In the real estate industry, data centers are a much-discussed topic, but do they deserve the hype? According to
Pankaj Sachdeva, McKinsey Senior Partner, this is a long-term trend as opposed to a quick volatile frenzy.
McKinsey’s data confirms this as they value AI and generative AI as a roughly $4 trillion global opportunity. “Data center value is a representation of the physical infrastructure needed to achieve that,” Sachdeva said in the
McKinsey repor t. Here to continue the chat about rising data center trends are two leading experts in the industrial sector:
Pat Lynch, Executive Managing Director, CBRE’s Data Center Solutions and
John McWilliams, Head of Data Center Insights, Research Manager, Cushman & Wakefield.
Read Lynch’s and McWilliams’ insights below to learn more:
What key trends are fueling demand in the data center sector, and how can real estate stakeholders position themselves to benefit from these shifts?
Lynch: In 2024, AI and machine learning are significant drivers of data center demand, requiring high-density infrastructure and specialized cooling to handle immense computational needs. Cloud adoption and hybrid IT models continue to push enterprises toward scalable colocation solutions, while 5G and IoT are accelerating the need for edge computing, reducing latency by bringing data closer to users. Real estate stakeholders can benefit by focusing on power and fiber-rich locations, forming partnerships with AI-focused tech companies and developing scalable, flexible facilities designed for future high-density demands.
McWilliams: The three primary demand drivers in the data center sector right now are demand for artificial intelligence, demand for cloud computing, and the overall growth in data production as industries continue their digital transformations. Data center demand derived from artificial intelligence is two fold and centers around (1) it’s rapid adoption and (2) the amount of power, at data centers, that artificial intelligence consumes in both training and inference stages. As it currently sits, data centers in the U.S. consume about 4% of electricity generated in the country each year. With the rise of AI, this consumption figure is expected to increase to 4.6%-9% of U.S.-generated electricity by 2030. Inside of data centers, AI applications currently account for an estimated 10-20% of total electricity consumption with that share expected to grow. As for cloud computing, businesses are increasingly reliant on this scalable storage and computing power as their increase in data generation and need for flexibility and cost efficiency drives them toward cloud solution adoption over maintaining facilities of their own. Moreover, robust data center capabilities are needed to support complex applications and comply with data privacy regulations during the rise of AI and big data analytics. Lastly, the data production and consumption is on a global growth trajectory that isn’t expected to slow down any time soon as the world continues to transform digitally, thereby increasing the need to be able to process and store data.
As data centers prioritize sustainability, what are the most impactful strategies for enhancing energy efficiency and minimizing environmental impact?
Lynch: Data centers are enhancing energy efficiency through liquid cooling, AI-driven energy management, and increased use of renewable energy where and when available. Operators are also recycling waste heat and adopting sustainable building practices to minimize environmental impact. For real estate stakeholders, investing in LEED-certified facilities with access to renewable energy sources is essential for attracting eco-conscious tenants.
McWilliams: One highly impactful thing data centers can do to improve their sustainability metrics, and reduce environmental impact, is to collect data on their data center to identify areas where improvement is needed. Once data has been collected, and improvement areas have been identified, data center operators need to create an custom action plan specific to their data center that balances cost, operational efficiency, and environmental impact. Some high-level areas that data center operators may focus on include reducing their power usage effectiveness (PUE), optimizing water usage, reducing carbon emissions, recovering and recycling waste heat, and utilizing more renewable energy.
With technological advancements and increased connectivity demands, what should real estate developers consider when selecting locations and designing data center properties to remain competitive?
Lynch: In 2024, power is the most critical factor driving data center location decisions. With AI workloads demanding massive energy consumption, sites with reliable, scalable power are in highest demand and challenging to find. Wherever there is ample power, data centers potentially follow. Once power is secured, other considerations include low-latency fiber connectivity, resilient design to withstand natural disasters, and scalable facilities that accommodate future growth.
McWilliams: The top priority for developers right now should be selecting locations that have the ability to meet their immediate and future land and power needs. Connectivity is also highly important as locations with ample telecom infrastructure, marked by fiber presence and low-latency connectivity to internet exchange points, are more desirable as they can save developers the cost of having to bring infrastructure to their site. The regulatory environment surrounding a potential data center site should be another consideration for developers as an unfavorable regulatory environment can quickly become a significant challenge to have to overcome and ultimately impact the feasibility of a project. Of course, data center development is much more nuanced than this and each developer should bring market demand, financial resources, sustainability, natural disaster threats, competition, and labor availability, among other variables, into consideration. Note: low-latency locations are a lesser priority for AI training facilities.
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