Ranjini Venkatesan, vice president and senior credit officer at Moody’s Ratings, was a guest on the latest episode of the Nareit REIT Report podcast.
Venkatesan discussed how capital investment levels have been high for both Digital Realty (NYSE: DLR) and Equinix, Inc . (Nasdaq: EQIX), and are expected to remain so.
“Over the last three years, annual investment by Digital Realty and Equinix averaged 5.5 % of their gross asset base, which is high,” she said. Both REITs have demonstrated the ability to raise capital at healthy pricing through different credit cycles and with strong leasing execution for the properties being built, she added.
Venkatesan said she expects both REITs “will continue to substantially re-lease their large development projects and they are increasingly using unconsolidated joint ventures to invest in the hyperscale opportunity.”
Elsewhere in the interview, Venkatesan noted that the surge in demand and the prevailing supply constraints are fueling rapid growth in capacity, some of which could become redundant over the long term. “While we believe that in the near term the renewal risk will be low, it will increase as the market evolves.”
Moody’s estimates that investment in new data center capacity will be about $2 trillion over the next few years. It will be invested in data center buildings, backup power, service and computing equipment, as well as to add new power capacity to run the centers.