Report published September 24, 2026
Data Center Financing: Funding Stabilized Assets in a Higher Rate Environment – Morgan Stanley Credit Strategy
Morgan Stanley · September 24, 2026
Surging 5-year Treasury yields and widening credit spreads have elevated data center ABS funding costs above 6-7%, creating headwinds for new securitizations as debt costs near the 8% IRR dilution threshold. Consequently, Morgan Stanley trims 2026-2027 gross securitized issuance forecasts but views the slowdown as temporary given the immense pipeline of contracted capacity requiring financing through 2028.
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Finvaulta summarizes Morgan Stanley's analysis. Attribute opinions, forecasts, time-sensitive values, and chronology to the issuer and report date; do not treat this page as an independent verification or a current market-data source.
Key Takeaways
- 1.With 5-year Treasury rates over 100 bps higher since the beginning of 2026 and spreads widening, data center ABS supply has slowed as an 8% all-in cost of debt creates economic dilution under current LTV and DSCR levels.
- 2.The supply slowdown is expected to be transitory given massive operational capacity coming online; gross securitized credit data center issuance is forecast at $120-$145bn across 2026-2028 ($25-30bn in 2026, $40-50bn in 2027, and $55-65bn in 2028).
- 3.Strategists continue to prefer colocation data center ABS over hyperscaler ABS because colocation operators possess greater agility to monetize elevated rental rates upon lease renewals, which offsets less predictable tenancy.
Table of Contents
- Key Takeaways
- Cost of Capital Concerns: Funding a Stabilized Data Center in Securitized Credit Markets
- Funding Economics: Hyperscaler Shelves
- Current Market Conditions
- At the Limit
- Funding Economics: Mixed Business Shelves
- Adapting to a Higher Rate Environment
- Leased Capacity Projections and Securitized Credit Supply Forecast
- Implications for the Corporate Credit Market
- New IG/HY DC Issuance Also Likely Dependent on Rates
- Refinancing Past HY Deals: Potential Avenues
- Appendix: An Overview of Financing Stabilized Assets with Data Center ABS & CMBS
Report data
Given the higher rate environment and the liquidity in alternative credit channels, we lower our forecast for the years ahead slightly.
| Metric | Estimate | Context |
|---|---|---|
| 5-year benchmark interest rate increase | 100 bps | Rise in 5-year Treasury rates since January 2026 impacting new issue yields. |
| Total gross securitized credit data center issuance forecast | 120-145 USD billion | Total gross issuance projected across ABS and CMBS data center transactions. |
| 2026 Gross Data Center Securitized Issuance Forecast | 25-30 USD billion | Revised down from $30-35bn, split into ~$17bn ABS and ~$10bn CMBS. |
| 2027 Gross Data Center Securitized Issuance Forecast | 40-50 USD billion | Revised down from previous estimate of ~$55bn due to higher debt financing costs. |
| 2028 Gross Data Center Securitized Issuance Forecast | 55-65 USD billion | Maintained forecast steady reflecting ongoing capacity energization. |
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