Get Smart. Get Fast. Get Competitive. Here's How Data Center Brokers Work In CRE's Hottest Asset Class

As data centers have morphed from a few floors in a mixed-use building to customized, football field-sized nodes of computing technology, so has the job of the specialized corps of brokers who sell server space.

The massive explosion in demand, fueled by changes in computing and the wave of interest in artificial intelligence, has radically changed the business of leasing data center space. Brokers now find themselves racing to develop technical knowledge, to find and close deals in a cutthroat environment, and to beat Big Tech firms seeking their own spaces and servers.

“We’re now seeing companies get 18 months to three years ahead of their demand schedule, which is unprecedented,” CBRE Vice President in the data center solutions group Jennie Karnes said. “We’ve gone from a just-in-time industry to having to pre-commit two years in advance.”

Long a niche sector in the commercial real estate world, data center brokerage is one that more and more CRE professionals want to enter. But it’s also a challenging role that requires deep-seated technical knowledge, arguably beyond what one needs for lab and life sciences. 

Everything has gotten bigger. In the early 2000s, a two-megawatt data center transaction would be considered huge, said JLL Managing Director of the U.S. Data Center Markets team Andy Cvengros. Now, he’s seeing some single deals hit 172 MW.

The sheer volume of capital in the space is staggering in comparison to when he started two decades ago. Even prepandemic, some brokers might have augmented their data center work with side business in industrial or office. Not anymore. 

“In even just the last six to eight months, requirements have gone from cloud sites that needed 40 acres and 100 MW to AI deployments that are looking for 800 acres and a gigawatt-plus,” he said. “We’d never seen that before, and those deals are just starting to get closed. It means looking anywhere and everywhere for high-powered land and how to procure it.”

Bigger deals have meant more complications, including more vetting of tenant finances, timing guarantees on under-construction projects and more elaborate technical requirements. It also means bigger commissions — to the point that there’s been some talk of and pressure to lower commission rates, Cvengros said. But the volume and size of today’s deals mean brokers haven’t seen a significant change in their compensation during the current upswing.

“We’re having a decent year this year, but the projects are getting bigger and harder to implement,” he said. “But as the power situation worsens, it’s something that could decrease in a year or two.”

In addition to understanding the unique technological needs of clients, brokers representing data center tenants engage in typical job roles, such as managing the site selection process and lease negotiation, as well as helping figure out tax incentives and power availability, a crucial bottleneck impacting the entire industry. 

Early in the industry’s existence, many brokers just found themselves working in data centers, Cvengros said, having pivoted from working in tech or telecom for firms like Verizon or AT&T. Now, there’s a cadre of experienced brokers, meaning that anybody trying to transfer their skills needs to rapidly pick up the intricacies of servers and microchips. 

“You see a lot of people in office and industrial try to get into data centers and ultimately never learn the technology side of the business,” Cvengros said. “The ones who've been really successful, just in terms of tenure, came from more of a technology background.”

He sees his role as that of a consultant, with technology, risk, compliance, operations and security all key to making any deal work. He has to be able to speak those languages and negotiate with corporate players in all those fields, ultimately understanding how the infrastructure and technology meet a larger business need. 

This is a landlord’s market, Karnes said. Enterprise companies that require multimonth internal approvals for deals often find themselves losing opportunities because other tenants will contract and move faster. This is putting a lot of new pressure on Karnes and her team, giving them new challenges in terms of leasing speed that they haven’t faced before.

Providers will negotiate for months with a potential tenant without exclusivity, so others can swoop in and take the space. Even commercial proposals now expire in 30 days, creating a rush to close before the contract, and prices, reset.

Karnes, who earned a master's degree in business administration and spent a decade at a law firm, entered the data center industry when “everybody went down to the data centers and you hung out with site staff and the engineers.” It’s helped her Silicon Valley-based practice, which serves clients globally.

It’s part of what she still loves about the job. She’s using her expertise to find the right fit for a firm and give them the right bespoke solution instead of “selling her own company’s wares.” 

Talking the talk and understanding the technical needs of a client, a kind of consultative understanding of computing, only helps if you can find a space to lease. Skyrocketing demand and utility power constraints mean brokers and their teams spend extensive time scouring the market for potential sites.

The lack of available supply means deals need to move quickly, and brokers need to be strategic about the potential to upgrade older or second-tier sites to meet tenant needs on tight deadlines. 

Karnes said that despite the rabid demand for space, she can find herself telling a client to slow down. The heated nature of the market, with data center providers being exercised by consultants, brokers and end users every single day, means clients can feel rushed into a deal.

It’s important to step back, pause and find the right fit. Many new facilities are completed and preleased, so what’s available — often second or third-generation space that's coming back to the market — needs to be augmented and retrofitted, a technically challenging task. 

“There's so many different factors other than just keeping up on availability,” Karnes said. “It’s really understanding those individual data centers, and the resiliency and redundancy of the design, and the ability to cool the higher power density requirements that are coming out right now.” 

Cvengros recently began working with a Fortune 50 client in Chicago looking for a few megawatts. Just a few years ago, he’d be able to show more than a dozen top-tier sites, run by operators who would bend over backwards to sign a new tenant. Now, he’s only able to tour aged, antiquated facilities that never would have been chosen in the past. 

It is also challenging facing Big Tech firms, which tend to have their own brokers and make their own land and lease deals.

“The Amazons and the Microsoft of the world are digging up farmers’ phone numbers to try and get a hold of them without using brokers,” North American Data Centers Managing Principal Jim Kerrigan said.

The boom has also come with more potential players looking to cash in, meaning more time spent weeding through pointless proposals. Cvengros finds himself parsing calls from farmers looking to offload acreage or strip mall owners thinking they can become data center developers.

Even some general investors seek out land buys they think they can turn into the next data center megadeal. Even more than before, he prefers working with established developers.

Cvengros said he’s seeing a lot more young talent enter the data center brokerage world. His office in Chicago just hired three young brokers. In addition, a lot of industrial brokers see opportunity in the land sales aspect of the business, making a relatively easy pivot from factory and warehouse sales to scouting and selling space to developers. But while the tenant side may promise more deals, it requires a more data-centric approach. 

“I'd say those who are trying to get in on the tenant side, it tends to not work out unless they're all-in,” he said. “You need to be all-in on how to support a client, how to track this stuff, how to manage those transactions, because they're not the same at all as other sectors.”