Data Centers Got the AI Hype—But Office REITs May Get the Rent Hikes

Data Centers Got the AI Hype—But Office REITs May Get the Rent Hikes

Rising demand for top-tier office buildings and limited new construction are giving landlords of quality properties renewed pricing power. SL Green, BXP and Hudson Pacific show improving fundamentals and trade far more cheaply than richly valued data center REITs like Equinix and Digital Realty. Investors should focus on high-quality buildings in recovering markets rather than the office sector broadly, since the rebound remains uneven.

Ask most investors about office REITs, and you'll hear some variation on a bear case in three parts that started in 2020. Remote work emptied buildings, then rental income cratered, and then valuations collapsed. Ask about artificial intelligence in real estate, and the answer is data center REITs. Equinix NASDAQ: EQIX is up about 33% this year. Digital Realty Trust NYSE: DLR has gained 16%. But new leasing data is telling a different story about office REITs. AI firms are expanding at the same time that employers are tightening attendance policies. Both are competing for the same top-tier buildings.

Supply isn't coming to the rescue. Only 19.7 million square feet of office space is under construction nationwide. That leaves owners of the best buildings with a kind of pricing power they haven't had in years. This gap between perception and fundamentals opens a window for investors. The market still prices office REITs as a broken sector. The leasing data suggests that the choicest properties in the space are healing.

The Flight to Quality Is Driving Office Rents Higher Manhattan is leading the rebound. Startups, AI companies and large employers are chasing the same trophy towers. Office visits rose 6% year over year (YOY) in the first half of 2026. New York, Miami, Dallas, and Atlanta are now close to pre-pandemic levels. The recovery isn't broad, and that matters. Tenants are paying up for newer space with modern layouts, amenities and transit access. Older commodity buildings are still struggling. Some may end up converted or demolished. The question for investors isn't "office or no office." It's which buildings, in which cities.

SL Green Realty NYSE: SLG owns trophy properties across Manhattan. That puts it at the center of the city's leasing rebound. The company raised its funds from operations (FFO) guidance in July. (FFO is the cash-flow measure REIT investors use instead of earnings.)

Second-quarter results backed that up. SL Green posted a loss of 38 cents per share, well ahead of the 59-cent loss analysts expected. Revenue rose 16.5% year over year. The stock is up about 11% in 2026 and pays a dividend that yields roughly 4.9%. Wall Street isn't convinced yet. The consensus rating is Hold, with a $57.43 price target implying about 13% upside. Short interest sits near 16.9% of the float. That's a lot of skepticism priced into a landlord with rising guidance.

BXP NYSE: BXP is the broader way to play the theme. It owns offices in Boston, New York, Los Angeles, San Francisco, Seattle, and Washington, D.C.