3 REITs to Watch as Interest Rates Keep Falling

Key Points

• The FOMC paused rate cuts in its January meeting, but REITs are still likely to benefit when cuts are expected to resume later in the year.
• REITs require heavy debt loads, which are made cheaper when borrowing costs are down.
• Three REITs to keep an eye on are Equinix, American Tower, and Digital Realty.

On January 29, 2025, the Federal Open Market Committee paused its recent spate of interest rate cuts, leaving the overnight borrowing rate at 4.25%-4.5%. The move comes after three consecutive rate cuts in the final months of 2024. With stubborn inflation not yet at the Federal Reserve's target of 2% and unemployment stabilizing, markets had predicted the Fed would pause cuts at this time.

Analysts still expect that the FOMC is likely to cut rates again this year, although it may be several months if that happens—and of course, there is no guarantee that it will happen at all. However, for investors, the pause offers an opportunity to plan for investments that may benefit from an eventual resumption of rate cuts. In this light, real estate investment trusts (REITs) are particularly attractive.

REITs benefit from low-interest-rate environments because so much of their business requires significant amounts of debt. Many of these companies borrow heavily to be able to buy, develop, renovate, and maintain real estate properties. When interest rates are low, the cost of borrowing goes down, and REITs don't have to spend as much to finance these operations. Further, REIT dividends become increasingly attractive as lower interest rates tend to be linked to lower bond yields.

Fortunately, investors don't have to wait for lower rates to find good opportunities in the REIT space—although eventual lower rates will likely make these prospects even more attractive. Three to keep an eye on are Equinix NASDAQ: EQIX, American Tower Corp. NYSE: AMT, and Digital Realty Trust NYSE: DLR.

Equinix: Positioned for Further Growth Thanks to Data Center Demand

Equinix is one of the largest data center companies in the world. As demand for cloud services and AI has grown, the company has benefited from its significant market share; in the last quarter, revenues reached $2.2 billion, up 7% year-over-year. The company's xScale project provides robust interconnection and edge services and has garnered impressive demand. In October of last year, Equinix announced plans to roughly triple its investment in the xScale project through 13 different sites. The company's commitment to clean and renewable energy sources is also likely to boost its favorability among potential customers as the AI space wrestles with the energy impacts required to power a growing number of platforms and services.

EQIX shares are up more than 9% in the last year, but analysts believe they have more room to grow. The company's consensus price target is $997.53, nearly 9% higher than current levels as of January 30, 2025. What's more, analysts are broadly bullish about Equinix's future performance, with 17 out of 20 analysts rating the stock a Buy.

American Tower: Opportunity to Buy a Dip?

American Tower owns, operates, and develops communications towers throughout the U.S. and abroad. Mobile data consumption growth is a reliable driver of interest in American Tower properties and services, and the company has worked to meet network upgrade and expansion demand in domestic, European, and African markets.

Shares of American Tower have been down about 5% in the last year and nearly 17% in the last six months, in part a result of the company's loss in the sale of its operations in India to Data Infrastructure Trust. However, demand for American Tower's communications sites is likely to only increase, and the company's favorable position as owner or long-term lease-holder of the properties of these sites means that it will be able to control prices to a significant degree. The recent decline in share price may thus represent an opportunity to buy the dip. Eleven out of 14 analysts see AMT shares as a Buy, with upside potential of 21.8% over current levels.

Digital Realty Trust: Don't Be Spooked By DeepSeek

Digital Realty Trust, another REIT focused on data centers, saw a quick dip of about 10% in the days following the news of Chinese firm DeepSeek's AI model, which matches or outperforms some of the leading U.S. platforms. DeepSeek rocked much of the tech sector more broadly, but investors may have been spooked about data center companies because of the prospect of AI tools that require significantly less energy than expected.

That said, like Equinix above, Digital Realty Trust is likely to benefit from long-term increases in demand for data centers regardless of the degree to which AI is responsible for driving that demand. The stock is broadly favored by analysts and expected to climb by more than 10% based on consensus price estimates.