Home Insights Real estate Data center viability requires design flexibility
A cityscape view of many skyscrapers.

Data center viability requires design flexibility

Existing data centers are still viable. For the data centers being built today— to support use cases we cannot even imagine—flexibility is essential.

July 16, 2025
Sebastian Dooley, CFA
Senior Fund Manager
Paul Lewis
Director - European Data Centres
Casey Miller
Managing Director, Portfolio Management
Matt Hackman
Portfolio Manager
Download PDF
linkedin icon link icon

At-a-glance

The industry has shifted considerably in the almost two years since we wrote Data centers: Viable for the long term

  • Data center designs have evolved to accommodate the dramatically higher (and still rising) densities associated with AI training deployments
  • In Europe in particular, sustainability-focused regulations are driving new designs and approaches to data center development and operations

Amid all this change, the data centers built five, ten, fifteen years ago have not become obsolete

  • Existing data centers support traditional workloads (including cloud), which continue to grow
  • Where land and power are growing increasingly constrained, existing facilities are ever more valuable—even as their existing mechanical, electrical, and plumbing (MEP) infrastructure ages
  • In some cases, additional value can be created by retrofitting existing data centers to support new workloads and/or meet new regulatory requirements

New data centers are being designed with flexibility to adapt to future changes, ensuring long-term viability

Data center designs have evolved to accommodate increasingly high (and still rising) power densities

Compared to traditional workloads, AI workloads (in particular, AI training) are considerably more power intensive, and deployments are at much higher densities. (Learn more in AI is transforming the data center). Exhibit 1 demonstrates how density increases have dramatically accelerated as AI training architectures continue to evolve. For example, Nvidia’s 2024-era graphics processing unit (GPU) architecture, Hopper, was designed for a density of 41 kW per rack. The very next generation, Blackwell, is architected for 120 kW. In March 2025, Nvidia CEO Jensen Huang announced a roadmap for 600 kW racks by the end of 2027.

Among the most significant impacts of rising density is the need for new cooling technologies. Specifically, liquid cooling is necessary to handle the extreme heat densities of AI and other advanced workloads. By bringing coolant directly to server racks, liquid cooling can support much higher power densities than traditional air cooling.

Will power requirements and densities continue to rise? For example, the Chinese AI company DeepSeek claims to have created a sophisticated machine learning model using 10-40 times less energy than similar U.S. AI technology, though the jury is still out on the validity of those claims and the methods DeepSeek used. Regardless, efficiency gains would most likely raise utilization and maintain or even increase power demands, cluster sizes, and rack densities—just as adding lanes to a freeway encourages more drivers to use the road.

Exhibit 1: AI calls for massively denser rack deployments

Data center density

Chart showing data center density mildly increasing from 2011-2020 and then rapidly increasing from 2024-2027.

Source: 2011, 2017, and 2020 data points reflect average density per rack as reported by Uptime Institute in December 2020. 2024, 2025, and 2027 data points reflect Nvidia GPU architecture specifications.

Data center designs have evolved to accommodate new sustainability regulations

In Europe in particular, sustainability-focused regulations are driving new data center designs and approaches to development and operations. For example, in Germany the Energy Efficiency Act makes power efficiency targets obligatory for data centers, depending on their initial operational date. (Learn more in Evolving data center sustainability and the role of the capital partner). To comply with Power Usage Effectiveness (PUE) requirements, operators will need to construct new data centers with energy-efficient designs, while existing facilities may require renovations and upgrades to meet these standards.

New data centers are being designed with flexibility

With the rapid evolution of AI applications and the increasing density of AI training architectures, predicting data center requirements even five years into the future is quite challenging. So, developers are designing with flexibility to adapt to both current and future tenant requirements. This adaptability is especially important for data centers that may need to support high-density AI training operations today, while being able to transition to lower-density AI inference in the future.

The data center industry continues to demonstrate remarkable adaptability, balancing new technological demands with the ongoing value of existing facilities. While new data centers are being designed with future-proof flexibility, older facilities remain valuable assets, particularly in resource-constrained areas. For more of our thoughts on how flexibility is crucial for data center viability, read our full report (PDF).
Real estate

Footnotes

In Exhibit 1, the 2011, 2017, and 2020 data points reflect average densities reported by data center operators across a wide range of deployments. The 2024, 2025, and 2027 data points are not reported densities but Nvidia design specifications, and it’s hard to imagine widespread deployments at densities of 600 kW per rack in just two years. But data center developers are currently being asked to support design specifications in the 120 kW+ range, and Exhibit 1 is a fair illustration of the incredibly massive and rapid increase in density.
Disclosure

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 and 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.

Integration of sustainability considerations and/or environmental, social and governance (ESG) factors is qualitative and subjective by nature. There is no guarantee that the criteria used, or judgment exercised, will reflect the beliefs or values of any particular investor. There is no assurance that any strategy or integration of sustainability considerations and/or ESG factors will be successful or profitable.

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.

© 2025 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.

MM14579 | 07/2025 | 4634679-072026
About the author