The AI boom is making real-estate investors rich—and exposing them to risk

Commercial real-estate investors are becoming increasingly aligned with the AI boom—enabling them to rake in profits on the upside, but also making their funds more vulnerable to a correction in AI that disrupts demand for data centers.

- Will Parker

Spending on data-center construction is poised to surpass office-building construction for the first time.

(REUTERS)

Spending on data-center construction looks poised to surpass office-building construction as soon as next year, according to U.S. Census Bureau data.

So far, the reward outweighs the risks: Data centers earn more than nearly any other real estate. These properties returned 11.2% last year, according to the National Council of Real Estate Investment Fiduciaries. That was higher than every other sector, other than manufactured housing.

The shift toward data centers is unlikely to reverse soon because demand for computing power continues to grow. American cities are still working off a decades-in-the-making office glut that has put a break on new office construction and kept vacancy rates near record highs.

At the same time, Meta, Amazon, Oracle and other hyperscalers are trying to build their artificial-intelligence networks faster. So they are leasing more of their data-center space from property owners, rather than building it themselves.

This year, 40% of U.S. hyperscaler data-center capacity was leased, according to McKinsey estimates. That is up from about 35% in 2023.

Real-estate firm JLL predicts that North America could see $1 trillion worth of new construction of data centers between 2025 and 2030. These properties house the racks of graphic-processing units and hardware that train and run AI systems.

The thirst to capitalize on the AI boom is changing the nature of commercial real-estate investing. Office towers, apartment buildings and shopping centers are traditionally viewed as steady and safe alternatives to the tech industry. When the Nasdaq Stock Average plummeted nearly 80% during the 2000 to 2002 tech selloff, commercial real-estate values were flat or declined modestly.