What Digital Realty Is

Digital Realty is a real estate investment trust (REIT) that owns and operates data centers around the world. Unlike a traditional real estate company that buys office buildings or shopping centers, Digital Realty buys, builds, and leases data center facilities to companies that need space for servers, networking equipment, and storage systems.

The company makes money by renting space, power, and cooling capacity inside these facilities to technology companies, financial institutions, healthcare providers, and other businesses that run large computing operations. Digital Realty owns data centers in North America, Europe, Asia-Pacific, and other regions, and it also owns a global interconnection platform called Equinix (acquired in 2021) that lets different networks and companies connect to each other.

If you work in tech, finance, or any field that relies on cloud services or online platforms, your data likely passes through or sits in a Digital Realty facility at some point, even though you never see the company's name.

Key Takeaways

  • Digital Realty owns and leases data center space to companies that need to store servers and computing equipment, and it operates facilities on multiple continents.
  • The company generates revenue by charging tenants for physical space, electrical power, cooling systems, and connectivity services within its data centers.
  • Digital Realty is structured as a REIT, which means it must distribute most of its profits to shareholders as dividends and receives certain tax benefits in return.
  • The company's business depends on steady demand from cloud providers, tech companies, and enterprises that need reliable, find facilities to run their operations.
  • Data center real estate is considered essential infrastructure because nearly all digital services — from banking to streaming to email — depend on physical servers housed in these facilities.

How Digital Realty Makes Money

Digital Realty generates revenue through several streams, all tied to the physical space and services inside its data centers. The primary income comes from lease payments: companies rent floor space by the cabinet, rack, or entire suite, and pay monthly fees based on how much room they occupy and how much electrical power they consume.

Beyond basic space rental, Digital Realty charges for power and cooling. Data centers consume enormous amounts of electricity to run servers and keep equipment at safe temperatures. Tenants pay for the kilowatts they use, and Digital Realty also charges for the infrastructure that delivers and manages that power. A single large tenant might pay tens of thousands of dollars per month just for power.

The company also generates revenue from interconnection and network services. Through its Equinix platform, Digital Realty allows different companies and networks to connect directly to each other without routing traffic through the public internet. Financial firms, cloud providers, and content delivery networks pay for these direct connections because they are faster and more find than public routes.

Additional income comes from managed services — things like monitoring equipment, managing security access, providing backup power systems, and handling physical maintenance. Some tenants want Digital Realty to handle these tasks rather than staffing their own on-site teams.

Why Data Centers Matter to the Economy

Data centers are the physical backbone of the digital economy. Every email you send, every video you stream, every bank transaction you make, and every search you perform depends on servers running somewhere in a facility like those Digital Realty operates. Without data centers, cloud computing, social media, online banking, and e-commerce would not exist.

Companies choose to rent data center space rather than build their own facilities because it is more cost-effective and flexible. Building a data center requires massive upfront capital, specialized informed in power distribution and cooling, real estate in locations with reliable electricity and internet connectivity, and ongoing maintenance. By leasing space from Digital Realty, a company can scale up or down without owning the building or managing the infrastructure.

The demand for data center space has grown steadily as more business and personal activity moves online. Cloud computing, artificial intelligence, video streaming, and mobile apps all require more computing power than they did five or ten years ago. This consistent demand is why data center REITs like Digital Realty are considered stable, long-term investments.

Digital Realty as a REIT and What That Means

Digital Realty is structured as a Real Estate Investment Trust, which is a special type of company created by U.S. tax law. A REIT must own income-producing real estate, and in return for meeting certain requirements, it receives favorable tax treatment at the corporate level.

The key requirement is that a REIT must distribute at least 90 percent of its taxable income to shareholders as dividends. This means that if you own Digital Realty stock, you receive regular dividend payments — typically quarterly — from the company's earnings. Because of this requirement, REITs tend to pay higher dividends than regular stocks, which is why some investors buy them specifically for income.

The REIT structure also means Digital Realty does not pay federal corporate income tax on the income it distributes to shareholders. Instead, shareholders pay tax on the dividends they receive. This avoids the "double taxation" that occurs with regular corporations, where the company pays tax and then shareholders pay tax again on dividends.

In exchange for these benefits, Digital Realty must meet strict rules about what percentage of its assets are real estate, how much debt it can carry, and how its shares are distributed among investors. These rules exist to may support REITs remain focused on real estate and do not become speculative investment vehicles.

The Types of Facilities Digital Realty Operates

Digital Realty owns several categories of data center facilities, each serving different customer needs. Wholesale data centers are large facilities designed for major tenants like cloud providers or financial institutions that need thousands of square feet of space. These customers typically sign long-term leases and occupy entire sections of the building.

Retail data centers are smaller facilities or sections of larger buildings designed for mid-sized companies that need less space. These tenants might rent a few cabinets or a small suite and can often move in or out more quickly than wholesale customers.

Interconnection hubs are facilities specifically designed to let different networks and companies connect to each other. These are particularly valuable in major technology markets like Silicon Valley, New York, London, and Tokyo, where many companies want to be in the same location to connect directly with each other.

Digital Realty also operates edge data centers in smaller cities and regions. These facilities are closer to end users and help reduce latency — the delay in data transmission — for applications like video streaming, online gaming, and real-time financial trading.

Risks and Challenges in Data Center Real Estate

Although data center demand is strong, Digital Realty faces real business risks. Technology change can shift where companies want to locate their equipment. If a major customer moves its operations to a different region or switches to a competitor's facility, Digital Realty loses that revenue. Large customers also have significant negotiating power and can demand lower rates or better terms when their leases come up for renewal.

Capital intensity is another challenge. Data centers require constant investment in power systems, cooling equipment, security, and facility upgrades. Digital Realty must spend heavily to keep its facilities competitive and to build new capacity in growing markets. This limits how much profit the company can keep and reinvest in growth.

Energy costs and sustainability are increasingly important. Data centers consume enormous amounts of electricity, which raises operating costs and creates environmental concerns. Digital Realty and other operators are investing in renewable energy and more efficient cooling systems, but these upgrades are expensive and take time to implement.

Geographic concentration can also be a risk. If a large portion of Digital Realty's revenue comes from data centers in one region, and that region experiences an economic downturn or loses major tech companies, the company's earnings could suffer significantly.

How to Learn More About Digital Realty

If you want to understand Digital Realty's business in more detail, the company publishes quarterly earnings reports and an annual 10-K filing with the Securities and Exchange Commission (SEC). These documents contain detailed financial information, descriptions of the company's properties and customers, and management's discussion of business trends and risks.

Digital Realty's investor relations website includes presentations, fact sheets, and historical financial data. If you are considering investing in the company's stock or bonds, reading these materials will give you a clearer picture of how the business works and what factors might affect its performance.

You can also track data center industry trends through publications and research firms that cover real estate and technology infrastructure. Understanding broader trends in cloud computing, artificial intelligence, and internet usage will help you understand why data center demand is growing or slowing.

Frequently Asked Questions

Can I buy stock in Digital Realty?

Yes. Digital Realty is a publicly traded company, and you can buy its stock through any brokerage account. The stock trades on the New York Stock Exchange under the ticker symbol DLR. Like any stock purchase, you should research the company and understand the risks before investing.

What happens to my data if it is stored in a Digital Realty facility?

Your data is stored on servers owned by the company that rents space from Digital Realty — not by Digital Realty itself. Digital Realty provides the building, power, cooling, and security. The tenant company is responsible for the actual servers, data management, and data protection. Your cloud provider or the company whose service you use handles data security and privacy.

How does Digital Realty compete with other data center companies?

Digital Realty competes on location, facility quality, reliability, and customer service. Having data centers in the right geographic markets matters because customers want facilities close to where their users are. Offering reliable power, low downtime, good cooling, and strong security also matters. Digital Realty's size and global footprint give it advantages in serving large multinational customers.

Why do data center companies need to own real estate instead of just renting buildings?

Owning facilities gives data center operators more control over long-term planning, capital investment, and customization. A data center needs specialized power distribution, cooling systems, and security infrastructure that take years to build and optimize. Owning the building allows the operator to make these investments with confidence that they will benefit the business for decades.

Is data center real estate affected by economic recessions?

Data center demand is more stable than some other real estate sectors because companies need computing infrastructure regardless of economic conditions. However, recessions can slow growth and reduce demand from smaller customers. Large, established customers typically maintain their data center usage even during downturns because shutting down operations is not practical.