It’s not often that an investment class breaks into the broader news ecosystem, but real estate, and REITs, have taken up a lot of headlines. It’s hard to avoid frequent stories about urban doom loops, office real estate issues, and other dark clouds over the space. The outlook for REITs is not nearly as dire as those headlines suggest, however. Those headlines may actually be obscuring a major, positive story.
The Real REITs Story
Those investors familiar with REITs may know that data centers are providing serious positivity despite those negative headlines. The explosion in interest in AI following the debut of a new level of generative AI programs has kicked data construction into high gear.
That trend is boosting data center REITs investing in ETFs like the ALPS Active REIT ETF (REIT). However, that AI story alone does not constitute the real story. It’s the combination of AI with renewable energy investing that could create a juggernaut feedback loop for data centers.
Data centers, while a very busy sector right now, remain expensive. Along with the hardware, energy costs loom for the countless servers and cooling systems needed to push AI forward. Record investment in renewable energy, itself a medium and long-term trend, could create a very positive environment for further data center construction.
That renewable infrastructure could enable steady data center construction even after the initial rush into the space. REIT, which actively invests for a 68 basis point (bps) fee, hit its three-year ETF milestone in February. It offers active exposure to data centers via U.S. REITs. It also invests in U.S. real estate operating companies.
See more: Beyond the REIT Headlines: The Case for an Active REIT ETF
In doing so, it has returned 5.5% over one year, outperforming both its ETF Database Category and Factset Segment averages. Taken together, the burgeoning data center investment landscape, boosted by record renewables investment, could appeal to investors looking for diversification outside of the 60/40 equities and bonds split.
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