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As Hyperscalers Like Nvidia, Amazon, google and meta More and more data center projects are being announced, and the cry for a bubble is growing. Some say the sector has already begun to overbuild in a market that is still in its infancy and has many unknowns ahead. There are also concerns that financing some of these projects is risky.
Andy Power, CEO of Digital Realty, the world’s second-largest data center REIT, says just the opposite.
Mr. Power has been with the company for 25 years and said he is not concerned about overconstruction in the area.
“Based on actual demand from actual customers with actual long-term 15-year contracts, we are not currently in an oversupply situation,” he told Property Play.
The global data center sector is poised to continue its unprecedented expansion, with capacity expected to nearly double from 103 GW to 200 GW by 2030, according to a new outlook from JLL. Of course, this is being driven by artificial intelligence, which JLL says is rapidly reshaping the data center landscape. The real estate research firm predicts that AI workloads will account for half of all data center capacity by 2030. He also said that “real estate indicators do not indicate a bubble.”
In fact, JLL predicts that growth in the sector will require up to $3 trillion in total investment over the next five years. This includes $1.2 trillion in value creation for real estate assets and approximately $870 billion in new borrowing. The report calls this the infrastructure supercycle.
Matt Landek, Global President, Data Center and Critical Environments, JLL, said: “The scale of demand is extraordinary. Hyperscalers are allocating $1 trillion in data center spending between 2024 and 2026 alone, while supply constraints and four years of grid connection delays are creating a perfect storm that is fundamentally reshaping how we approach development, energy procurement, and market strategy.”
JLL predicts that AI workloads could account for half of all data center capacity by 2030, compared to about 25% in 2025.
Digital Realty’s Power’s outlook is more fundamental. He said the sector is simply built on technology trends with long tailwinds, such as cloud computing and digital transformation.
“Are there going to be ups and downs along the way? I’m sure there will be,” Power said. “But these are multi-trillion dollar companies that have real cash flows and are investing in this innovation. And those of us in digital centers and data centers in particular are trying to do that in a long-term durable way that protects us and serves the needs of everyone in the region.”
Power also said the real estate side of the AI arms race is less risky than hyperscalers themselves.
“We see that our strategy and the actual infrastructure and physical infrastructure that we invest in has tremendous protection against shocks of all kinds. We’re essentially in a situation where demand far outstrips supply, so speculative data center construction just can’t be built fast enough for our customers,” Power said, adding that Digital Realty’s vacancies are the tightest they’ve ever been.
As with all real estate, Mr. Power pointed out the location. Digital Realty invests in regions where workloads require data, including Northern Virginia. Chicago; Dallas; and even Singapore, Tokyo, Frankfurt, Germany, and even London, he said, are “closer to eyeballs, closer to consumption, closer to devices.”
However, on the funding front, Starwood Capital Group Chairman Barry Sternlicht and others have expressed concerns.
“What we are focusing on now is the creditworthiness of tenants, especially oracleBecause Oracle is backing all of these transactions with Chat (GPT),” Sternlicht said on the Property Play podcast in November. “And Chat is a startup that doesn’t make money and needs hundreds of billions of dollars to grow to the scale it wants to.”
Power pointed out that all the companies involved, including Oracle, have a lot of business outside of AI, and all (with the exception of Oracle) want to own their own real estate. Currently, we own about half of the data centers.
“They don’t believe they can escape this lead in the market,” he said.
