Digital Realty (DLR) Q3 2025: Backlog Climbs to $852M as AI-Driven Demand Tightens Capacity

October 23, 2025 | By EarningsIQ Research

Digital Realty’s record backlog and surging AI-oriented bookings signal a structural tightening in metro data center supply, underpinning durable pricing power into 2026 and beyond. Management’s focus on high-value, connected urban capacity and disciplined capital allocation positions DLR to capture the next wave of AI and cloud infrastructure growth. Investors should watch for accelerating lease commencements and evolving CapEx intensity as hyperscale and enterprise demand converges on Digital Realty’s strategic footprint.

Summary

• AI-Driven Demand Concentrates in Metro Markets: DLR’s urban capacity is increasingly sought after by hyperscalers and enterprises for latency-sensitive workloads.
• Backlog and Pipeline Hit Record Levels: A near-record backlog and robust pipeline provide strong growth visibility through 2026.
• CapEx and Funding Model Evolve: Private capital initiatives and disciplined leverage support expansion while preserving shareholder returns.

Performance Analysis

Digital Realty delivered double-digit growth across revenue, adjusted EBITDA, and core FFO per share, propelled by robust commencements from its substantial lease backlog, strong releasing spreads, and expanding high-margin fee income. The company’s core FFO per share set a new quarterly record, outpacing expectations and driving the third consecutive guidance increase this year. Data center revenue rose 9% year-over-year, while adjusted EBITDA climbed 14%, reflecting the operational leverage inherent in DLR’s platform as more capacity comes online.

Leasing momentum was broad-based, with $201 million in new bookings at 100% share, and $162 million at DLR’s share, spanning Americas, EMEA, and APAC. The zero to one megawatt plus interconnection category set a new high, buoyed by record AI-related bookings and strong pricing in highly connected U.S. facilities. Renewal activity also remained robust, with blended cash increases and particularly strong spreads in the greater than a megawatt category, driven by tight supply in core markets. Operating expenses rose with scale and seasonality, but leverage improved to 4.9x, well below target, and liquidity remains ample for future growth.

• Backlog Expansion: The lease backlog grew to $852 million at DLR’s share, offering strong revenue predictability into 2026.
• Interconnection Strength: Record interconnection bookings, up 13% quarter-over-quarter, underscore growing demand for high-volume, low-latency data movement.
• CapEx Discipline: Over $900 million in development spend (including partner share) supports new capacity, with 85% of Q3 deliveries pre-leased.

DLR’s performance this quarter reflects a business model built around scale, connectivity, and disciplined financial management, with AI and cloud adoption accelerating demand for its differentiated urban assets.

Executive Commentary

Strategic Positioning

1. Urban Capacity as a Competitive Moat

DLR’s established presence in the world’s most connected metros—where power, permitting, and infrastructure constraints are acute—offers a durable advantage. As hyperscalers and enterprises increasingly require latency-sensitive deployments, DLR’s five gigawatt power bank, strategically located across 40 metros, is positioned to capture outsized demand even as new entrants focus on remote gigawatt campuses for AI training workloads.

2. AI and Cloud Demand Mix Shifts

AI-related deployments now account for more than 50% of quarterly bookings, with enterprise adoption accelerating in the zero to one megawatt segment. DLR’s ability to support both large-scale hyperscale deals and a growing base of enterprise and service provider workloads enhances revenue diversity and pricing resilience. The company’s modular designs and liquid cooling capabilities address technical requirements for next-generation AI chips, enabling both new builds and retrofits to capture densifying workloads.

3. Capital Allocation and Funding Model Evolution

DLR’s capital strategy blends on-balance sheet investment, joint ventures, and dedicated private capital funds, including an oversubscribed $3 billion+ U.S. hyperscale fund. This approach supports expansion while maintaining leverage discipline and shareholder accretion. Management reiterated a target leverage of 5.5x but remains below this level, providing flexibility to fund larger builds as demand accelerates.

4. Sustainability and Regulatory Positioning

DLR continues to invest in renewable energy and sustainability initiatives, securing new solar and hydropower agreements and earning top-tier sustainability ratings. These moves not only align with customer requirements but also position DLR favorably amid tightening regulatory and community expectations around data center energy use and carbon footprint.

5. Product Breadth and Customer Diversification

DLR’s full-spectrum product suite—spanning co-location, interconnection, and hyperscale—enables it to serve a broad customer base, from global tech giants to financial institutions and healthcare analytics firms. This breadth supports cross-selling and resilience as demand patterns evolve across verticals and geographies.

Key Considerations

DLR’s Q3 performance highlights the intersection of structural demand tailwinds and disciplined execution. The company is navigating a complex landscape of supply constraints, technical evolution, and capital intensity while maintaining focus on long-term value creation.

Key Considerations:

• Supply-Demand Imbalance in Core Markets: Tight power and permitting in major metros underpin pricing power and backlog visibility.
• AI Workload Ramp: AI bookings now dominate new leasing, but inference workloads and enterprise adoption remain early-stage, offering multi-year upside.
• CapEx Intensity and Funding Mix: Higher CapEx is expected as project scale grows, but private capital and JV structures mitigate balance sheet risk.
• Technical Readiness for Next-Gen AI: Investment in liquid cooling and modular retrofits positions DLR to address evolving hardware requirements.
• Operational Discipline: Low churn, strong renewal spreads, and geographic diversification support earnings durability.

Risks

DLR faces execution risk as it ramps large-scale projects amid supply chain, permitting, and power grid constraints in key metros. Rising CapEx and competition from private developers could pressure returns if market conditions shift. Customer concentration in hyperscale deals and evolving technical standards for AI workloads introduce additional complexity. Regulatory scrutiny around energy usage and sustainability remains a watchpoint, especially as capacity tightens in urban hubs.

Forward Outlook

For Q4 2025, Digital Realty guided to:

• Core FFO per share tempered by seasonal repairs and maintenance, asset sale headwinds, and lower interest income
• Lease commencements of $165 million, with $555 million scheduled for 2026

For full-year 2025, management raised guidance:

• Core FFO per share range of $7.32 to $7.38 (up 2% at midpoint)
• Constant currency core FFO per share growth of 8%+
• Revenue and adjusted EBITDA guidance midpoint up $75 million each
• Cash releasing spread guidance midpoint increased to 6%

Management cited robust backlog, strong market fundamentals, and accelerating AI and cloud demand as key drivers for continued growth into 2026.

• Visibility from backlog supports durable top-line growth
• CapEx expected to rise as project scale increases, with private capital funding a larger share

Takeaways

DLR’s Q3 results reinforce its strategic positioning as the leading provider of connected, scalable capacity in supply-constrained metro markets, with AI and cloud adoption driving multi-year demand visibility.

• Backlog and Pipeline Strength: Record backlog and robust pipeline provide earnings visibility and pricing leverage as capacity tightens.
• Capital Strategy Evolution: Private capital partnerships and disciplined leverage support expansion without diluting returns.
• AI and Cloud Demand Inflection: Watch for further acceleration in lease commencements and CapEx as enterprise and hyperscale demand converge on DLR’s urban footprint.

Conclusion

Digital Realty’s Q3 marked a critical inflection as AI and cloud demand concentrated in its core metro markets, driving record backlog and sustained pricing power. The company’s evolving funding model and technical readiness position it to extend its leadership as digital infrastructure requirements intensify. Investors should monitor CapEx trends and market tightness as key forward indicators.

Industry Read-Through

DLR’s results highlight a sector-wide shift toward urban, connected capacity as AI and cloud workloads become more latency-sensitive. Supply constraints in core metros are likely to drive continued pricing power and backlog growth for leading data center REITs, while private capital and JV structures become increasingly important for funding large-scale expansions. Technical requirements for next-gen AI chips (liquid cooling, high-density power) are accelerating retrofits and new build standards, shaping the competitive landscape. Operators with deep urban footprints, sustainability credentials, and flexible capital models are best positioned to capture the next wave of digital infrastructure growth.

DLR Real Estate Data Centers AI Infrastructure Hyperscale CapEx Urban Capacity Backlog