An aerial view of the Apple data center in Mesa near Phoenix, Arizona, the United States, August 6, 2017. Picture taken on August 6, 2017. Apple plans to build its second data center in China in the city of Ulanqab, Inner Mongolia Autonomous Region.
Jim Todd | Reuters
A version of this article first appeared in the CNBC Property Play newsletter with Diana Olick. Property Play covers new and evolving opportunities for the real estate investor, from individuals to venture capitalists, private equity funds, family offices, institutional investors and large public companies. Register to receive future editions, straight to your inbox.
The sudden increase in demand for data is rapidly creating new commercial real estate sectors – not just data centers, but also so-called quantum real estate and energy-powered land.
The first refers to structures designed to house specialized quantum computers. The latter is ground prepared and ready for data center operations, with emphasis on obtaining reliable and sufficient power supply. This land would need to be secured with permits, utility commitments, and the infrastructure necessary to power a data center.
There are currently approximately 20,000 acres of powered land located under operational data centers worldwide. According to a new research paper from Hines, a global real estate investment manager, approximately 40,000 acres of powered land, or nearly 2 billion square feet, are needed to support current projections of data center growth over the next five years. This is equivalent to a little less than the size of three Manhattans, or about 1.5 times the size of Paris.
Hines, who has been developing data centers for more than 20 years, pivoted to a new business in just the last year. It now guarantees power and rights to hyperscale sites. This means on the ground mapping networks, negotiating with landowners and providing financial guarantees to network managers, who now demand it.
“The challenge is no longer about building walls. It’s about getting megawatts to the site,” said David Steinbach, global chief investment officer at Hines. “Hines is focused on this early work, laying the groundwork for AI before buildings are even constructed.”
Steinbach said energy-powered land has become an investable asset class in its own right because electricity rights themselves are rare and valuable. Once network connections and permits are secure, you have created a tradable asset with clear demand from hyperscalers and operators, he said.
Competition for energy-powered land is driven more by tech companies and energy producers than real estate developers, but Hines clearly doesn’t want to be left behind.
“Today, the smartest capital is not looking for square footage, but enabling computation,” Steinbach said, citing the recent agreement between Nvidia and Intel to co-develop chips for data centers and personal computers.Nvidiathe $5 billion bet on Intel isn’t just a chip market, it’s a seismic signal that AI infrastructure is the new oil. »
In August, Silver Lake, a global private equity firm focused on technology investing, along with Commonwealth Asset Management, a real estate and infrastructure investment firm, announced the launch of a motorized land platform for data center development. It will deploy $400 million in capital “to build a global portfolio of strategically located powered land sites to meet key, scarce needs to meet the growing demand for data centers,” according to a press release.
The platform currently operates and targets high-growth markets in the United States, Canada and the United Kingdom, where access to electricity is becoming increasingly scarce.
“This investment represents a long-term commitment to not only meet the immediate needs of AI-driven data center growth, but also to position the company as a leader in the future of digital infrastructure and a one-stop shop for fast-growing developers and hyperscalers,” Lee Wittlinger, chief executive of Silver Lake, said in the release. “Our innovative approach to land and power solutions, combined with our strategic relationships with key energy partners, will enable us to meet the changing demands of hyperscalers with a holistic and differentiated approach.
Data center hubs will now need to expand beyond already congested markets like northern Virginia and into the energy-rich regions of the Midwest and Texas. Hines’ research paper currently highlights big opportunities in Europe, where insufficient supply and growing demand could mean great potential for developers and investors. It also highlights the Middle East as an emerging market with growing potential as governments invest heavily in artificial intelligence, renewable energy and grid infrastructure.
This is not to say that this new concept of powered land is without challenges, including obtaining appropriate land, managing entitlement processes with local governments, and working with utility providers to secure sufficient commitments.
“It’s not just about technology,” Steinbach said. “This is a building cycle story that is reshaping how and where the real estate industry will grow for decades to come.”