News
Major real estate developers are fast becoming power brokers
Aerial view of the Apple Data Center in Mesa near Phoenix, Arizona, U.S. on August 6, 2017. Picture taken on August 6, 2017. Apple plans to build its second data center in China at Ulanqab City in the Inner Mongolia Autonomous Region.
Jim Todd | Reuters
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The sudden surge in demand for data is fast creating new commercial real estate sectors – not just data centers, but so-called quantum real estate and powered land.
The former refers to structures designed to house specialized quantum computers. The latter is land prepared and ready for data center operations, with a focus on obtaining a reliable and sufficient power supply. That land would have to be secured with the permits, utility commitments and infrastructure needed to deliver power to a data center.
There are currently about 20,000 acres of powered land sitting under operational data centers around the world. Roughly 40,000 acres of powered land, almost 2 billion square feet, are needed to support current projections for data center growth over the next five years, according to a new research paper from Hines, a global real estate investment manager. That’s equivalent to just under the size of three Manhattans or about 1½ times the size of Paris.
Hines, which has been developing data centers for more than 20 years, has pivoted to a new business in just the past year. It is now securing power and entitlements for hyperscale sites. What that means on the ground is mapping grids, negotiating with landowners and providing financial guarantees to grid operators, who now demand it.
“The challenge isn’t building walls anymore. It’s getting megawatts to the site,” said David Steinbach, Hines’ global chief investment officer. “Hines is focused on this front-end work, making land AI-ready before the buildings even rise.”
Steinbach said powered land has become its own investable asset class, because power rights themselves are scarce and valuable. Once grid connections and permits are secured, you’ve created a tradeable asset with clear demand from hyperscalers and operators, he said.
The competition for powered land is being led more by tech companies and energy producers than real estate developers, but Hines clearly doesn’t want to be left behind.
“The smartest capital today isn’t chasing square footage — it’s enabling computation,” said Steinbach, citing the recent Nvidia deal with Intel to co-develop chips for data centers and personal computers. “Nvidia‘s $5 billion bet on Intel isn’t just a chip deal, it’s a seismic signal that AI infrastructure is the new oil.”
In August, Silver Lake, a global private equity firm focused on technology investment, along with Commonwealth Asset Management, a real estate and infrastructure investment firm, announced the launch of a powered land platform aimed at data center development. It will deploy $400 million of capital “to assemble a global portfolio of strategically located powered land sites to address the key scarce input in meeting the escalating demand for data centers,” according to a news release.
The platform is currently operating in and targeting high-growth markets across the U.S., Canada and the U.K., where power access is becoming increasingly scarce.
“This investment represents a long-term commitment to not only meeting the immediate needs of AI-driven data center growth but also positioning the company as a leader in the future of digital infrastructure and a one-stop shop for rapidly growing developers and hyperscalers,” said Lee Wittlinger, managing director at Silver Lake, in the release. “Our innovative approach to land and power solutions, combined with strategic relationships with key energy partners, will enable us to meet the evolving demands of hyperscalers with a holistic, differentiated approach.”
Data center hubs will now have to expand beyond already crowded markets like northern Virginia and into power-rich regions in the Midwest and Texas. Hines’ research paper points to big opportunities right now in Europe, where undersupply and growing demand could mean big potential for both developers and investors. It also highlights the Middle East as an emerging market with growing potential as governments there invest heavily in artificial intelligence, renewables and grid infrastructure.
This is not to say that this new concept of powered land is without challenges, including securing the appropriate land, managing entitlement processes with local governments, and working with utility providers to obtain sufficient commitments.
“This isn’t just a tech story,” said Steinbach. “It’s a building cycle story reshaping how and where the real estate business develops for decades to come.”
