Data Centers Transform Real Estate Landscape as Banks Face Funding Challenges

AI Boom Fuels Real Estate Shift: ‘Invisible’ Data Centers Dominate Investment

October 4, 2025

Abilene, Texas – A notable transformation is underway in teh global real estate market, with investment increasingly flowing into “invisible” property: data centers supporting the explosion of cloud computing and Artificial Intelligence. This shift represents a departure from traditional focuses on visible assets like office towers and retail spaces.

Kishore moorjani, Chief Executive Officer of CapitaLand Investment’s alternatives and private funds team, recently characterized this trend, stating that the real estate world is moving from the “visible” to the “invisible.” He explained that the cloud, powered by data centers, is now a primary driver of value.

Investor Appetite Surges for Data Centers

A new survey conducted by CBRE reveals that a remarkable 95% of major investors globally intend to increase their investments in data centers. The survey,completed in 2025,shows that 41% of the 92 investors polled plan to allocate $500 million or more to the data center sector this year,a substantial increase from 30% in the previous year.

The demand for data centers is being primarily fueled by the escalating computational requirements of Artificial Intelligence workloads. Goldman Sachs predicts a 50% rise in global power demand from data centers by 2027 and an even more dramatic 165% increase by 2030.

stuart Crow, CEO of APAC capital markets at JLL, notes investors are actively reshaping their portfolios to prioritize alternative investments, with data centers, battery storage, and associated infrastructure at the forefront.

Goodwin Gaw, Managing Principal at Gaw Capital Partners, indicated that his firm is currently making strategic investments in data centers within China.

Funding Challenges Emerge

Despite robust investor interest, a critical funding gap is beginning to appear. The sheer scale and rapid pace of data center projects are straining the capacity of traditional lenders, according to industry leaders. Moorjani pointed out that banks are facing challenges managing their exposure to this rapidly expanding sector.

Building a hyperscale data center,a massive facility designed for high-volume processing,can cost approximately $12 million per megawatt. Modern hyperscale facilities typically range from 150 to 300 megawatts in capacity. Facilities exceeding 1 gigawatt-equivalent to 1,000 megawatts-will necessitate multi-billion-dollar investments.

Data Center Scale	Typical Capacity	Estimated Cost
Hyperscale	150-300 Megawatts	$1.8 – $3.6 Billion
Gigascale (AI-Centric)	1+ Gigawatt	Multi-Billion Dollar

Estimated Costs for Different Data Center Scales

Boston Consulting Group estimates that hyperscalers will require approximately $1.8 trillion in investments between 2024 and 2030 to satisfy the increasing demands of AI and cloud services. This raises a crucial question: Is sufficient capital currently available to meet these needs?

Experts also suggest that the expansion of artificial Intelligence could fundamentally alter the landscape of physical real estate, potentially reducing the need for extensive office spaces as companies streamline their workforces and adjust their footprints.

Recent data from Savills indicates a slower-than-anticipated recovery in global real estate investment. Global commercial real estate investment is projected to increase by 8% in 2025, a decline from the previously forecasted 27%. Developers are encountering obstacles such as rising construction costs, financing limitations, labor shortages, and complex regulatory processes.

The Long-Term Impact of Data Center Growth

The growth of data centers is not merely a real estate trend; it’s an infrastructure evolution driven by the accelerating pace of technological advancement. The demand for data processing power will continue to increase exponentially with the broader adoption of AI, machine learning, and the Internet of Things (IoT). This creates a sustained need for reliable, scalable, and energy-efficient data center solutions.

Did You Know? The energy consumption of data centers globally accounts for approximately 1-3% of the world’s total energy production, a figure projected to increase significantly as AI adoption grows.

Pro Tip: When evaluating data center investments, consider not only the capital expenditure but also the ongoing operational costs, including power, cooling, and security.

Frequently Asked questions about Data Center Investment

• What is driving the demand for data centers? The primary driver is the explosion in data creation and processing needs, especially related to Artificial Intelligence and cloud computing.
• how much does it cost to build a data center? Costs vary widely,but hyperscale facilities can range from $1.8 billion to several billion dollars, depending on capacity.
• Are there risks associated with data center investments? Funding constraints, regulatory hurdles, and energy consumption concerns are key risks.
• What impact will AI have on office real estate? The rise of AI may lead to reduced office space needs as companies automate tasks and adopt more remote work models.
• Is the data center market sustainable? Sustainability is a growing concern, pushing the industry toward more energy-efficient designs and renewable energy sources.
• What is a hyperscale data center? A hyperscale data center is a massive facility designed for handling large volumes of data and processing power, typically operated by major tech companies.
• What role does China play in the data center market? China is a significant and rapidly growing market for data centers, driven by its large internet user base and expanding digital economy.

What other shifts do you foresee in the real estate landscape due to technological advancements? Share your thoughts in the comments below.

How are rising interest rates specifically impacting the financial viability of new data center projects?

The Surge in Data Center Demand: A Real Estate Revolution

The demand for data center space is experiencing unprecedented growth, fundamentally reshaping the commercial real estate landscape. This isn’t just a tech trend; itS a seismic shift impacting property values, investment strategies, and even the availability of power and resources in key regions. Several factors are driving this surge, including the continued expansion of cloud computing, the rise of artificial intelligence (AI), the proliferation of edge computing, and the increasing reliance on data-intensive applications like streaming services and the Internet of Things (iot).

This demand is particularly acute in areas with favorable regulatory environments,access to renewable energy sources,and robust fiber optic networks. Locations like Northern Virginia, Dallas-Fort Worth, and increasingly, areas in the Midwest are seeing massive investment in hyperscale data centers – facilities built to support the massive computing needs of companies like Amazon, Google, and Microsoft.

Banking & finance: The Funding Bottleneck

While demand soars,data center development is facing a significant hurdle: bank funding challenges. Traditional lenders are becoming increasingly cautious about financing these projects, citing several concerns:

* high Capital Expenditure (CAPEX): Data centers require considerable upfront investment in land, construction, power infrastructure, and cooling systems.

* Long lead Times: from site selection to full operation, data center projects can take years to complete, increasing financial risk.

* Technological Obsolescence: The rapid pace of technological change means that data center infrastructure can become outdated relatively quickly, impacting long-term ROI.

* Increased Scrutiny of ESG Risks: Banks are under pressure to assess the environmental, social, and governance (ESG) risks associated with data center projects, particularly regarding energy consumption and water usage.

* Interest Rate Hikes: The current economic climate of rising interest rates makes borrowing more expensive, further complicating financing.

These factors have led to a tightening of credit availability, forcing developers to explore choice funding sources like private equity, real estate investment trusts (REITs) specializing in data centers, and even direct investment from tech companies themselves.

Impact on real Estate Asset Classes

The data center boom isn’t limited to purpose-built facilities. It’s creating ripple effects across various real estate asset classes:

* Industrial Properties: Existing industrial buildings are being retrofitted to serve as colocation data centers – facilities that provide shared data center space to multiple tenants.

* Power Infrastructure: The demand for reliable and affordable power is driving investment in power generation and transmission infrastructure, creating opportunities for real estate developers and energy companies.

* Land Values: Land prices in areas suitable for data center development are skyrocketing, benefiting landowners and driving up the cost of entry for new projects.

* Fiber Optic Networks: The need for high-bandwidth connectivity is fueling investment in fiber optic infrastructure,creating opportunities for telecom companies and real estate developers.

* Specialized Zoning: Municipalities are adapting zoning regulations to accommodate data center development,often creating dedicated data center zones with streamlined permitting processes.

Alternative funding Models & Investment strategies

To overcome the banking sector’s hesitancy, developers are turning to innovative funding models:

1. Joint Ventures: Partnering with tech companies or other investors to share the financial burden and expertise.
2. Sale-Leaseback Transactions: Selling the land and building to a REIT and then leasing it back for long-term operation.
3. Green Bonds: Issuing bonds specifically earmarked for environmentally enduring data center projects.
4. Infrastructure Funds: Attracting investment from infrastructure funds focused on long-term, stable assets.
5. Data Center REITs: Utilizing publicly traded REITs specializing in data center properties to raise capital.

real estate investment trusts (REITs) focused on data centers have become increasingly popular, offering investors exposure to this high-growth sector. Companies like Equinix, Digital Realty, and CyrusOne are leading the way, demonstrating the potential for strong returns.

Regional Hotspots & Future Trends

Several regions are poised to benefit from the continued growth of the data center market:

* Northern Virginia: Remains the largest data center market in the world, driven by proximity to Washington D.C. and a robust fiber network.

* Dallas-Fort Worth: Benefiting from a business-friendly environment, affordable land, and a growing tech workforce.

* Phoenix, Arizona: Attracting investment due to its favorable climate, low power costs, and access to renewable energy.

* Chicago, Illinois: A key hub for connectivity and a growing data center market.

* Midwest Expansion: States like Iowa, Nebraska, and Kansas are emerging as attractive locations due to lower land costs and access to renewable energy.

Looking ahead, several trends will shape the future of the data center real estate market:

* Sustainability: Increasing focus on energy efficiency, water conservation, and the use of renewable energy sources.

* Liquid Cooling: Adoption of advanced cooling technologies to reduce energy consumption and improve performance.

* Modular Data Centers: Deployment of prefabricated, modular data center units