The Bisnow Weekender: Data Centers Have 99 Problems, But Demand Ain’t One
Thanks for reading the Bisnow Weekender, my personally curated roundup of the most impactful news, notable quotes, binge-worthy show recommendations and other colorful highlights from the Bisnow world of commercial real estate and beyond.
Data centers are drabby, located on the outskirts of town and easily forgotten.
But while those warehouse-style structures may not make your head swivel, they are integral to your “always online” life.
Just about everything you touch these days connects back to one of those unremarkable structures: your phone, laptop, gaming console, refrigerator, car, home security system, light switches, sound system — and even your toilet.
And that’s just inside your home. More broadly, data centers literally run the global economy these days, from high-volume e-commerce to multinational financial transactions to powering AI development to spurring cutting-edge research that is leading to humanity-redefining scientific breakthroughs.
They’re kind of a big deal. Just ask Nvidia CEO Jensen Huang, who announced to much fanfare last week that his firm tripled its quarterly revenue, anchored primarily by the 409% year-over-year growth of its global data center-specific segment.
“We’re at the beginning of this new era,” Huang told the World Government Summit in Dubai in February. “There’s about a trillion dollars’ worth of installed base of data centers. Over the course of the next four or five years, we’ll have $2T worth of data centers that will be powering software around the world.”
As Bisnow reported this week, Nvidia’s skyrocketing chip sales could have major implications for commercial real estate, as more chips for AI will translate into more data centers to house the computing equipment they power. In the U.S. alone, that could help push the data center market to $169B in value by 2032.
Earlier this month, OpenAI CEO Sam Altman challenged the world with a bold request. He wants foreign governments and investors to pony up $7T to pay for the infrastructure that will allow him to realize ambitious plans for semiconductor and artificial intelligence development.
That means more data centers — a lot more. But a big question looms: Can the industry deliver?
Headwinds are everywhere. Demand is significantly stronger than what can reasonably be delivered (“we’re not even close”). Sourced electricity to drive these facilities is depleting rapidly (“unprecedented times”). The cost of running a data center is skyrocketing by 20% in some markets. The environmental impacts of data centers are profound (“it’s going to be frustrating”). And the decades-long land grab to develop data centers is coming up against political pushback through NIMBYism (“Places that were previously supportive are now saying, ‘Well, maybe we really don’t want this’”).
Despite that, the data center market has been surging in the last decade at a whiplash annual rate of 10%. What happens next will determine if that can continue.
This week, JLL released a bullish assessment of North America’s data center future but cautioned that the industry’s trajectory could face some inertia.
“Is there any stopping this growth of data and in turn increasing demand for data center capacity? 2023 was yet another strong year for demand, but limited supply shifted the balance of power even further to data center providers.”
This status quo might be good news for developers who can keep rents high on the scarce supply, but data centers also happen to be one of the most important weapons in America’s battle with China for the top spot in the new digital economy.
Today, there is no more important place on earth for data centers than the U.S., but to remain the superpower, the industry must find a way to keep building.
— Mark F. Bonner, Bisnow Editor-in-Chief
The Best Of Bisnow News: Feb. 26-March 1
CEO Denies Avison Young Is In Distress, Says Firm Is Ready To Snag Top Brokers After Debt Restructure — Atlanta Reporter Jarred Schenke
Mark Rose, the chairman and CEO of Avison Young, says the Canadian commercial real estate services firm's months of financial uncertainty are behind it after reaching a deal to slash its corporate debt load by more than half.
An influx of capital coming with the deal, which is expected to close this month, will position Avison Young to grow again through hiring and acquisitions, Rose told Bisnow in an interview Saturday. While the firm's board of directors will shrink by more than half, Rose said the firm didn't have to reduce its headcount and has a clear financial path forward.
“The next report you should be hearing from us is what we're investing in, who we're hiring and who we're buying,” Rose said.
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Brokerage Firms Issue Notes Of Optimism After Year-End Improvements — Atlanta Reporter Jarred Schenke
Most firms managed to turn a profit in the final quarter of 2023, despite the continued fallout in both capital and leasing markets spurred by work-from-home and interest rate impacts. CBRE surpassed stock analyst expectations, Newmark tallied triple-digit growth in net income, and Cushman & Wakefield experienced a 5% increase in leasing activity.
The overall brokerage performances at the end of last year signaled that commercial real estate markets may finally be back on the upswing, Piper Sandler Managing Director Alexander Goldfarb said.
“The fact is that you’re seeing the debt markets slowly heal,” said Goldfarb, who covers Newmark as an analyst. “Barring some further major recession or something, we have bottomed out.”
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Ethereum Emerges As CRE's Preferred Crypto As Investor Interest Reignites — National Reporter Dees Stribling
As the erratic bad boy of the crypto world, bitcoin gets the glory and notoriety, but not wide acceptance by commercial real estate. As crypto's No. 2 entity, ether is a different story, quietly working its way into CRE.
Ether experiences less volatility than bitcoin, the stock price of which has whipsawed in the last five years, hitting a two-year high of more than $60K this week. Ether’s share price, meanwhile, reached over $3K this week, a 45% increase over last year.
In addition to being the more predictable of the two front-runners, ether is widely regarded as the best option for executing smart contracts, which are perhaps the most commonly used application of crypto among CRE professionals.
More Big News From The Week …
— Citadel’s New Real Estate Chief Sees A Return To A Different Kind Of Office
— Trump Must Pay $454M, Appeals Court Rules. Property Sales Are Likely Next
— Tyler Perry Puts $800M Studio Project On Ice After Seeing OpenAI's 'Shocking' Sora Model
My Slightly On/Off-Topic Media Diet
Dimon Says Commercial Real Estate Problems To Stay Contained If No Recession (Bloomberg): “‘If we have a recession, yes, it’ll get worse. If we don’t have [a] recession, I think most people will be able to muddle through this,’ he said. ‘Part of this is just a normalization process. [Rates] were so low for so long. If rates go up, and we have recession, there will be real estate problems, and some banks will have a much bigger real estate problem than others.’”
The Economy Is Roaring. Immigration Is A Key Reason (WaPo): “About 50 percent of the labor market’s extraordinary recent growth came from foreign-born workers between January 2023 and January 2024, according to an Economic Policy Institute analysis of federal data. And even before that, by the middle of 2022, the foreign-born labor force had grown so fast that it closed the labor force gap created by the pandemic, according to research from the Federal Reserve Bank of San Francisco.”
A Tech Billionaire Is Quietly Buying Up Land In Hawaii. No One Knows Why (NPR): "While the people of Waimea understand that [Marc] Benioff is behind the recent land purchases, hardly anyone seems to know his plans. Some guess he's building a Salesforce training center and moving in engineers; others say he's generously donating to the community and helping local schools. Most people just shake their heads.”
What Really Caused The Sriracha Shortage? 2 Friends And The Epic Breakup That Left Millions Without Their Favorite Hot Sauce (Fortune): “Tran has come to believe that Underwood was trying to drive him to bankruptcy, then steal his sauce business. ‘I helped him because he grew chili for me,’ he says. ‘He made money, he owned land. But it is not enough. He wanted to take over my business.’ It felt like being ‘stabbed in the back,’ adds Donna Lam, Tran’s sister-in-law and executive operations officer.”
After Shutting Down, These Golf Courses Went Wild (NYT): “A small number of shuttered golf courses around the country have been bought by land trusts, municipalities and nonprofit groups and transformed into nature preserves, parks and wetlands. Among them are sites in Detroit, Pennsylvania, Colorado, the Finger Lakes of upstate New York, and at least four in California. … The United States has more golf courses than McDonald’s locations and also has more than any other country, accounting for about 42 percent of all courses worldwide.”
NFLPA Player Survey: Dolphins, Vikings, Packers Voted Top 3 In Overall Grades, Commanders Worst (The Athletic): “Meanwhile, for a second straight season, the Washington Commanders received the lowest grades in the league while the repeat Super Bowl champion Kansas City Chiefs ranked 31st overall.” All I want to know is this: How do the New Orleans Saints, who play in one of the best food cities in the world, get a letter grade of F for their food?
Bisnow Weekend Interview Preview
Data centers are seeing record leasing demand, with record development pipelines set to double the number of global data centers within five years. As data centers thrive compared to other sectors of commercial real estate, the segment is drawing new investors and pushing development beyond the industry’s traditional markets. That’s good news for Jeff Uphues, CEO of data center developer DC Blox, a firm with a portfolio scattered across smaller markets in the Southeast.
The Atlanta-based developer spoke with Bisnow National Data Centers Reporter Dan Rabb about the flood of new data centers in the South, how AI is redrawing the data center map and what CRE pros dipping their toes into data centers need to know before taking the plunge.
Bisnow: There’s so much more interest in the data center space from across the CRE landscape than there was just a year or two ago, whether it’s new investors trying to fund new projects or developers from other sectors exploring moving into data centers. Are there any common misconceptions you regularly encounter or specific things that newcomers to the space need to understand?
Uphues: There’s a real art and a science to finding the next data center sites, and it really is finding a needle in a haystack. It’s not very easy. Just because you have large transmission lines near a piece of property and it looks like it’s flat and like you could build a data center there, that’s not always true. That’s something I hear all the time. People will come to me and say, “I’ve got this great site. It’s flat and it’s got power.” Well, how do you know it has power? Just because it has transmission lines next to it doesn’t mean it actually has available power. Is there a substation nearby, or do you need to build a substation? And then there’s the question of whether you have access to water on the site, if there are environmental issues or things you have to worry about with zoning. What’s the local tax incentive structure, and how close is the site to fiber networks? There are so many things that you have to investigate. It’s complicated.
The Weekend Interview goes live every Friday evening — head to www.bisnow.com over the weekend to check it out!
Jobs! Jobs! Jobs!
Here are this week’s top jobs over at Bisnow's careers platform, SelectLeaders. Reach out to SelectLeaders Managing Director Ryan Neale to learn more. You can email him at ryan.neale@bisnow.com.
President of Commercial Real Estate — Oversee and manage a geographically diverse commercial real estate portfolio (office, retail, industrial, data centers) for an Alaska Native Corporation.
Chief Financial Officer — Lead financial operations for a Beverly Hills-based, family-owned real estate investment company.
Vice President of Acquisitions and Development — Lead the evaluation and assessment of real estate acquisitions, divestitures and development for a prominent West Coast affordable housing firm.
Director of Asset Management — Oversee a prominent West Coast affordable housing portfolio.
Hey, Jon, What Are You Going To Binge This Weekend?
I got tickets weeks ago for the opening weekend of Dune: Part Two on Saturday and have been rereading the book in anticipation. My excitement has been rising like a sandworm about to emerge from the Arrakis desert. I’ve always been a big sci-fi guy, and Frank Herbert’s 1965 classic inspired generations of creators, including George Lucas. Denis Villeneuve’s first movie delivered on its promise. It was a visual masterpiece with a star-studded cast that left the viewer wanting more, and in Part 2 we’ll really get to see the interplay between Timothée Chalamet and Zendaya, who in Part 1 only appeared in Paul’s dreams and in the final scenes — plus there should be more big worms and action scenes. Part 2 has gotten rave reviews and is being hyped as the blockbuster of the year, providing a boost the theater industry needs, as this year’s movie lineup so far has been underwhelming. Like Paul Atreides’ visions, I see a range of potential viewing options for the rest of my weekend, but I’m in the playoffs for my fantasy basketball league so will probably watch a couple games.
— Jon Banister, Bisnow Deputy East Coast Editor
Upcoming Bisnow Events And Webinars
Tuesday, March 5 (Washington, D.C.): D.C. Office Repositioning Summit
Wednesday, March 6 (London): Life Sciences and Innovation Real Estate Annual Conference
Wednesday, March 6 (Tampa): Tampa Bay Area State of the Market
Wednesday, March 6 (Nashville): Bisnow Multifamily Annual Conference Nashville
Wednesday, March 6 (Houston): Houston Industrial Pulse
Thursday, March 7 (Dallas): National Data Center Power Capacity, Energy and Sustainability
Thursday, March 7 (Los Angeles): DTLA Commercial Real Estate State of the Market
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How did I do? You can send all love letters and dissents directly to me at mark.bonner@bisnow.com.
