WSJ On Data REITs

The Wall Street Journal has a good article on data center real estate investment trusts.  Yes, there are REITs that just buy data centers, the large warehouse-type buildings that house the equipment that support cloud computing and endless internet streaming.  I don't agree with this concern:

Analysts are concerned about capital expenditures, especially costs to maintain equipment and to replace aging buildings. Some say that data-center landlords aren't taking into account increasing technological advances when estimating these costs.

Investor concerns about the companies boiled over earlier this month when Mr. Jacobson accused Digital Realty of underreporting what it will cost to maintain and upgrade properties and equipment. He warned that such costs will skyrocket as the company competes more aggressively for tenants.

Data storage REIT landlords are responsible for a building's infrastructure - power, cooling and security - but not the technology inside, which is the tenant's responsibility.  I see this as a bigger concern:

Analysts are concerned about rising capital expenses and declining rent at data-center REITs. They also worry that technology companies such as Amazon.com Inc. AMZN -0.51% and Google Inc. GOOG -1.17% are increasingly building their own data centers rather than renting space from REITs.

That is decreasing demand for space in the REITs' centers and is further troubling because the big technology companies potentially could compete with REITs by leasing out space to smaller businesses.

"It's fair to say that some of the largest users that are now building their own [data centers]…have definitely sucked some of the demand out of the room," said John Stewart, an analyst at Green Street Advisors.

While Amazon and Google may move to own and control their storage real estate, I don't see them moving into the landlord business full-time.