The global, data, center, industry is experiencing a rapid surge in demand, and this growth is not just expanding because of technology, but due to deeper structural shifts in consumption. From my experience observing developers building new facilities, it’s clear they cannot keep pace with the rising pressure—vacancy rates are hitting record lows, pushing rents higher. The sheer amount of capital required to develop sufficient capacity to meet forecast demand is unprecedented, as seen in every chart, quarterly centre supply from Q1 2022 to forecasts for Q4 2027. This momentum is driven by digital creation, cloud computing, and adoption of advanced technologies like artificial intelligence, machine learning, and natural language processing, all of which are computationally intensive and increase the needs for robust infrastructure.

What’s more interesting is how funds, real, estate, and investors, especially energy-focused investing groups, are now compressing yields and driving valuation multiples. They are broadening the definition of infrastructure, seeking new asset categories amid the cyclicality of traditional sectors. The development focus has shifted toward large-scale facilities, with hyperscale customers—just 5, 10 major companies accounting for most wholesale colocation demand—who prefer a small group of reputable, well-capitalised developers and operators. I came across a version of this article that appeared on CNBC, in the Property Play newsletter, where Diana Olick covers these evolving opportunities for every investor, from individuals to venture capitalists, private equity, family offices, institutional, and public companies—you can even sign up to receive future editions in your inbox.

Interestingly, parallels can be drawn with private companies like SpaceX and Blue Origin, whose reusable rockets and aspirations for lunar and Martian colonization are reminiscent of the dialing back to the early days of railroads, when towns grew along lines. Today’s biggest plays might not just be in deep space, but also in data centers. Firms like Hines, a global investment, development, and management firm, recently announced the acquisition of the Titusville Logistics Center, a nearly 250000 square-foot, Class A industrial property in the Florida Space Coast submarket, fully leased to aerospace tenants. This is a strong example of how firms capitalize on the boom in the exploration sector, aligning with needs in real infrastructure. As David Steinbach, chief investment officer, points out, this infrastructure will support Earth-based development, manufacturing, and even future work on the moon—a truly futuristic vision already underway.

But the real revolution has happened quietly in the industry, which has unlocked the ability to monetize data as broadly as physical pieces of infrastructure. As I often explain to clients, we are in the early days of major investments creating the rails for the future, both in orbit and on the ground. Think of these as nodes being developed and created across the world, which is expected to generate around 181 ZB by 2025, an increase of 23.13% year over year. That’s about 2.5 quintillion bytes daily—roughly 1 exabyte (EB) per massive dataset, or 2.5 million per day, as per a report by Demandsage. To put this into perspective, that’s equal to 1000000000000000000 bytes, nearly 29 TB per second. This explosion is crucial for creating, consuming, and storing information.

Real Estate and Infrastructure Investment Trends

The massive investments in data centers underscore the surging demand for storage and processing power. These developments reveal how the sector is forming deep connections with real estate trends and increasing energy consumption. This reflects a broader wave of global digital transformation, where infrastructure is reshaping how information flows and is managed across economies. Major investment giants are now targeting this market, driving several key changes in how assets are valued and developed in this fast-moving space. 

Land Demand and Suburban Shift → Expanding Footprints of Digital Infrastructure

The rising land demand is clearly driving a major suburban shift in the data-center industry. From what I have observed in ongoing projects, larger site acquisitions are now becoming a normal strategy, as companies plan phased campus developments instead of small facilities. This approach is becoming the norm because it allows flexible expansion while meeting growing digital needs. As a result, projects are being pushed away from urban cores toward suburban and even rural areas, where space and infrastructure potential are greater.

Key global hubs like Virginia, Phoenix, and Sydney, Australia, consistently rank among the top markets for such expansion. Their strong availability of land and infrastructure makes them highly attractive for developers. Today, developers increasingly prioritize such locations because they better support scalability, power supply, and efficient integration of systems. This strategic movement shows how the industry is reshaping geography itself, as digital infrastructure expands beyond traditional city boundaries.

Record Pipeline Growth

The record pipeline growth in the data center sector shows how fast global capacity is expanding. The U.S. alone accounts for about 44% of global data center capacity, according to Visual Capitalist, with Virginia boasting a staggering 15.4GW development pipeline. Other fast-growing regions like Phoenix, Dallas-Fort Worth, and Atlanta are also experiencing substantial growth and strong investment. At the same time, China together with the U.S. continues to account for nearly 70% of global expansion. In mature markets, land values remain a top consideration, pushing investors to focus more on cost-efficient and emerging locations such as Pennsylvania and Johor, Malaysia, where development potential is rising quickly.

Land in Premium Demand

Land is now in premium demand as developers increasingly rely on pre-secured utility commitments to ensure project viability. High-demand developers are competing with nontraditional buyers like electric vehicle (EV) and chip manufacturers, all seeking suitable sites. These parcels are especially valuable because they offer a guaranteed path to power, which is critical amid rising constraints and long utility lead times. As a result, land with ready infrastructure access has become one of the most competitive assets in the data center real estate market.

Investment Surges Across the Real Estate Spectrum

The investment surges in the real estate spectrum are clearly reshaping the sector as demand keeps accelerating. The sector continues to attract strong capital with a sharp rise in joint ventures and mergers and acquisition activity, especially in colocation and hyperscale infrastructure. Major outfits and firms are now increasingly targeting both established and emerging markets, which is fueling rapid pipeline growth and positioning data centers as one of the fastest-growing asset classes globally.

Land Pricing and Competition Intensify

Land pricing and competition intensify as interest and capacity demand rises in top-tier markets. This is strongly driven by pricing pressure moving upward in key regions. However, the Midwestern U.S., including Indianapolis and Iowa, remains among the most affordable, attracting spillover demand from more expensive neighboring markets.

Data and energy develop in lockstep

The net, result is the formation of a new asset class that reflects the symbiotic nature of digital and clean energy infrastructures. This creates a strong global appetite for real asset investment, where demand now stretches from “everyone” to even seven and 70-year-olds participating in creating data value. As Kok-Chye Ong, Managing Director and Head of Data Center at Gaw Capital, a real-estate private equity firm focusing on Asia Pacific, explains, today’s high-barrier-to-entry markets show that everything stored in the digital world must exist somewhere, and that need is reshaping global infrastructure thinking.

This shift is driven by the reality that massive server farms around the world have been created, and they all require cleaner sources of energy. The industry is now actively taking steps to effectively solve this problem by underwriting renewable investments as viable long-term solutions. The rise of the economy is changing how investors think and operate, as digital power and generation are no longer treated as separate worlds but as contrasting yet converging risk profiles and business models. This convergence is now central to investing in infrastructure, placing it at the global transition forefront of future growth and innovation, as highlighted by Ersin Yorulmaz, Managing Director and Co-Head of European Capital Formation at DigitalBridge, where the growing trend shows integrating sectors through partnerships that have emerged as managers collaborate to deliver solutions at the intersection of critical industries.

A new frontier

The tendency of the data economy is to draw multiple investment streams, creating an interlinked universe where data centers, power generation assets, and related infrastructure all play a role. Key components in this system include cabled networks, mobile infrastructure, computing hardware, and fiber networks, along with physical and wireless connectivity powering 5G, data networks, and mobile phones. As Rob Martin, Global Head of Investment Strategy and Research at Private Markets, Legal & General Asset Management notes, building clean energy and digital infrastructure requires significant asset creation and financing.

Where’s the downside?

While trends appear to move relentlessly upward, evolving technology combined with uncertainties in costs, construction, and future stability introduces real risks. There is always the possibility of over-investment and sector crowding, especially in an economy unlike traditional core real asset markets where risk and returns are more predictable. In this environment, accurate forecasting requires informed analytical approaches, and such expertise now commands a premium in investing in digital infrastructure.

Data centers in space

The idea of data centers in space is moving at a very quick pace, almost like new rails being built for the digital world. Instead of being tied to Earth, these systems are going beyond the planet, sucking huge amounts of energy that local grids can no longer handle, which is why space-based systems are being considered as a long-term solution. This approach offers a fully decarbonized solution with unlimited power from the sun, and natural cooling in the vacuum of space, turning it into a new form of real estate beyond Earth.

The Allure of New and Secondary Markets

The allure of new and secondary markets in data center development is gaining momentum for several key reasons. These markets are no longer seen as backup options but as strategic growth zones where future infrastructure expansion is actively shifting.

Lower Costs

One of the strongest advantages is lower costs. In many new and secondary markets, land is more affordable and plentiful, making it financially attractive for hyperscalers and collocated data center operators. These regions also provide utility services at more affordable levels with reduced competing demand from other customers. With sufficient power and water available to support development, these locations are now well positioned to compete for large-scale projects.

Incentives

Another key driver is incentives offered by states and local jurisdictions. Many governments provide competitive tax incentives, development grants, and other benefits to attract data center investment. Communities that historically had limited growth are now seeing increased interest as technology and economic development incentives expand. Several states offer sales and use tax abatements, which are particularly attractive due to high costs of refreshing equipment. In addition, local jurisdictions may provide real property tax abatements and even personal property tax abatements. Some regions also offer grants to support project infrastructure, including road construction, making secondary markets a strong alternative for future development.

Proximity to End Users

Proximity to end users is also becoming a major factor in choosing new secondary markets. As digital consumption spreads across geographies, locating closer to population centers helps reduce latency and improve performance. These locations are not always traditional hubs, but they play a critical role in improving service delivery and user experience.

Diversification and Risk Mitigation

Finally, diversification and risk mitigation are key motivations for developers. Increasingly, data center companies are seeking geographic diversity to avoid overconcentration in established hubs. Secondary markets help reduce exposure to risks such as power and water constraints, as well as political, tax, and regulatory uncertainties. In some cases, jurisdictions have even attempted to limit or reduce economic development incentives for data centers, highlighting the importance of spreading investments across multiple regions for long-term stability.

Challenges in New and Secondary Markets

The challenges in new and secondary markets for data centers are becoming more visible as development expands beyond traditional hubs. While these regions offer clear advantages, developing there is far from straightforward, and many projects face added hurdles related to infrastructure readiness, workforce availability, and governance structures. These challenges often slow down execution and increase overall project risk, especially when compared to mature markets.

Lack of Proven Track Record

The lack of a proven track record in many new secondary markets creates uncertainty for data center development. Unlike established hubs where data center success in delivering large-scale support projects is already proven, these newer regions introduce additional risks. Developers and local governments in such areas may overestimate their ability to deliver services and build infrastructure on time, leading to miscalculations in project execution. This mismatch of inexperience makes it harder to maintain confidence, especially when compared to jurisdictions that have already successfully supported large-scale developments. In contrast, new markets often encounter unanticipated difficulties that can delay or disrupt progress.

Infrastructure Delivery Constraints

Infrastructure delivery constraints are a major barrier in secondary markets. Many of these regions lack the robust power and water infrastructure commonly found in mature hubs, along with limited grid capacity and insufficient redundancy. These limitations often result in extended lead times for utility upgrades, which can significantly delay projects. In some cases, developers must also invest in water treatment plant upgrades to support large-scale operations. Additionally, remote jurisdictions with limited available water capacity face further challenges in ensuring that essential services are delivered directly to the project site, increasing both cost and complexity.

Limits on the Availability of Skilled Labor

The limits on the availability of skilled labor create another major challenge for data centers in secondary markets. These facilities require highly trained technicians, engineers, and construction professionals to operate and build complex systems. However, newer regions often have a limited talent pool, which leads to higher recruitment costs and delays in project staffing. In many cases, companies must import labor from other regions to meet project demands.

Regulatory Obstacles

Regulatory obstacles in new and secondary markets often arise because local jurisdictions are unfamiliar with the scale and technical requirements of data center projects. This can result in unexpected zoning, permitting, and environmental challenges that slow down development. Navigating complex bureaucracy further increases costs and extends project timelines, making regulatory clarity a key concern for investors and developers.

Political Opposition

Political opposition is also a growing factor in secondary markets, where local residents sometimes express concerns about data center projects. These concerns often relate to changing land use, increased water and energy consumption, and broader community impacts. In contrast, established markets tend to have more balanced perspectives due to prior experience with economic development benefits associated with such infrastructure.

Advanced Technology to Fuel Increased Data Center Demand

Advanced technology is continuing to fuel increased data center demand, as the industry undergoes a major transformation that makes it an increasingly attractive investment opportunity. While it was historically dominated by hard drive, storage, computing, and network connectivity, its traditional uses are now expanding to include new applications such as artificial intelligence, machine learning, high-performance genome sequencing, high-frequency trading, and efficient cloud-based solutions. From an energy-use perspective, innovation is also shaping how facilities operate, with innovative ways to power and cool development, including alternatives like water-using glycol systems and reuse of excess heat for greenhouses in adjacent facilities.

Strategies for Success

Strategies for success in the data center sector focus on key steps that enable developers to perform well in newer markets. First and foremost, it is essential to engage early with local government officials and utility providers, as developers cannot rely on receiving the same deal structure as previous projects. Instead, they must proactively address incentives, zoning, and development needs while also securing power and water commitments and understanding infrastructure timelines, which are often longer in new regions.

Pricing Continues to Rise and New Development Needed

Pricing continues to rise, highlighting the urgent need for new development in the data center sector. Limited supply combined with strong demand has led to a projected 16% year-over-year increase for 250-to-500-kW requirements in 2023, with expectations of another 10% to 15% increase in 2024. Supply constraints and continued demand pressures have pushed operators to lower lease pricing on legacy assets, while vacancy discounts are increasingly applied. At the same time, artificial intelligence workloads require much higher power density, further increasing development pressure and attracting institutional investment.

More Network Capacity and Additional Power Supply Needed

Network capacity and additional power supply remain critical needs as AI adoption accelerates. The rise of Large Language Models (LLMs) and generative AI has increased demand for high-bandwidth connections that support faster data transfer rates. Major cloud providers are also exploring less expensive rural areas to host training workloads, but these sites require strong fiber connectivity and edge data center integration.

By 2024, edge computing is playing a key role in reducing latency and enabling systems to process data closer to end users, supporting applications like smart homes, smart cities, streaming services, facial recognition, and autonomous vehicles. However, power supply challenges remain significant, requiring operators to adopt renewable and sustainable energy strategies. Transmission and distribution constraints, grid congestion, and interconnection delays are limiting development, while electricity costs continue to fluctuate during peak demand. Energy storage solutions are being explored to stabilize supply, but approval processes for wind, solar, and hydro projects still take more than four years on average. Costs have also doubled since 2020, forcing developers to invest in high-voltage power lines and substations while pushing for faster grid planning, permitting, and financing to expand capacity and reduce interconnection bottlenecks.