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Here’s a dispatch from our wacky modern economy: Spending on data centers in the U.S. cleared spending on new offices for the first time in December of last year.
Big tech’s need for all that compute and storage drove $3.57 billion in data center construction through last year, compared to $3.49 billion for offices, reports Bloomberg. That trend has pushed big real estate firms like Brookfield and KKR to invest heavily in data center production, rather than paying for ad campaigns that celebrate coming into work instead than staying home in sweatpants.
It’s true that remote work has disrupted new office construction, as demand has slipped while the need for data centers skyrockets. Andy Cvengros, the co-lead of U.S. data center markets for the brokerage Jones Lang LaSalle told Bloomberg that because AI is automating even more white-collar jobs, the trend may “perpetuate itself.”
“It’s going to directly impact the amount of office space people need,” he said.
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Hyperscalers, or big tech companies like Microsoft, Meta, Amazon, and Apple have collectively sank billions into data center construction over the last few years. But some local communities are pushing back at all this real estate going to computers, rather than people. They consumer vast amounts of power, and local residents in various municipalities across the U.S. and Canada have sued to stop construction, as they worry it will increase their utility bills or impact the availability of drinking water. Over 25 projects were stopped last year after residents complained, per Heatmap.
Large data centers can consume over 5 million gallons of water per day, according to the New York Times. For investors, the picks-and-shovels play is interesting. Companies like Vertiv or Schneider Electric provide the plumbing — the cooling system and power modules that make these centers tick. And as both enterprise and consumer adoption of chatbots rises, so will data center demand.
But also, watch for NIMBYs. There are very real concerns on the social and environmental implications of this data center construction. That could be a sticking point, especially as more energy flows to power data centers and away from local communities. There are real bottlenecks to watch out for.
The trend, though, is clear: For decades, real estate capital flowed to housing people, at desks, on their computers in big, glass towers. Now, capital is cutting humans out of the equation.
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