Digital Realty (DLR) Q1 2026: Development Pipeline Surges 60% as AI Leasing Drives $1.8B Backlog
Digital Realty’s first quarter saw a historic ramp in development and leasing, fueled by robust AI and cloud demand across enterprise and hyperscale customers. Record signings in both large-scale and interconnection segments boosted backlog and visibility deep into 2027-2028, while the company’s disciplined capital strategy and global expansion position it to navigate industry constraints and capitalize on secular digital infrastructure growth.
Summary
- AI-Driven Demand Broadens Leasing: Enterprise and hyperscale AI use cases drove record signings and backlog.
- Development Pipeline Expansion: Construction pipeline scaled 60%, with 61% pre-leased and double-digit yield visibility.
- Capital Strategy Enables Growth: Private capital partnerships and balance sheet discipline underpin future capacity delivery.
Performance Analysis
Digital Realty delivered its second-highest bookings quarter ever, highlighted by a record-breaking 200 megawatt lease with a hyperscaler in Charlotte and a new high in the zero to one megawatt plus interconnection category. The company’s total backlog reached $1.8 billion, with $1 billion attributable to Digital Realty’s share, providing multi-year growth visibility. The Americas accounted for over 75% of bookings, while APAC posted a new quarterly record, reflecting global breadth of demand.
Revenue and adjusted EBITDA grew at double-digit rates year-over-year, supported by commencements from the backlog, healthy releasing spreads, and modest churn. Development CapEx surged to $910 million net of partner share, with 1.2 gigawatts under construction—61% pre-leased at an 11.4% expected yield. The company’s balance sheet strengthened further, with leverage dropping to a multi-year low of 4.7 times adjusted EBITDA and an AFFO payout ratio of 64%.
- Leasing Record: Over $700 million in new leases signed, with 21% of zero to one megawatt bookings AI-oriented.
- Renewal Strength: 193 million of renewals at a blended 5% cash increase, with co-location up 4.3% and larger deals at 7.4%.
- Capital Deployment: $16.5 billion development pipeline, 80% in Americas, with pre-leasing and returns holding despite inflation.
Operationally, the company’s ability to pre-lease new capacity and rapidly scale development—while maintaining capital flexibility—stands out as a competitive differentiator in a constrained supply environment.
Executive Commentary
"Demand for digital infrastructure remains robust. Execution across platform digital remains crisp, and our strategy continues to resonate with customers who are navigating increasingly complex power, performance, and connectivity requirements, as well as mission-critical on-time delivery challenges."
Andy Power, President and Chief Executive Officer
"We achieved these strong results while maintaining significant dry powder to expand and invest in our now 6 gigawatt development pipeline, and simultaneously reducing our leverage to a multi-year low of 4.7 times a quarter end."
Matt Mercier, Chief Financial Officer
Strategic Positioning
1. AI and Interconnection-Led Growth
AI workloads are rapidly moving from pilot to production, driving demand for both large-scale hyperscale deployments and enterprise-grade interconnection. The zero to one megawatt plus segment saw a 40% YoY increase in bookings, with AI-related signings now 21% of the mix. Digital Realty’s platform is workload-agnostic, enabling low-latency, high-connectivity deployments for both inference and training use cases.
2. Hyperscale Expansion and Land Bank Strategy
The company’s hyperscale strategy is anchored by record-breaking leases, notably the 200 megawatt deal in Charlotte. New land acquisitions in Atlanta (873 acres) and Hillsboro (30 acres) add gigawatt-scale runway. These contiguous parcels, paired with power procurement efforts, support multi-year, multi-market expansion and reinforce Digital Realty’s ability to deliver at scale even as supply chain and labor constraints persist.
3. Capital Diversification and Private Partnerships
Digital Realty’s private capital platform—including its $3.25 billion U.S. Hyperscale Data Center Fund and $8+ billion in joint ventures—enables accelerated development while keeping leverage in check. The company continues to recycle capital from non-core assets and align long-duration institutional funds with hyperscale asset lifecycles, further insulating its balance sheet amid rising CapEx requirements.
4. Global Connectivity and Market Entry
Strategic acquisitions in Sofia, Milan, and Cyberjaya (Malaysia) deepen Digital Realty’s presence in emerging interconnection corridors. These moves enhance the company’s ability to deliver connectivity-rich, low-latency capacity across Europe and APAC, supporting customer needs for geographic diversity and scalable edge deployments as AI and cloud adoption spread globally.
5. Operational Discipline Amid Supply Constraints
Despite industry-wide pressures—rising land values, higher construction costs, and community pushback—Digital Realty has maintained pre-leasing rates and project returns. Its track record in supply chain management, power procurement, and community engagement underpins continued execution, even as project complexity and scale increase.
Key Considerations
This quarter’s results highlight Digital Realty’s ability to capture secular demand while navigating industry bottlenecks. The following considerations are central to the company’s forward trajectory:
- AI Demand Multiplier: AI is now a demand multiplier, with agentic workloads expected to drive exponential token and compute requirements across enterprise and hyperscale segments.
- Backlog Visibility: The $1.8 billion backlog, with staggered commencements through 2028, provides multi-year revenue visibility and de-risks future growth.
- Rising Build Costs Offset by Pricing: Construction and land costs are rising, but market rent growth continues to outpace inflation, preserving returns on new investments.
- Balance Sheet Flexibility: Leverage at 4.7x and a diversified capital base allow for sustained CapEx and opportunistic land banking without sacrificing financial stability.
- Community and Regulatory Engagement: Proactive engagement with local communities and utility partners is increasingly essential for project delivery and long-term license to operate.
Risks
Supply chain, power procurement, and skilled labor shortages remain persistent risks, potentially extending construction timelines and increasing project costs. Community opposition and regulatory hurdles could slow new market entries or expansions. While AI and cloud demand are strong, any macroeconomic slowdown or shift in enterprise IT spending could temper growth. The company’s ability to maintain pricing power in the face of inflation and competition will be a key watchpoint.
Forward Outlook
For Q2 2026, Digital Realty guided to:
- Continued improvement in power-based occupancy, targeting a 50 to 100 basis point increase from year-end 2025
- Cash renewal spreads of 6.5% to 8.5%, up 50 basis points versus last quarter
For full-year 2026, management raised core FFO per share guidance to $8.10, representing 9% growth, and maintained constant currency NOI growth expectations of 4% to 5%. CapEx and partner contributions are expected to rise to $3.5 to $4 billion, with $500 million to $1 billion in capital recycling planned for the year.
- Robust backlog supports revenue growth into 2027-2028
- Development pipeline and land bank expansion remain priorities
Takeaways
Digital Realty’s Q1 performance cements its position as a leading beneficiary of AI-led digital infrastructure demand. Investors should focus on the company’s ability to convert backlog, manage supply chain risk, and deploy capital efficiently as the data center cycle accelerates.
- Secular Tailwinds: AI and cloud adoption are driving multi-year demand, with Digital Realty well positioned to deliver capacity at scale.
- Execution Strength: Pre-leasing, backlog visibility, and capital flexibility provide downside protection and growth leverage.
- Watch Project Delivery: Timely execution on new builds and power procurement will be critical as competition and complexity rise.
Conclusion
Digital Realty’s record leasing, expanded development pipeline, and disciplined capital management mark a new phase of growth, underpinned by robust secular demand and operational execution. The company’s strategic positioning and backlog provide multi-year visibility, but execution and risk management will remain central as industry constraints intensify.
Industry Read-Through
Digital Realty’s results signal that AI and cloud infrastructure demand is not only robust but accelerating, with hyperscalers and enterprises alike seeking scalable, interconnected capacity. The shift to power-based metrics and pre-leasing discipline may become industry standards as supply constraints and community pushback intensify. Competitors will need to match Digital Realty’s capital agility and global reach to capture similar tailwinds, while supply chain and regulatory hurdles will likely define winners and losers in the next phase of digital infrastructure buildout.