The commercial real estate (CRE) sector has faced significant challenges in recent years, with high office vacancies, shifting work patterns, and economic uncertainty dampening demand. However, a powerful catalyst is emerging: the skyrocketing demand for artificial intelligence (AI) infrastructure, particularly data centers. As AI technologies proliferate, the need for robust computing power and storage is reshaping the CRE landscape, offering a pathway to recovery for a struggling industry. This article explores how the surge in AI-driven data center demand could revitalize commercial real estate, supported by market trends, economic impacts, and adaptive reuse opportunities.
The AI Boom and Data Center Demand
Artificial intelligence, particularly generative AI models like those powering ChatGPT and Grok, requires immense computational resources. Training and deploying these models rely on high-performance data centers equipped with specialized hardware, such as GPUs, and vast storage capacity. According to a 2024 report by Cushman & Wakefield, global data center demand is projected to grow at a compound annual growth rate (CAGR) of 11% through 2030, driven largely by AI and cloud computing. This surge is already translating into significant real estate activity.
Data centers are highly specialized facilities requiring large floorplates, robust power infrastructure, advanced cooling systems, and strategic locations near fiber-optic networks. Unlike traditional office spaces, data centers are less affected by remote work trends, making them a stable and growing segment of CRE. In 2024, North America alone saw over 3.5 million square feet of new data center construction, with markets like Northern Virginia, Dallas, and Phoenix leading the charge, according to CBRE Research.
Revitalizing Vacant Commercial Properties
One of the most promising aspects of the data center boom is its potential to repurpose underutilized commercial properties. Office buildings, retail centers, and industrial warehouses left vacant by shifts in work and consumer behavior are prime candidates for conversion into data centers. These adaptive reuse projects can breathe new life into struggling assets, reduce vacancy rates, and stabilize CRE markets.
For example, older office buildings in urban areas often have the structural integrity and floor space needed for data center conversions. While retrofitting can be costly—requiring upgrades to electrical systems, HVAC, and security—these projects are often more cost-effective and faster than ground-up construction. A 2023 JLL report highlighted that converting a 100,000-square-foot office building into a data center could cost 30-50% less than building a new facility, depending on the property’s condition and location.
Retail properties, such as shuttered malls, are also being reimagined. In 2024, a former Sears location in Atlanta was transformed into a 200,000-square-foot data center, illustrating how large retail footprints can meet the spatial demands of AI infrastructure. These conversions not only absorb excess CRE inventory but also attract high-credit tenants, such as tech giants like Amazon, Google, and Microsoft, which sign long-term leases, providing landlords with stable cash flows.
Economic and Market Impacts
The rise of data centers is creating ripple effects across CRE markets. First, it is driving demand for industrial and logistics real estate, as data centers require proximity to power grids and connectivity hubs. This has led to increased land acquisition and development in secondary markets like Columbus, Ohio, and Reno, Nevada, where land and power are more affordable. According to Newmark, data center leasing activity in secondary markets grew by 25% year-over-year in 2024, outpacing traditional CRE sectors like office and retail.
Second, the data center boom is spurring job creation and economic activity, indirectly supporting CRE. Construction of data centers generates demand for labor, materials, and ancillary services, while operational facilities employ engineers, technicians, and security personnel. These jobs stimulate local economies, increasing demand for nearby office, retail, and hospitality spaces. For instance, Northern Virginia’s “Data Center Alley” has attracted not only tech firms but also professional services and restaurants catering to the growing workforce.
Third, data centers are reshaping CRE investment trends. Institutional investors, such as pension funds and private equity firms, are increasingly allocating capital to data center assets due to their resilience and high returns. A 2024 report by Knight Frank noted that data centers yielded average returns of 8-10% annually, compared to 5-7% for traditional office properties. This influx of capital is stabilizing CRE portfolios and encouraging further development.
Challenges and Considerations
While the data center surge offers significant opportunities, it is not without challenges. The high energy consumption of AI-driven data centers—often 10-20 times that of traditional office buildings—strains local power grids and raises sustainability concerns. In 2024, utilities in markets like Arizona and Georgia reported delays in connecting new data centers due to insufficient power capacity. CRE developers must navigate these constraints by investing in renewable energy solutions or partnering with utilities to upgrade infrastructure.
Additionally, not all commercial properties are suitable for conversion. Older buildings with outdated electrical systems or insufficient ceiling heights may require prohibitive retrofitting costs. Zoning regulations and community opposition to data centers, often due to noise or aesthetic concerns, can also complicate projects. Developers must conduct thorough feasibility studies and engage with local stakeholders to ensure success.
A Path Forward for CRE
The demand for AI infrastructure and data centers is a transformative force for commercial real estate, offering a lifeline to a sector battered by post-pandemic shifts. By repurposing vacant offices and retail spaces, capitalizing on secondary market growth, and attracting stable, high-value tenants, data centers are driving a recovery that could redefine CRE’s future. However, realizing this potential requires strategic planning, investment in sustainable infrastructure, and collaboration between developers, tech firms, and local governments.
As AI continues to evolve, its impact on CRE will only deepen. For landlords, investors, and communities, embracing the data center boom is not just an opportunity—it’s a necessity to adapt to a tech-driven world. The recovery of commercial real estate may well hinge on its ability to power the AI revolution.
