The rise of cloud computing and artificial intelligence (AI) is driving insatiable demand for data center infrastructure. While attention often centers on tech giants and semiconductor manufacturers, the commercial real estate (CRE) sector is quietly emerging as a significant beneficiary of this growth.
Data centers are quickly becoming the fifth core CRE subsector, joining office, industrial, multifamily, and retail. As the backbone of the digital economy, these specialized facilities present unique opportunities for CRE services firms, unlocking new revenue streams for firms that can cater to their complex requirements for power capacity, engineering expertise, and property/facility management.
Given variance in data center rack density, the growth of this market is often framed in terms of power (rather than square footage), which is seen as the key input/resource supporting this technological revolution. The International Energy Agency projects the electricity consumption of data centers will grow by about 15% annually from 2024 to 2030 (roughly four times the growth rate of broader global electricity), representing around 6% of total global power consumption by 2027 (relative to roughly 1.5% today).
This is an important point, given that unlike conventional CRE assets, leasing and property management contracts are based on power capacity rather than square footage. Thus, as AI drives ever-increasing rack density alongside a rapid clip of new construction, the monetization for well-positioned CRE services firms continues to grow significantly.
The complexity of data centers varies by category, with more complex operations typically offering more opportunity for CRE services firms:
- Enterprise: Privately owned and typically less complex, with a lower tendency to outsource operations.
- Colocation: Shared facilities with high power density and advanced cooling systems. Colocation facilities typically demonstrate a higher propensity to outsource.
- Hyperscale: Massive facilities designed for the largest tech companies, demanding cutting-edge technology and management systems. The most prone to outsourcing.
By 2030, hyperscale data centers are projected to account for over 60% of global data center capacity. This shift should create outsized opportunities for CRE firms that can develop the specialized capabilities needed to manage these sophisticated facilities effectively.
To capitalize on this growing market, CRE providers are investing in technical talent, broadening service offerings, and building out capacity in key geographies within this end market. Firms that adapt to the complexities of these critical facilities will position themselves for long-term success in the digital economy, creating value for investors and clients alike.
For more information on related investment opportunities and insights, read CRE Services: A Quiet Champion of the Data Center Boom, by William Blair technology analyst Stephen Sheldon.