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Home Insights Real estate Five forces shaping the data center investment landscape
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Five forces shaping the data center investment landscape

The data center investment landscape is being shaped by five structural forces that are redefining risk, returns, and execution across the sector:

Data center demand is still growing, and it’s not only AI.
Supply remains tight, , with vacancy rates at historic lows and new development constrained.
Pre-leasing is a defining feature of the hyperscale data center model due to tenant-specific design requirements. What has changed in the current cycle is the duration and certainty of those commitments, which may result in more stable, infrastructure-like cash flows. 
Capital must be committed earlier in the development cycle. This is where return potential may be highest, but earlier-stage investing requires more disciplined risk management and selectivity. 
Success in this environment increasingly depends on the ability to secure power and permits. The more difficult that is, the more significant the benefit to those able to do it.

Successfully investing in this progressively complex environment requires a financial partner with deep data center experience and best-in-market development partners.

Demand: Still growing, and it’s not only AI

The amount of digital data created, consumed, and stored is up 19,600% since 2010, and continues to grow. This supports a secular growth trend of demand for more physical data center space.

Data center demand is a layered growth story. Demand has evolved over time, from traditional enterprise workloads to nearly a decade of growth driven by hyperscale cloud and the shift from self-managed infrastructure to public and private cloud, and more recently to an additional layer of demand from AI. Industry forecasts suggest the sector could grow at approximately 14% annually through 2030, with global capacity approaching 200 GW. 

Cloud remains a significant and well-established growth engine. Hyperscalers continue to expand their availability zones—clusters of interconnected facilities that enable low-latency, resilient operations. These zones are typically anchored in established Tier 1 markets, with expansion radiating outward as capacity needs increase. In Europe in particular, data sovereignty is another driver of localized demand as governments and enterprises place greater emphasis on storing and processing data within local jurisdictions.

Myth

There’s an AI bubble, and it will affect data center demand.

Reality

Nearly 75% of major technological breakthroughs since the 19th century have coincided with speculative bubbles.Whether AI is a bubble or a sustainable breakthrough remains one of the largest debates among investors. While today’s AI rally exhibits traits seen in past bubbles, fundamentals and macro backdrop appear more supportive.

Whether or not there is an AI bubble, the data center sector has a level of insulation. Long-term leases (typically 10-20 years) with highly creditworthy hyperscale tenants may provide stable, predictable cash flows, which may help mitigate near-term shifts in AI sentiment. Residual values remain a consideration, particularly for highly specialized assets; general-purpose facilities in primary and strong secondary markets are more likely to retain long-term relevance.

Learn more: The AI boom: Bubble risk or durable cycle?

Supply: still constrained

The data center sector is experiencing an unprecedented “supply crunch” where explosive AI-driven demand has outpaced the physical capacity to build and power new facilities. This demand has driven vacancy rates to historic lows in the U.S. and Europe.

Traditional 12-18 month data center development timelines no longer apply. Utility interconnection alone can extend timelines to 24-48+ months .

Demand for power capacity from data centers, in addition to manufacturing and electrification, is unprecedented. Average utility load growth has been well below 1% per year for the last two decades; it could be 15.8% over the next five years. Meeting that pace would require six times the planning and construction of new generation and transmission capacity than utilities are used to.

Lower leasing risk and more ‘infrastructure-like’ cash flows

In the current cycle, the shift is toward longer, more certain pre leasing commitments and potentially more stable cash flows.

Pre-leasing is a defining feature of the data center development model, driven by the need to tailor building design, power density, cooling systems, and redundancy to specific tenant use cases. Given the capital intensity and operational specificity of modern facilities, speculative development has typically been less prevalent, and developers have historically required lease commitments before advancing projects at scale.

Pre-leasing (or pre-commitment) rates for new data center capacity are extremely high by historical standards. While pre-leasing has always been a feature of the development model, today’s levels reflect longer lease terms, greater capital intensity, and a development environment that requires earlier commitment from both tenants and investors. The typical pre-leasing rate for new data center capacity today ranges from 70% to over 90% in the tightest markets. Tenants are typically hyperscalers with strong credit (AWS, Microsoft, Google, Meta, Apple, Oracle) and lease terms are long (often 10-15+ years).

Myth

Data centers built today will be obsolete in five years

Reality

Obsolescence risk can be mitigated through design, and developers have shifted the focus from predicting change to ensuring long-term adaptability. Rack densities and cooling requirements are evolving rapidly, but existing assets generally remain viable for traditional workloads and can often be retrofitted for new workloads. New developments are designed for flexibility, including support for both air cooling (for lower density racks) and liquid cooling (for higher densities).

Learn more: Data center viability requires design flexibility

For the remaining factors shaping the data center investment landscape and how successful investment often requires an experienced data center partner, read the full report.
Real estate

Footnotes

Statista, 2025

Sorescu, A. et al. (2018, July 12). Two centuries of innovations and stock market bubbles.

CBRE, U.S. Real Estate Market Outlook 2026, 14 Jan. 2026.
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 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.

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MM14958 | 04/2026 | 5523774-122027