What is the difference between colocation and hyperscale data centres?

The difference that matters is who holds the pricing power at renewal. Colocation sells space, power and connections to hundreds of customers in a shared building. Once a customer has cross-connected to a dozen suppliers and partners inside that building, leaving means rebuilding those links somewhere else, so the landlord reprices at renewal. Hyperscale pre-lets whole halls to a handful of very large cloud and AI tenants on contracts of ten years or more, usually signed before the building is energised. That revenue is contracted and the counterparty is strong, but the tenant occupies the whole hall and could build its own, so renewal risk arrives in large single pieces rather than tenant by tenant. Equinix and Digital Realty are the clearest listed examples of each pole.

Why does Equinix trade at a higher multiple than Digital Realty?

On a matched basis it barely does. Equinix trades at about 27.2 times FY2025 AFFO of $38.33 a share (10 June 2026 price of $1,043.60). Digital Realty's headline 24.6 times is struck on Core FFO of $7.39, a different and larger measure; on its filed AFFO of $6.55 the multiple is 27.7 times, marginally above Equinix. The apparent discount is a units problem rather than a valuation gap. What the market does pay Equinix for is interconnection: revenue that reprices upward with low migration risk, against a hyperscale backlog that still has to be built and energised.

How do churn metrics differ between colocation and hyperscale REITs?

The bases are not the same, so the percentages cannot be lined up. Equinix reports average quarterly MRR (monthly recurring revenue) churn, 2.4% for FY2025, which is roughly 9% of the recurring revenue base over a year if it kept running at that rate. Tower REITs report annual churn on prior-year billings, typically 1-2% domestically. Hyperscale landlords tend not to headline a churn rate at all, because with a small number of very large leases the informative disclosures are the lease expiry schedule and the top-customer table, not an average. Compare only within the same reporting basis.

AFFO or Core FFO for Digital Realty: which earnings basis?

Match the multiple to the metric. Digital Realty filed FY2025 AFFO of $6.55 a share and Core FFO of $7.39, and headlines Core FFO. On the 10 June 2026 price of $181.41 that is 24.6 times Core FFO or 27.7 times AFFO. Use AFFO when comparing against Equinix, which leads with AFFO. Read the reconciliation first: Nareit defines FFO but has never defined AFFO, so the split between maintenance capital and growth capital is the company's own call, and in a data centre being re-powered for denser racks that split is a genuinely difficult one.

Colocation vs Hyperscale: Two Data Centre Economics

Educational analysis for professional use. This guide is not investment advice or a recommendation to buy or sell any security, and it is not personalised.

Two Growth Models Under One Sector Label

“Data centre REIT” covers two businesses that differ in one thing above all: who has the upper hand when the contract comes up for renewal.

Retail colocation packs hundreds of customers into shared halls and sells them space, power, and above all connections to each other. Once a customer’s traffic runs through a dozen cross-connects to its suppliers and partners in the same building, moving out means rebuilding that web somewhere else. Contracts are short, and the landlord is the one who reprices them.

Hyperscale is the opposite trade. A whole hall, sometimes a whole campus, is pre-let to one very large tenant on a long contract, often years before the building is energised. The revenue is contracted and the counterparty is creditworthy, which reads as safety, and for the length of the term it is. But only a handful of companies in the world buy capacity at that scale, each of them can build its own, and each knows roughly what the landlord spent. Contracted is not the same as durable.

Equinix and Digital Realty are the clearest US-listed examples of the two poles, though neither is pure: Digital Realty sells colocation as well. They report on different earnings bases and headline different growth indicators, so translate the basis before screening either on the other’s numbers.

Equinix: Interconnection and MRR Compounding

Equinix’s retail footprint and interconnection mix show up in low churn by colocation standards and an AFFO-led earnings screen (footprint as of 31 December 2025). FY2025 metrics and the June 2026 valuation are in the table.

EQIX FY2025 metric	Value
Revenue	$9,217M
AFFO/sh	$38.33
Avg MRR churn (quarterly)	2.4%
Data centres	280 (77 metros, 36 countries)
Developable capacity	~3 GW land under control
P/AFFO (Jun 2026)	~27.2×

MRR is monthly recurring revenue, the contracted rent running through the estate each month. The churn figure is the share of it lost per quarter, and the word quarter does the work. Left at 2.4% a quarter, churn takes out roughly 9% of the base over a year, so it cannot be set beside a tower REIT’s 1–2% annual churn and read as a similar number. The churn guide sets out how far apart the two definitions sit.

What holds the churn down is interconnection. Revenue grows when customers cross-connect to each other inside an Equinix building, and every cable added raises what it would cost to leave. Growth compounds as existing cabinets take more cross-connects and new customers arrive to reach the ones already there. Megawatt deliveries are part of the story, not the whole of it.

Digital Realty: Bookings and Hyperscale Scale

Digital Realty leads on bookings for growth and Core FFO for earnings, with AFFO filed in the reconciliation behind it. FY2025 metrics and the June 2026 multiple are in the table.

DLR FY2025 metric	Value
Bookings (100% share)	$1.2B annualised GAAP rent
AFFO/sh	$6.55
Core FFO/sh	$7.39
P/Core FFO (Jun 2026)	~24.6×

Hyperscale growth is visible in the bookings line before it fully converts to AFFO. Power and construction timelines create a 12–24 month recognition lag (analyst convention drawn from backlog commentary, not a filed statistic). See data centre power constraint for why bookings can run ahead of energised capacity.

Bookings are also where the concentration sits. A hyperscale hall has one tenant, so at building level the concentration is total, and at portfolio level it depends on how many of the world’s handful of hyperscalers a landlord has signed. That is a disclosure to go and read rather than a ratio to quote: the top-customer table and the lease expiry schedule in the 10-K tell you how much rent renews in one negotiation, which is the risk a bookings headline hides.

Side-by-Side: What the Market Prices

Dimension	Equinix (colocation)	Digital Realty (hyperscale)
Growth headline	Revenue + AFFO; interconnection mix	Bookings ($1.2B FY2025)
Contract length	Short, typically a year or two	Long, ten years and up, pre-let
Who holds renewal power	Landlord, via switching costs	Tenant, via scale and self-build option
Retention disclosure	2.4% quarterly MRR churn	No churn headline; read expiries and top customers
Earnings screen	AFFO $38.33/sh	Core FFO $7.39/sh (AFFO $6.55 filed)
Valuation multiple (Jun 2026)	P/AFFO ~27.2×	P/Core FFO ~24.6×
Supply lever	~3 GW developable land	MW pipeline + power access
Market cap (Jun 2026)	~$102.9B	~$64.4B

Read the last two multiples carefully, because they are not the same units. Equinix’s 27.2× is struck on AFFO. Digital Realty’s 24.6× is struck on Core FFO, which stops short of the AFFO deductions and runs $0.84 a share above them. Put Digital Realty on its filed AFFO and the multiple is 27.7×, a shade above Equinix rather than 2.6 turns below it. Both then sit at the top of the illustrative data-centre band of roughly 22–28× AFFO. The apparent discount was arithmetic across two bases.

Worked Example: Normalising the Earnings Basis

An investor comparing “earnings yield” across the two names must match numerator and denominator.

Company	Price (10 Jun 2026)	Earnings metric	Multiple	Implied yield
EQIX	$1,043.60	AFFO $38.33/sh	27.2×	3.7%
DLR	$181.41	Core FFO $7.39/sh	24.6×	4.1%
DLR (AFFO basis)	$181.41	AFFO $6.55/sh	27.7×	3.6%

Matched on AFFO, the two earnings yields are almost identical: 3.6% against 3.7%. The Core FFO screen prints 4.1% and makes Digital Realty look the cheaper of the pair, purely because Core FFO stops before the deductions AFFO makes.

One caution before leaning on any of it. Nareit defines FFO, which is what makes P/FFO comparable across the sector. It has never defined AFFO, and says plainly that there is no consensus on what the adjustments should be. Each company draws the line between maintenance capital and growth capital itself, and growth capital never reaches AFFO. A data centre is where that line is hardest to hold: a hall stripped out and re-powered for denser racks can be booked as sustaining an existing asset or as building a better one, and the two answers give different AFFO from identical spending. So read each reconciliation before ranking on the multiple. Our FFO vs AFFO guide works through where the discretion sits.

Tower REITs trade in a lower band, roughly 15–22× AFFO. Part of that gap is simply that a steel mast costs almost nothing to sustain, so AFFO there is a closer proxy for spendable cash than it is here; AFFO for towers makes the comparison.

Contract Duration and Who Holds the Renewal

Colocation contracts are short, often a year or two, which sounds like the weaker position until you ask what a customer would have to do to leave. Rebuilding a dozen cross-connects in another building is expensive, slow, and risky for whatever runs across them. Short contracts plus high switching costs mean the landlord reprices often, and upward.

Hyperscale contracts run long, ten to fifteen years is common, and are signed before construction starts. That takes lease-up risk out of the development, which is worth a great deal. What it does not buy is pricing power. The tenant fills the hall, its alternatives include building for itself, and it can see roughly what the landlord spent. The contracted term is where the safety lives; the renewal is where the risk lives, and it arrives in one piece rather than tenant by tenant.

Margins follow from that. Colocation carries the cost of serving many customers: sales, support, staff on site to plug things in. Hyperscale earns less per megawatt but is cheap to run once let, and its exposure sits in construction timing and power rather than occupancy.

Equinix’s 392,300 cabinet capacity, of which 299,300 were billing at the end of 2025, is a utilisation read on a retail footprint: roughly three quarters full, with the rest saleable without building anything. Digital Realty’s $1.2B of bookings is the mirror image, capacity committed before it exists.

Valuation: Premium for Density vs Premium for Backlog

The market pays about 27× Equinix’s AFFO partly because interconnection lets the revenue reprice upward with little execution attached to it. Digital Realty at 27.7× on the same basis is paying for a backlog that still has to be built, energised and, eventually, renewed.

Which raises the question a multiple cannot answer. A data centre REIT is a developer as much as a landlord, and what decides whether development creates value is the yield on cost, the stabilised net operating income divided by everything spent to reach it, set against the cost of the capital funding it. Build at 8% against capital costing 6% and each megawatt adds value. Build at 6.5% against the same 6% and the company is growing its asset base and its share count without leaving its owners better off. Bookings tell you the volume. Only the yield on cost tells you whether the volume was worth having.

The binding constraint on that volume is neither land nor demand. It is power, and more precisely the lead time to get a grid connection, which is measured in years and set by a utility rather than by the REIT. That is why signed leases can sit well ahead of billing capacity; power availability takes it further.

Long-duration data-centre cash flows are also rate-sensitive, because most of the value sits in cash a long way out. Planning 10-year Treasury 4.50% (10 June 2026 deck) is the conservative stress for multiples in the 22–28× band.

Two things to do before ranking Equinix against Digital Realty. Put both on AFFO, since the headline multiples are not in the same units. Then look past the contracted revenue to the renewal, because that is where the two models stop resembling each other.