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Digital Realty Inks Multi-Megawatt Deal for 2nd Osaka Facility

In an effort to expand its presence in Japan, data-center REIT Digital Realty Trust, Inc. DLR recently announced a multi-megawatt, multi-year agreement with a global cloud-service provider for capacity at its second facility in Osaka referred as the Digital Osaka 2 Data Centre.

This four-story facility will span more than 23,000 square meters and is under construction, currently. It will likely deliver up to 28 megawatts of total IT capacity and is slated for a mid-2019 opening. Additionally, the latest facility will have connectivity through dark fiber to the previous and subsequent phases of the Digital Osaka connected campus, thereby, enabling assembling of critical data center, network, cloud and connectivity providers under a single, secure environment for its customers.

The company’s latest expansion effort in Osaka is a notable step because this large port city and commercial center contributes around JP¥38 trillion (approximately $352 billion) annually to the Japanese economy and there is decent need for data center in this emerging region. Moreover, the country’s technology sector is highly advanced and is expected to grow at a rapid pace in the years ahead. As such, Digital Realty’s expansion efforts place it well to capitalize on the favorable trend. Also, the company’s previous facility — Digital Osaka 1 — was 100% leased before its opening in May 2017, reflecting solid demand for data centers in the nation.

Admittedly, with growing popularity of cloud computing, Internet of Things and big data, as well as the use of third-party IT infrastructure by several companies, data-center REITs are experiencing a boom. Additionally, the estimated growth rates for the artificial intelligence, autonomous vehicle and virtual/augmented reality markets will remain robust over the next five to eight years. This, along with improved outlook for economic growth, will significantly propel growth of data-center REITs, such as Digital Realty, Equinix, Inc. EQIX, CyrusOne Inc. CONE, CoreSite Realty Corp. COR and others.

Amid these, accretive acquisitions and development efforts are anticipated to boost top-line growth for Digital Realty. Lately, the company announced the opening of Digital Erskine Park II, the company’s fifth data center in Australia. It also announced the purchase of an additional 1.4-hectare land parcel to build out the next phase of the Erskine Park connected campus, adding 12 megawatts of capacity.

Moreover, last year, the company announced the completion of a merger with DuPont Fabros, in an all-stock deal, for an enterprise value of about $7.8 billion. This move enhanced Digital Realty’s portfolio in the top U.S. data-center metro areas across Northern Virginia, Chicago and Silicon Valley. The company is also focused on expanding its footprint in Europe, Australia and Asia.

Nonetheless, given the data-center real estate market’s solid growth potential, competition may intensify in the upcoming period from existing, as well as new players. Amid these, an aggressive pricing pressure is anticipated as well in the data-center market.

Digital Realty currently has a Zacks Rank #3 (Hold). Shares of the company have outperformed the industry it belongs to, in the past month. The stock has rallied 5%, while the industry has gained 2.7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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