Equinix And Digital Realty Double Down On Largest Data Center Markets As Others Spread Out

While much of the data center industry is chasing power to remote locations, Equinix and Digital Realty are focused on building more in the core markets that have long dominated the digital infrastructure landscape. 

Over the past 18 months, the global AI data center construction boom has largely been defined by the emergence of massive campuses far from established markets as Big Tech chases the gigawatts of power needed to train artificial intelligence models.

While megacampuses like Oracle’s Stargate project in Abilene, Texas, and Meta’s Hyperion in rural Louisiana have grabbed headlines, the world’s two largest data center providers have been pursuing a different strategic approach to development. 

Data center REITs Equinix and Digital Realty — firms that together operate close to 600 data centers globally — are ramping up their development pipelines. The two firms have a combined developable capacity pipeline of close to 8 gigawatts capable of being delivered over the next two to three years.

Instead of going wherever the power is, the firms' leaders are focused almost exclusively on delivering capacity in the heart of the major data center markets where finding developable land and power poses the greatest challenge: large metro areas like Northern Virginia, Dallas and Chicago. 

On third-quarter earnings calls over the last week, executives of both firms touted their ability to deliver new capacity in the most constrained locations as a key differentiator in the increasingly crowded data center ecosystem. They said they aren't missing out on the megacampus opportunity, and they are uniquely positioned to capitalize on the evolution of the AI landscape as demand shifts from training to latency-sensitive inference. 

“It is harder to build in these locations for a growing list of reasons, and we expect this capacity will continue to be highly sought after as new applications and use cases continue to evolve,” Digital Realty CEO Andy Power said on the firm's Oct. 23 earnings call.

“They are tight markets, and they may be tight for a long time. We want to be investing in infrastructure that we believe in for the really, really long term,” he added.

Power pointed to the 5 GW of large, contiguous blocks spread across 40 metro areas that Digital Realty is slated to bring online, mostly in 2026 and 2027.

The sites are in major commercial hubs like Northern Virginia, Santa Clara, California, Atlanta and Dallas, areas where accessing power on short timelines has become nearly impossible. 

This planned capacity comes on top of 50 megawatts of new capacity the firm delivered last quarter and close to 730 MW that are under construction, almost all of it close to major population centers. 

Equinix is aiming to double its data center capacity by 2029, with the vast majority of that new inventory in major markets, CEO Adaire Fox-Martin said on its earnings call Wednesday.

The firm opened eight facilities across seven markets last quarter in places like Dallas, Washington, D.C., and Miami, with 58 major projects underway. 

Equinix also recently closed on substantial land acquisitions in Chicago, Toronto, London and two other markets that will support more than 900 MW of capacity. The company’s developable capacity was 3 GW in Q3, up 50% from Q2. Very little of that planned build-out will be far from the large commercial hubs where Equinix already has an established footprint.  

“Our investments remain focused on either enhancing our strong existing ecosystems or laying the foundation for both current and future AI inferencing solutions,” Fox-Martin said.

AI inference lies at the heart of Equinix’s and Digital Realty’s development approaches. Leaders of both firms have long maintained that their main AI opportunity isn't in massive facilities to train AI models but in providing critical infrastructure in major markets for enterprises once AI adoption and inference took hold. 

As corporations and consumers put AI to use, large-scale tenants are becoming increasingly desperate for blocks of capacity that are close to end users, with strong interconnection to facilities operated by hyperscale cloud providers.

They need these deployments across multiple markets due to latency and data sovereignty issues.

Their leaders say such needs fall right into the wheelhouse of the two REITs. Much of Equinix’s and Digital Realty’s revenues come from their retail colocation and interconnection business lines — selling capacity in the heart of major population centers and access to high-performance fiber infrastructure.

Their ability to deliver strong connectivity and low latency to tenants is the “secret sauce” that puts the firms in the driver's seat when it comes to capturing inference demand, Fox-Martin said. 

The REITs have also been adept at navigating development challenges and delivering capacity in the most constrained markets where other firms have run into roadblocks. Leaders of both firms said it is a product of their established presence in these markets and their resulting deep relationships with utilities and local governments. 

Leaders at Digital Realty and Equinix said their firms offer solutions for inference that others in the market will struggle to compete with. They said it makes more sense for them to focus on these strengths than chase power elsewhere. 

“We're still seeing numerous mega-announcements that are just talking about training and not even really evolving to inference or commercialization and the use of AI,” Power said. “We focus on markets where we see not just diversity and robustness of demand but locational and latency sensitivity to the workload.”