AI-fueled demand for data centers sparks spending in the ailing commercial real-estate sector
So hot right now… As commercial real estate struggles to adjust to a remote-work reality, one sector of that market is defying trends and popping off. Demand for data centers — those hulking homes of the servers that support the internet — has boomed. Real-estate giant Jones Lang LaSalle said the dynamite demand has come from corporates chasing AI, a tech that needs IRL square footage to train and run.
BuildAI: US data-center space soared 26% last year, with record construction across the country. And the price for available space is still rising.
DrainAI: While companies are trying to use renewable energy to power operations, lots of data centers rely on nonrenewable sources like natural gas, coal, and nuclear power. New “hyperscale” locations can use as much electricity as Seattle.
For rent… all of downtown, plus a warehouse or two. Commercial real estate includes office buildings, warehouses, malls, and (yes) data centers. But while demand for server farms is thriving, the rest of the market isn’t doing so hot. About a fifth of US office space was vacant at the end of last year, with cities like Houston and Cincinnati seeing vacancy rates as high as 25%. US warehouse vacancy rates have also risen as ecomm cools.
Markets aren’t monoliths… Booming AI-vestments don’t just benefit tech companies; they can spill over into other industries like real estate. In the same way, the billions poured into AI by corporates like Microsoft, Amazon, and Alphabet could spill over into the energy markets. Natural gas is expected to see an outsized benefit, with Goldman Sachs estimating that it’ll supply 60% of power demand growth for data centers and AI.