Key Takeaways
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- Data-center construction is set to overtake office construction as early as 2026, shifting CRE’s growth engine from traditional property types to AI-linked infrastructure.
- Returns are strong but concentration risk is rising: data centers posted ~11.2% returns last year, yet performance is increasingly tied to a single demand driver—AI compute.
- More leasing by hyperscalers is pulling investors deeper into the trade, raising exposure across REITs and private funds as Big Tech relies more on third-party owners.
- New risk sits in the fine print: power availability, construction deadlines, uptime/cooling liabilities, and termination clauses can turn “long leases” into fragile cash flows.
What Happened?
Commercial real-estate capital is rapidly rotating toward data centers as AI-driven compute demand accelerates. Spending on data-center construction is poised to surpass office-building construction soon, reflecting both a multi-year office glut and surging hyperscaler buildouts. More of that capacity is being leased rather than built by Big Tech directly, pulling property owners and private funds deeper into financing and operating highly specialized assets with technical performance requirements.
Why It Matters?
CRE has historically been viewed as a diversifier versus tech—yet data centers tie property cash flows more directly to AI spending and the economics of hyperscaler demand. That changes the risk profile from diversified, multi-tenant real estate to single-use, infrastructure-like assets dependent on a narrow tenant base and a still-evolving AI profitability model. Investors also face structural “execution risk” that doesn’t exist in most CRE: securing power, delivering on schedule, and meeting uptime/cooling standards. These constraints can trigger penalties or even lease cancellations, meaning contractual lease length may not equal durable income.
What’s Next?
The market will increasingly differentiate between “good” and “bad” data-center exposure. Watch for (1) power interconnection success rates and grid constraints by region, (2) construction timelines and cancellation provisions tied to delivery delays, (3) operational reliability metrics (uptime, cooling, connectivity) that can create landlord liabilities, and (4) hyperscaler balance-sheet behavior—whether leasing continues to rise or shifts back toward owned builds. A broader AI capex slowdown would test valuations, but near-term risk may come first from project execution failures and uneven access to power.
