Single-Tenant Risk, in the Words of the REITs Themselves

The largest listed data center REITs disclose tenant concentration as a named risk factor, with the figures. Here is what they actually report, and what the same arithmetic looks like for a building with exactly one tenant.

A private data center offering will usually present its single prospective tenant as a strength: a creditworthy hyperscaler, a long lease, no leasing risk once signed. There is something in that. But the companies that own hundreds of these buildings treat tenant concentration as a risk serious enough to name in the risk factors of their annual reports — and they publish the numbers.

Those numbers are the best available calibration for how much concentration is considered uncomfortable by people who do this professionally. This page quotes them, then applies the same arithmetic to a one-building deal.

What the REITs disclose

Digital Realty, in its Form 10-K for the year ended 31 December 2025, under the heading "We depend on significant customers":

"many of our data centers are single-tenant properties or are currently occupied by single tenants. As of December 31, 2025, the 20 largest customers in our portfolio represented approximately 51% of the total annualized recurring revenue generated by our properties. Our top three customers represented approximately 26% of the total annualized recurring revenue."

Elsewhere in the same filing it reports more than 5,000 customers, with no single customer above approximately 11.7% of annualized recurring revenue (Digital Realty 10-K, FY2025).

Equinix, in its Form 10-K for the same year, reports that its largest customer accounted for approximately 3% of recurring revenues in each of 2025, 2024 and 2023, and its 50 largest customers approximately 36% (Equinix 10-K, FY2025).

Read those two filings side by side and three things fall out.

First, single-tenant buildings are normal in this industry. Digital Realty says plainly that many of its facilities are single-tenant. Wholesale data center space is often built and let that way. So a private offering describing a single-tenant building is not describing something unusual or defective.

Second, the professionals hold them inside a portfolio. Digital Realty's single-tenant buildings sit among thousands of customers; its worst single exposure is under 12% of revenue, and it still writes a risk factor about it. Equinix, with a different and more interconnection-driven model, keeps its largest customer at around 3%.

Third, that is the comparison that matters. A sponsor telling you a single-tenant building is how the industry works is correct. A sponsor implying that this makes your exposure comparable to a REIT's is not. The industry works that way inside portfolios.

The same arithmetic, for one building

In a single-building deal with one tenant, your concentration is 100% of revenue in one lease, with one counterparty, in one location, on one power supply. There is no second building to carry the quarter.

Four consequences, each of which should be priced:

Binary income. Either the lease is signed and paying, or there is no revenue. A portfolio has a distribution of outcomes; a single asset has two. This is why an unsigned lease is not "a risk" among others but the risk — see the risks page.

Renewal is a cliff, not a slope. When a portfolio's lease expires, a fraction of income is at stake. When your building's single lease expires, all of it is, on a date fixed years in advance. The questions are whether there is a renewal option, at what rent, and how long the notice period is. Those are lease terms, and you can read them before you invest — see how data center leases work and how to read an offering circular.

Re-letting a purpose-built facility is slow. A hall built to one tenant's power density, cooling topology and security specification is not a generic warehouse. The pool of replacement tenants who want 10 MW in that specific location is small, and finding one takes quarters, not weeks.

The tenant's credit is your credit. A lease is only worth the covenant behind it. "A hyperscaler" is not a credit; a named entity with published financials is. Ask which legal entity signs, whether a parent guarantees it, and what happens on assignment.

The questions this turns into

Narrow, answerable, and all of them answerable before you invest:

1. Is there a signed lease? Not a letter of intent, not a term sheet, not "advanced discussions". A signed lease, with a named counterparty.
2. Which legal entity is the tenant, and is there a parent guarantee?
3. What is the term, and are there break clauses or early-termination rights? A fifteen-year lease with a tenant break at year five is a five-year lease for risk purposes.
4. What are the rent escalators, and are they fixed or index-linked?
5. What happens if the tenant assigns or sublets to a weaker credit?
6. What is the plan if this tenant does not sign? A sponsor with a second and third name in a pipeline is in a different position from one with a single conversation.

The fuller list is in questions to ask a sponsor.

What this does not say

It does not say single-tenant deals are bad. Long leases to strong tenants are the foundation of a great deal of sound real estate, and a signed lease to a creditworthy hyperscaler retires the biggest risk in this asset class in one stroke.

It says that concentration is a cost, that the professionals price it and write risk factors about it even at 12%, and that an investor carrying it at 100% should be paid for it visibly — in price, in yield, or in risks already retired. If a single-asset, single-tenant, single-power-supply deal offers a return only modestly above a diversified REIT's, the concentration is being given away for free.

What to read next: REITs vs private deals for the structural comparison, and the AI capex cycle for who the tenants actually are and how their spending is set.

Nothing here is investment advice or a recommendation of any security. See how this site is funded.