Citi names one 'compelling emerging' theme to play real estate — and stocks and REITs to buy

Real estate companies around the world are eyeing one area right now: data centers, according to Citi.

"One of the compelling emerging themes globally across Real Estate is the expansion of industrial and diversified companies into datacenters," said Citi.

"The higher potential returns from data center development is creating strong interest from real estate companies across the globe exploring and expanding their datacenter footprints," the bank added in a June 17 note.

Citi noted the push toward data centers is being driven by major themes such as artificial intelligence and nearshoring.

Data centers house vast amounts of computing power needed for AI workloads, and that need is set to grow as many tech companies are rapidly developing infrastructure for artificial intelligence. Large language models require a lot of data center capacity.

More industrial companies are looking to convert warehouses into data centers, Citi noted. But the bank says it believes that the large power requirements for hyperscale data centers — those made for AI requirements — and the limited availability of power transmission, are "restraining" supply growth.

"As a result, we expect demand to keep pace or outpace supply over the next few years, contributing to better KPIs and development returns for the data center category," Citi said.

"We predict development and construction of hyper-scale data center capacity will grow meaningfully over the next 7 years, fueling interest from a variety of global industrial and diversified players," it said, forecasting that demand for data center power will expand at a compound annual growth rate in the mid-teens till 2030.

"We would also not be surprised if some of the industrial firms were to more directly