At-a-glance
The data center landscape has changed dramatically in just the last year and continues to rapidly evolve. For example:
- The capital requirements for development are multiples higher than even five years ago (a hyperscale data center can now cost a billion dollars or more to build)
- The design and operation of the facilities is more complex, with much higher levels of density and new cooling technologies
- Development is increasingly occurring in new markets
This dynamism makes asset managers’ partnerships with top-tier data center providers critical for success. The value of those partnerships is expanded access to tenants, power, and deal opportunities. We partner with companies that have experience delivering for hyperscale tenants, relationships with utilities, and an established presence in and institutionalized knowledge about strategic markets. Ideally, a partner has all three. However, opportunities for additional return can exist with partners that demonstrate strength in one or two of these areas. Our 18+ years of experience in the data center sector enables us to effectively evaluate these situations and determine when we need to take a more proactive role.
In today’s increasingly dynamic market, asset managers’ partnerships with data center providers are critical for success. Tapping into the specialized knowledge, relationships, and experience of top-tier partners expands our access—to tenants, to power, and to deal opportunities.
Access to tenants
By 2030, hyperscalers may account for 61% of the installed data center capacity worldwide.
Access to power
Timely access to power is one of the most significant constraints on new data center development, and a key reason why development is moving to new markets. The issue is not a lack of generating capacity but the time it takes utilities to build new transmission lines to get the power to the new data centers. According to analysis by Lawrence Berkeley National Laboratory, “the timeline from the initial connection request to having a fully built and operational plant has increased from under two years for projects built in 2000-2007 to more than four years for those built in 2018-2023.”
Access to deal opportunities
In established data center markets like Northern Virginia, Dallas/Fort Worth, Phoenix, and Frankfurt, vacancy rates are near zero and most new capacity is pre-leased well before development is complete. For new development, suitable sites with a clear path to permitting and access to utility power are increasingly limited as well. Deals are, simply put, very hard to come by.
More development is now occurring in less-established markets like Central WA/OR, Reno, the Carolinas, and Milan. Land and power are easier to come by in these markets, but institutional knowledge of market dynamics—and access to the best deals—is not. Asset managers therefore can benefit by partnering with seasoned data center providers that have an established presence in and institutionalized knowledge about these markets.
Not all data center providers are created equal, of course. We focus on partnering with those that have experience (delivering for hyperscale tenants, in particular); established utility relationships and proven power connectivity; and established presence in and institutionalized knowledge about strategic markets. Sometimes, a partner has all three, though that doesn’t have to be the case.
At Principal, our preference is to work with partners that have experience delivering for hyperscale tenants, relationships with utilities, and have an established presence in strategic markets. But opportunities for additional return can exist with partners that don’t have all three. For example, a provider that has deep connections and insights into opportunities in a particular strategic market but doesn’t have experience serving hyperscalers can still be a valuable partner.
In that case, the asset manager’s role is to identify where the risks lie and how to manage them. Our 18+ years of experience in the data center sector enables us to assess when we need to take a more proactive role—to influence the provider’s process more than when we’re working with a partner that has deep experience delivering for end users. For example, we might do a deal with a provider that has a strategically located piece of land with a clear path to utility interconnection and permitting, and bring in a design team and a general contractor with hyperscale development experience.
To support our investors’ long-term investment objectives, we’re tapping into the expertise of the key partners in the U.S. and Europe we’ve built strong relationships with over the course of almost two decades investing in the data center sector. These are providers that have experience delivering for hyperscale tenants; relationships with utilities; and established presence in and institutionalized knowledge about strategic markets—which provides access to tenants, to power, and to deal opportunities.
Read our full report for the complete view.
Footnotes
Risk Considerations
Investing involves risk, including possible loss of principal. Past Performance does not guarantee future return. All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed. Potential investors should be aware of the risks inherent to owning and investing in real estate, including value fluctuations, capital market pricing volatility, liquidity risks, leverage, credit risk, occupancy risk and legal risk. All these risks can lead to a decline in the value of the real estate, a decline in the income produced by the real estate and declines in the value or total loss in value of securities derived from investments in real estate.
Data center properties will only be attractive to a unique type of tenant. A limited tenant base increases the risk of vacancy. Additionally, a property designed to be a data center property, may be difficult to relet to another type of tenant or convert to another use and will be more likely to become functionally obsolete when compared to other properties. For example, if converted to industrial use, the expected rents would be lower than that projected for data centers. Thus, if operating a data center were to become unprofitable, the liquidation value of properties may be substantially less than would be the case if the properties were readily adaptable to other uses.
Important information
This material covers general information only and does not take account of any investor’s investment objectives or financial situation and should not be construed as specific investment advice, a recommendation, or be relied on in any way as a guarantee, promise, forecast or prediction of future events regarding an investment or the markets in general. The opinions and predictions expressed are subject to change without prior notice. The information presented has been derived from sources believed to be accurate; however, we do not independently verify or guarantee its accuracy or validity. Any reference to a specific investment or security does not constitute a recommendation to buy, sell, or hold such investment or security, nor an indication that the investment manager or its affiliates has recommended a specific security for any client account.
Subject to any contrary provisions of applicable law, the investment manager and its affiliates, and their officers, directors, employees, agents, disclaim any express or implied warranty of reliability or accuracy and any responsibility arising in any way (including by reason of negligence) for errors or omissions in the information or data provided. All figures shown in this document are in U.S. dollars unless otherwise noted.
This material may contain ‘forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.
This material is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.
This document is issued in:
- The United States by Principal Global Investors, LLC, which is regulated by the U.S. Securities and Exchange Commission.
- Europe by Principal Global Investors (Ireland) Limited, 70 Sir John Rogerson’s Quay, Dublin 2, D02 R296, Ireland. Principal Global Investors (Ireland) Limited is regulated by the Central Bank of Ireland. Clients that do not directly contract with Principal Global Investors (Europe) Limited (“PGIE”) or Principal Global Investors (Ireland) Limited (“PGII”) will not benefit from the protections offered by the rules and regulations of the Financial Conduct Authority or the Central Bank of Ireland, including those enacted under MiFID II. Further, where clients do contract with PGIE or PGII, PGIE or PGII may delegate management authority to affiliates that are not authorised and regulated within Europe and in any such case, the client may not benefit from all protections offered by the rules and regulations of the Financial Conduct Authority, or the Central Bank of Ireland. In Europe, this document is directed exclusively at Professional Clients and Eligible Counterparties and should not be relied upon by Retail Clients (all as defined by the MiFID).
- United Kingdom by Principal Global Investors (Europe) Limited, Level 1, 1 Wood Street, London, EC2V 7 JB, registered in England, No. 03819986, which is authorized and regulated by the Financial Conduct Authority (“FCA”).
- This document is marketing material and is issued in Switzerland by Principal Global Investors (Switzerland) GmbH.
- United Arab Emirates by Principal Investor Management (DIFC) Limited, an entity registered in the Dubai International Financial Centre and authorized by the Dubai Financial Services Authority as an Authorised Firm, in its capacity as distributor / promoter of the products and services of Principal Asset Management. This document is delivered on an individual basis to the recipient and should not be passed on or otherwise distributed by the recipient to any other person or organisation.
- Singapore by Principal Global Investors (Singapore) Limited (ACRA Reg. No. 199603735H), which is regulated by the Monetary Authority of Singapore and is directed exclusively at institutional investors as defined by the Securities and Futures Act 2001. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.
- Australia by Principal Global Investors (Australia) Limited (ABN 45 102 488 068, AFS Licence No. 225385), which is regulated by the Australian Securities and Investments Commission and is only directed at wholesale clients as defined under Corporations Act 2001.
- Hong Kong SAR by Principal Asset Management Company (Asia) Limited, which is regulated by the Securities and Futures Commission. This document has not been reviewed by the Securities and Futures Commission. This document may only be distributed, circulated or issued to persons who are Professional Investors under the Securities and Futures Ordinance and any rules made under that Ordinance or as otherwise permitted by that Ordinance.
- Other APAC Countries/Jurisdictions, this material is issued for institutional investors only (or professional/sophisticated/qualified investors, as such term may apply in local jurisdictions) and is delivered on an individual basis to the recipient and should not be passed on, used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.
Principal Global Investors, LLC (PGI) is registered with the U.S. Commodity Futures Trading Commission (CFTC) as a commodity trading advisor (CTA), a commodity pool operator (CPO) and is a member of the National Futures Association (NFA). PGI advises qualified eligible persons (QEPs) under CFTC Regulation 4.7. Principal Funds are distributed by Principal Funds Distributor, Inc.
© 2026 Principal Financial Services, Inc. Principal®, Principal Financial Group®, Principal Asset Management, and Principal and the logomark design are registered trademarks and service marks of Principal Financial Services, Inc., a Principal Financial Group company, in various countries around the world and may be used only with the permission of Principal Financial Services, Inc. Principal Asset Management℠ is a trade name of Principal Global Investors, LLC. Principal Real Estate is a trade name of Principal Real Estate Investors, LLC, an affiliate of Principal Global Investors.