If you're looking for a real estate investment, but are afraid of a downturn in the office market and don't believe there's much room for residential rents to rise, the data center sector may be for you. Since the advent of Chat GPT and artificial intelligence (AI), businesses around the world have invested heavily to take full advantage of the capabilities of this new technology.
Why data centers are so important
No matter where AI is running or what purpose it is being used for, there is one common thread. Because AI both consumes and stores data at high speeds, it cannot operate without large data centers. Data centers are nearly invisible and do not require expensive architectural enhancements such as pools, glittering facades, or designer kitchens.
That makes data centers the closest thing to a perfect tenant that most real estate investors can imagine. The only requirements a data center needs to stay up and running are a robust heating, ventilation, and cooling (HVAC) system that keeps the computers and servers inside hot enough to operate at full capacity, as well as fences, cameras, etc. appropriate security measures. Shut out people who don't belong.
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Modern data centers occupy vast amounts of real estate, and companies and governments that require data centers tend to sign long-term leases. This means data center investors can expect reliable returns for many years into the future. That's not something people who own portfolios full of offices and commercial properties can say right now. While office buildings struggle to find tenants, developers can't build data centers fast enough.
Promoting AI development further increases the value of data centers
In an interview with MarketWatch, Sean Farney, vice president of data strategy at Jones Lang LaSalle Real Estate, summed up the sector: work. “
Because AI is as much about active learning as it is about data storage, it will require even more space than the data centers of just a few years ago.
trend
Fernie is a man worth listening to. In 2009, he helped build his 120-megawatt data center for Microsoft in Chicago, and in 2022 he hailed the arrival of Chat GPT as a “turning point” in his data center game. did. Since then, the race to build and acquire increasingly large data centers has continued. The good news for investors is that this momentum isn't stopping anytime soon.
Companies are investing in hyperscale data centers
With technology companies around the world competing for the same resources, the supply of suitable data centers far exceeds the demand. Meeting this demand is the result of a recently announced agreement between Blackstone and Digital Realty Trust to build large-scale “hyperscale” data centers in Paris, France, Frankfurt, Germany, and Northern Virginia. That's likely the main motive behind the billion-dollar partnership.
Hyperscale data centers that can handle the demands of AI are at the heart of the current data center gold rush. The group, known informally as “hyperscalers,” is made up of deep-pocketed Wall Street firms and tech giants that are pouring billions of dollars into building and acquiring hyperscale data centers.
The future outlook is even brighter
According to some estimates, AI requires 5 to 10 times more power than traditional data centers. The current supply of hyperscale data centers is insufficient to meet current and future AI demands, so the potential for growth in this sector will remain high in the future. If you're an investor who wants to stay in the real estate industry but want to get out of the office sector, data centers are worth considering.
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