Hyperscalers Are Real Estate’s Next Big Play
Min 1
Data centers are the invisible engine behind nearly everything in today’s economy. Every AI tool, cloud file, and video stream runs through these facilities. And demand is only accelerating. Right now, the world’s data centers use about 60 gigawatts of power. By the end of the decade, that figure is projected to reach 170 to 220 gigawatts. If supply were not a constraint, the number would already be over 250 gigawatts. This is not a short-term trend or a bubble. It is a structural shift tied directly to the growth of AI, cloud computing, and our ever-expanding digital footprint.
Min 2
This surge in demand is reshaping where and how data centers are built. Power availability is the single most important factor. A data center can be constructed in as little as 18 to 30 months if it can connect to existing power sources. Without that, it can take years. For this reason, developers are expanding beyond the usual hubs like Northern Virginia, Silicon Valley, and Dallas. We are seeing new facilities rise in smaller cities and even rural areas such as Iowa, Alabama, and Wyoming. These markets often have excess power or the ability to add it more easily, making them prime spots for future growth. Developers are also buying land years before they intend to build, banking parcels to secure power and network connections ahead of the next wave of demand.
Min 3
Real estate companies are playing a larger role in this expansion. Some focus on acquiring land in strategic locations and then selling or leasing it to data center operators. Others go further by constructing the initial building shell, which can be a basic structure or one that already includes electrical, cooling, and fiber infrastructure. A smaller group takes the full project from start to finish. They purchase the land, build the facility to the tenant’s specifications, and lease it out. These full-service facilities are often used by major technology firms that need large amounts of space quickly but do not want to handle the development process themselves.
Min 4
These large tenants are known as hyperscalers. They include the biggest names in cloud computing and technology, and they control more than half of the world’s computing power today. By the end of the decade, they are expected to use as much as 70 percent. These tenants rarely move once they are up and running. The cost and disruption of relocating servers is too great. Renewal rates for highly utilized data centers exceed 90 percent, and lease terms are getting longer. In a market where supply is tight, it is now common to see leases stretching beyond ten years. With a 25- to 30-year life on the land and building itself, these assets offer unusually strong income visibility.
Min 5
The biggest risks for investors lie in power and cooling capacity, as well as the ability to upgrade facilities over time. But most of the technology risk, such as hardware and software obsolescence, is carried by the tenant rather than the landlord. For real estate investors, the opportunity is clear. Data centers have historically produced higher yields than other property types, and with supply so constrained, those returns are likely to hold up. This is a long-term growth story with cash flow and durability at its core. Investors who position themselves now will own the infrastructure behind the AI and cloud revolutions for decades to come.
See you tomorrow,
-The 5
