Digital Realty Trust's Q1 2025: Navigating Contradictions in Hyperscale Demand, AI Impact, and Tariff Challenges

Hyperscale demand and leasing environment, impact of AI on demand and booking percentages, enterprise demand and decision-making cycles, hyperscale demand and backlog growth, and impact of tariffs on development costs are the key contradictions discussed in Digital Realty Trust's latest 2025Q1 earnings call.



Strong Leasing Activity:
- Digital Realty posted strong overall leasing in the first quarter of $242 million, consistent with the record pace set in 2024, driving their backlog of booked-not-billed leases to a new record of $919 million.
- The growth is attributed to robust activity across primary product segments, including Core FFO per share growth and record backlog visibility for 2025 and 2026.

Prudence in Funding Model Evolution:
- The company formed its first U.S. hyperscale data center fund, targeting $10 billion of investments, and placed $1.7 billion in initial commitments.
- This strategic move enables meeting customer demands while scaling the balance sheet and enhancing returns, aligning with institutional investor interest.

Global Pipeline and Market Expansion:
- Digital Realty increased its development pipeline by 170 megawatts, with 63% pre-leased, focusing on regions like Northern Virginia and Dallas.
- The expansion is driven by healthy inter-regional activity across global platforms and a strategic focus on markets with strong interconnection and enterprise demand.

Hyperscale Leasing and Pricing:
- Hyperscale leasing in North America contributed $172 million, driven by large capacity blocks and leading to an overall rate on new data center leasing reaching $244 per kilowatt per month, up 10% from the prior record.
- The achievement is supported by the demand for cloud availability zones, AI infrastructure, and strategic positioning in supply-constrained markets.