Digital Realty, a real estate investment trust (REIT) that owns and operates data centers, is deepening its bet on the world's largest data center market. The company announced a $3.5 billion cash-and-stock deal to increase its ownership in three Northern Virginia facilities it co-owns with private equity giant Blackstone.
The transaction covers three 96-megawatt sites in Manassas and Sterling, Virginia, a region that has become the epicenter of the global data center boom. Digital Realty will pay $1.2 billion in cash and $2.3 billion in shares for larger stakes in the properties. The broader package, including assumed debt and planned build-out spending, is valued at $7.8 billion.
Why Northern Virginia Matters
Northern Virginia is the largest data center market in the United States, accounting for roughly a third of the country's total data center capacity. The region's proximity to major internet exchange points, fiber networks, and government customers has made it a prime location for cloud computing and artificial intelligence workloads.
Demand for data center space has surged in recent years as companies race to build out AI infrastructure and expand cloud services. That has pushed up both construction costs and property values, making deals like this one increasingly common as REITs and private equity firms jockey for position.
The deal also reflects a broader trend: data center operators are moving to consolidate ownership of key assets. By increasing its stakes, Digital Realty gains more control over the sites' operations and future revenue streams, rather than sharing them with a partner.
Timing and Stabilization
One catch for investors: the sites won't be fully operational for years. Digital Realty expects two of the facilities to stabilize in the first half of 2027, and the third in the first half of 2028. Stabilization is a real estate term meaning the properties are fully leased and generating steady income. Until then, the company will be spending on construction and tenant improvements, which can weigh on near-term cash flow.
That timeline is typical for large-scale data center projects, which often take several years to design, build, and lease up. But it means investors won't see the full financial benefit of this deal until late in the decade.
Digital Realty's stock has been under pressure this year along with other REITs, as rising interest rates make their dividend yields less attractive compared to bonds. The company's shares are down about 12% year-to-date.
What It Means for Investors
For everyday investors, this deal highlights the growing importance of data centers as a real estate asset class. Data center REITs like Digital Realty offer a way to invest in the infrastructure behind cloud computing and AI without buying tech stocks directly. But they come with their own risks: high capital spending, long development timelines, and sensitivity to interest rates.
The cash-and-stock structure of the deal also matters. By using shares to pay for part of the acquisition, Digital Realty dilutes existing shareholders. That can weigh on the stock price in the short term, though it also preserves cash for other investments.
Investors should watch how quickly Digital Realty can lease up the new capacity and whether demand for data center space remains strong. The company's ability to secure long-term contracts with creditworthy tenants will be key to making the math work.
For context, other companies are also betting big on data center growth. Aramark's Data Center Contracts Could Add $3-4 Billion in Revenue by 2028, Oppenheimer Says, highlighting the broader industry tailwind. Meanwhile, Tech and Chip Stocks Drive Nasdaq Higher as Oil Rises, Gold Slips, showing how investor sentiment toward the sector remains positive.
The deal is expected to close in the second half of 2025, subject to regulatory approvals and other customary conditions. Digital Realty said it expects the transaction to be accretive to its funds from operations, a key REIT metric, within the first year after stabilization.
