ Extended Growth Opportunity Amid AI Demand

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Barclay’s Brendan Lynch on Data Center REITs’ Extended Growth Opportunity Amid AI Demand

Transcript

Built for investment professionals

Every day you wait, your competitors are findingedge in conversations you're not hearing.

Every day you wait, your competitors are finding
edge in conversations you're not hearing.