This is the final installation of a five-part blog series based on the LightBox 2024 white paper titled “The Transformative Power of Technology in CRE,” highlighting LightBox’s role as CREW Network’s Data and Technology Program Partner. Given its broad breadth across key segments of CRE, LightBox is in a unique position to report on the technology trends taking root and how today’s CRE professionals are responding to them. These five trends are reshaping the landscape of our industry and unlocking myriad avenues for professionals to be more efficient, make smarter decisions, and reduce redundancy in their day-to-day operations.
Tied in with the rapid growth in CRE property data and expanding use of large language models (LLM) and other innovations is the critical need for the physical infrastructure necessary to support the expansive campuses that the technology demands. With the AI boom comes exponential growth in demand for real estate development that supports new data processing and storage facilities. Some sources estimate that U.S. data center capacity will double by 2030. The chips needed for generative AI consume significantly more electricity and water compared to those used for standard internet searches, as they are built to read vast amounts of data. According to the International Energy Agency, a ChatGPT-powered search uses 10 times more energy than a typical Google search without AI.
This new pocket of demand means that metros that have huge tracts of available land may become tomorrow’s hot spots for CRE investment. Investors and developers are turning their attention to breaking into new secondary and tertiary markets in the Midwest and Sunbelt region out of necessity as they scout out opportunities for available land that can house expansive data centers in locations with the electricity supply to power them and zoning regulations that support these property development projects.
Technological advancements are not only driving CRE interest in data center investment but also aiding in the efficient site selection of data centers by providing access to a wide array of data points. As the expansion of AI applications continues and drives demand for the infrastructure to support it, it will trigger a shift in the cities getting the attention of those looking for investment-grade CRE in growing markets.
The Shift to Large-Scale Campuses
One emerging strategy, championed by companies like Equinix, the world’s largest digital infrastructure provider, focuses on developing large-scale data center campuses rather than dispersing individual facilities across multiple markets. Equinix CFO Keith Taylor highlighted on the company’s third quarter earnings call that power availability is the main factor slowing new data center development. By adopting a campus development model, the company can concentrate power procurement on a smaller number of sites in the most profitable markets.
For CRE investors, this hyperscale market is creating a ripple effect in regions being targeted for major data center development. As these projects break ground, they stimulate broader CRE development, including office spaces, logistics hubs, and even residential communities to support the workforce.
Secondary and Tertiary Metros Gaining Attention
While established data center markets are still growing, power and land constraints are prompting many companies to look to secondary and tertiary metros. For example, in Elk Grove—a Chicago suburb—Stream Data Centers paid 55 homeowners $900,000 each to purchase their single-family homes so they can develop a three-building, 2.1 million sq. ft. data center in its place.
Abilene, Texas, is gaining attention for data center development, with Lancium’s 5-gigawatt Clean Campus underscoring the potential of smaller markets with strategic advantages. Backed by a $500 million investment from Blackstone, the campus includes a 90-acre lease to Crusoe, a data center developer planning to construct 998,000 square feet of space, scheduled to be leased to a Fortune 100 company in 2025.
Similarly, Meta’s $10 billion investment in Richland Parish, Louisiana, underscores how metros with access to power and favorable zoning laws are attracting the attention of investors and developers looking for opportunities in the data center sector.
Power Access as a Key Driver for CRE Investment
Power constraints and lengthy delays in grid connections, often spanning years in certain markets, are driving developers to focus on regions with more reliable energy resources.
Bill Stein of Primary Digital Infrastructure predicts a trillion-dollar surge in U.S. data center investments over the next five years, highlighting power access as a vital component of CRE development strategy. This trend is not limited to traditional energy sources—nuclear power is gaining traction as a potential solution. The renewed focus on nuclear power includes leveraging existing facilities like Pennsylvania’s Three Mile Island, where developers see potential to repurpose the site for reliable energy delivery to nearby data centers.
In a December 5 letter to the Federal Energy Regulatory Commission (FERC), Rep. Jay Obernolte of California emphasized the urgency of removing these barriers, framing the issue as essential for national security and maintaining a competitive edge in the global AI race. “As energy demands grow, co-locating energy production with data centers will be critical to reducing grid strain, improving resilience, and lowering carbon emissions,” Obernolte stated. He urged FERC to act swiftly in shaping the future of the nation’s energy landscape.
Innovative solutions are also emerging from private companies like Exxon Mobil, which is developing a natural gas power plant with carbon capture technology, according to the New York Times. Designed to eliminate over 90% of its carbon emissions, the plant aims to supply electricity to meet the energy demands of data centers while avoiding grid interconnection challenges.
Why CRE Investors Should Pay Attention
While not without its challenges, data center development can also bring significant economic benefits to host cities. These projects create jobs, boost infrastructure, and attract complementary businesses. For CRE investors, this means a robust ecosystem of opportunities beyond the data centers themselves, from industrial parks to retail developments.
Advances in data analytics are also helping CRE investors identify the best markets for data center-driven growth. By leveraging tools like big data platforms, investors can evaluate factors such as energy availability, zoning flexibility, and labor supply to make informed decisions.
Data Centers as Catalysts for CRE Growth
The booming demand for data centers is redefining CRE investment strategies, with emerging markets offering new opportunities for growth. As metros with ample land and power resources step into the spotlight, CRE investors have a unique chance to capitalize on this trend.
From secondary markets like Abilene and Richland Parish to traditional hubs like Northern Virginia, the ripple effects of data center expansion are reshaping the real estate landscape. By focusing on the economic and infrastructure potential these projects create, CRE investors can position themselves at the forefront of this transformative era.
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