Data Centers Are the Hot New REITs. Should You Invest $1,000?

Real estate investment trusts (REITs) have staged a comeback in 2026 after years of declining or moving sideways. And one category of REITs, data centers, is particularly hot right now.

But first, what are these investments, and how do they work? REITs are companies that finance or own, and often also manage, income-producing real estate. The properties they own can vary widely, from office and retail properties and residential real estate to healthcare and data center assets, among many other categories.

Yet the entire REIT sector struggled in the aftermath of the COVID-19 pandemic due to trends such as work-from-home culture and depressed spending at brick-and-mortar retail outlets. Plus, the Federal Reserve's elevated interest rates, implemented after the pandemic to counter rising inflation, hurt REITs, many of which rely heavily on debt to expand.

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But REITs have staged a comeback in 2026, as those post-COVID trends have waned and interest rates have stabilized. The entire REIT sector is up more than 10% year to date, as measured by the Vanguard Real Estate Fund ETF (NYSEMKT: VNQ). That's about the same as the broader market -- the S&P 500 is up 10.5% so far this year. In fact, REITs were the best-performing asset class in June.

Yet a few specific REIT categories are doing far better, with returns that have wildly outpaced this year's returns. Among them is a relative newcomer to the REIT space: data centers. The year-to-date return for data center REITs was 33.2% as of June 30, according to the National Association of Real Estate Investment Trusts. That's been driven by extraordinary growth in the sector, particularly from AI companies and rising data usage.

Two well-known data center REITs, Equinix (NASDAQ: EQIX) and Digital Realty Trust (NYSE: DLR), are up 34% and 14%, respectively, year to date.

A new entrant to data center REITs

And there's a new entrant to the space: Realty Income (NYSE: O). Realty Income recently declared its 673rd consecutive monthly dividend. The REIT has increased its dividend 135 times since it went public in 1994. Its dividend yield is a hefty 5.08%.

Realty Income's portfolio of properties spans the retail, industrial, and gaming sectors. But now it's getting deeper into data centers. The company recently announced a $6 billion joint venture with Cloud Capital that will invest in a diversified portfolio of stabilized hyperscale assets leased to investment-grade tenants under long-duration, triple net leases (a commercial lease agreement in which the tenant agrees to pay all property operating expenses, like taxes and insurance, in addition to rent).

The new venture's first investments will be three facilities in Northern Virginia's "data center alley."

If you believe the data center build-out will continue and want to profit from it, consider a $1,000 investment in one of these three stocks today.

Matthew Benjamin has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Digital Realty Trust, Equinix, Realty Income, and Vanguard Real Estate ETF. The Motley Fool has a disclosure policy.