The proof is in the stocks: Data center REITs outperforming turmoil Matt Baker June 8, 2020 Share on Facebook Share on Twitter Share on LinkedIn Share via email The markets have faced turbulent waters since the beginning of the year, buffeted about by the pandemic. All asset class stocks were headed down a maelstrom—all but one that is, data centers. Avison Young recently reviewed the performance of 128 REITs through the first five months of 2020. The average stock price for data center REITs rose 15.3 percent between December 31, 2019 and May 27th, 2020. All other sectors saw negative stock performance during that time range. “Data centers have moved to the forefront for many investors, fueled by the surge in data usage during the pandemic and an overall need for additional facilities to support technology demands,” said Erik Foster, Avison Young principal and the firm’s head of industrial capital markets. During the first three weeks of the year, the REIT categories that Avison Young followed—industrial, healthcare, data centers, retail, office, multifamily, net lease and self-storage—all saw increases. The only outlier was hospitality, which saw a modest decline. Since then, of course, the value of hospitality stocks has been cut in half, dropping by 49 percent as business and leisure travel ground to a virtual halt in response to the COVID-19 outbreak. The one sector that has managed to crest the waves over the past five months was the data center market. This asset class had been performing better and better with each passing year as demand rises for cloud computing and specialized facilities to support data storage. Countermeasures to the pandemic have only magnified this demand. As companies instituted work-from-home policies to help slow the spread of the disease, many looked for technological assists to keep productivity high among their distributed workforces. While data center REITs were the only category to see positive growth in the face of the pandemic, two other sectors have been able to tread water. Industrial REITs are down 12.3 percent through May 27th and self-storage stocks only fell 9.5 percent. Industrial and related asset classes like data centers and self-storage had all been performing better than nearly all other sectors during the last cycle. Many consider industrial to be recession resistant—a trait that may serve it well in the months ahead. But even now it is aided by a surge in demand of online sales for groceries and other consumer goods that are hard or impossible to source at a brick-and-mortar retail location. “The industrial sector continues to be on the radar for investors as well,” Foster said, “due to the rapid expansion of e-commerce activity during the pandemic and the long-term positive outlook for supply chain growth.” Though REIT activity from January through May was largely negative, there are signs of positive momentum in the past month. REIT stock prices, among all asset classes, rose by nearly 4 percent in the past four weeks, correlating with stock market gains in that same time. The hardest-hit asset classes—retail, healthcare and hospitality—have actually seen the largest gains during that span, suggesting that investor confidence is on the rise as states begin to reopen their economies.