As the spread of coronavirus has quickly disrupted the lives of millions of Americans, the question on many investors’ minds is which businesses, if any, will be immune to an economic down spiral.
Real estate investment trusts (REITs) suffered whiplash after total 2019 returns for all publicly traded REITs rose 28.07 percent, only to take a dive of 25.4 percent in Q1 of 2020, according to REIT industry association NAREIT. Regional malls were the hardest hit, reporting losses upwards of 60 percent.
Some REIT sub-sectors, however, are showing greater immunity to the coronavirus economy. “Self-storage” ended the first quarter with a modest low of -7.69 percent while ‘infrastructure’ (primarily cell tower companies) is holding its own at -0.69 percent.
One surprising step-child of REITs who is currently performing well is ‘data centers.’ NAREIT reported an 8.8 percent growth in data centers, comprised of five companies – Digital Realty Trust (DLR), Equinix Inc., CyrusOne, CoreSite Realty and QTS Realty Trust. Overall, DLR flexed its financial muscle on the S&P 500 as the 7th best performing stock at the end of Q1.
Cause and effect. Coronavirus caused millions of students and employees to study and work remotely. Isolation also caused millions of people to seek alternate means of entertainment. These events produced growth for data centers due to increased demand for video conferencing platforms, internet, and cable TV.
This performance boost for data centers may come as no surprise to anyone who has found themselves working (or socializing) virtually. Video conferencing platform Zoom went from 10 million daily meetings in December to over 200 million daily meetings in March. Comcast reported its network traffic increased by 32 percent since March 1.
“What caused this [increase] is people stopped doing face-to-face interaction,” says NAREIT Senior Economist, Calvin Schnure. “Whether it’s shopping, video conferencing etc, we’re doing more by phone and internet communication. That’s likely spurring business for the data centers.“
Data centers also reportedly stand to gain traction through migrating or up-scaling customers. According to NAREIT, Digital Realty recently launched a program providing free additional ports to all “Government, Medical, Emergency Services, and Education verticals” for six months.
“We’re fortunate to be in a business that is continuously pushed forward by different demand drivers,” says Digital Realty CEO Bill Stein.
While REITs overall may face months of recovery alongside many other business sectors, investors are likely to consider the health of data for short-term and long-term investment stability.