Investment in Data Centers Set to Surge as Demand Grows Exponentially
Investors are flocking to data centers as demand for data center capacity continues to soar, outpacing supply due to the rapid expansion of remote work, cloud computing, artificial intelligence workloads, and the overall use of digital devices. According to CBRE’s Investment Intentions Survey, 97 percent of respondents, many of whom are the world’s largest institutional real estate investors, have expressed their intention to increase capital deployment to data centers.
The survey authors highlighted that data center transaction volume for all of North America amounted to a staggering $4.8 billion in 2023, marking a notable 29 percent year-over-year increase. With only 38 percent of respondents currently having less than five percent of their capital assets invested in data centers, a significant 82 percent of them anticipate ramping up investments in this sector over the next five years.
Investor appetite is strongest in the high-yield, opportunistic, and value-add real estate segments with solid market fundamentals. The CBRE report revealed that 80 percent of respondents prefer data center investments, up from 65 percent in the previous year. On the contrary, interest in core assets has waned due to high inflation and interest rates, dropping from 50 percent in 2021 to 30 percent in 2024. Moreover, core-plus asset interest declined from 58 percent in 2021 to 34 percent this year, with investors gravitating towards turnkey offerings for the second consecutive year.
Looking ahead, 31 percent of respondents view build-to-suits for the hyperscale data center market as the most promising data center opportunities in the next two years. This marks a significant increase from previous surveys, indicating a growing confidence in this segment. Todd Smith, the head of the Technology Properties Group at Transwestern, emphasized the resilience of data center demand, particularly among applications with high-credit tenants such as large enterprise private deployments.
Brent Mayo, Newmark’s executive managing director of Data Center and Digital Infrastructure Capital Markets, highlighted the need for deeper pools of capital to support the burgeoning demand for data centers. As building costs continue to rise to accommodate larger and denser workloads with complex cooling requirements and infrastructure needs, industry players must collaborate to meet the scale of development opportunities and the sizing of in-place, stabilized portfolios.
The escalating demand for data center capacity is projected to drive substantial growth in investment and development in infrastructure in the coming years. Mayo suggested that data centers are poised to play a crucial role in the AI-driven digital revolution and are well-positioned to capitalize on the long-term, secular tailwinds propelling the industry forward.
The real estate investment landscape in the data center sector is witnessing a frenzy of activity, with major tech companies like Microsoft, Google, Oracle, Amazon, and Meta increasingly developing their own data centers. While the top commercial real estate investors in this space include Blackstone, GI Partners, Digital Bridge, and KKR, the emergence of Big Tech users as key players is reshaping the dynamics of the industry.
A critical challenge facing the data center industry is the intensive energy capacity required to power these facilities. Data centers demand significant amounts of electricity, pushing developers and operators to invest in new infrastructure to meet this soaring energy demand. As the industry embraces sustainability, there is a growing emphasis on tying data center development to renewable energy sources to ensure resiliency and support sustainable growth.
Despite the challenges posed by escalating power demands, the data center market is expected to witness a surge in investment and development as investors capitalize on the insatiable appetite for data center capacity. With the global colocation market projected to reach over $120 billion in the next three years, the future of data centers looks promising as they continue to serve as the backbone of the digital economy’s growth.
In the world of data centers, power is a crucial factor. As more and more businesses rely on data centers to store and manage their information, the demand for reliable and efficient power sources continues to grow.
According to a recent article on CommercialSearch, the need for more data centers is on the rise. With the increasing amount of data being generated and stored online, companies are looking for secure, scalable, and energy-efficient facilities to house their servers.
Data centers consume a significant amount of power to run their servers, cooling systems, and other equipment. As a result, companies are looking for ways to improve the energy efficiency of their data centers to reduce operating costs and minimize their environmental impact.
One solution that many data center operators are exploring is the use of renewable energy sources, such as solar or wind power. By generating their own clean energy on-site, data centers can reduce their dependence on traditional fossil fuels and lower their carbon footprint.
In addition to using renewable energy sources, data centers are also investing in energy-efficient technologies, such as high-efficiency servers, cooling systems, and lighting. These improvements help to reduce power consumption and operating costs while ensuring the reliability and security of the data center’s operations.
Overall, the demand for data centers continues to grow, driven by the increasing volume of data being generated and stored online. To meet this demand, data center operators are focusing on improving the energy efficiency of their facilities and exploring innovative solutions to reduce their environmental impact.