“By far, the greatest danger of Artificial Intelligence is that people conclude too early that they understand it."
The paradox of data centers is that the world’s most measurable infrastructure operates inside one of real estate’s least understood asset classes. Capital is flooding in but valuations are guesswork and the investors funding AI’s physical backbone can not agree on what they’re buying.
During 2024, more than $450 billion was invested in data centers globally, a 50% increase from the prior year, and by 2029 some experts say annual data center investment will exceed $1.1 trillion. However, from 2020 to 2024, less than $10 billion of data center assets traded annually. Despite 5,400 operating facilities in the U.S., and nonstop development activity, the market has not yet determined how much a data center is worth.
Lacking sale data, three U.S. researchers turned to the public markets, examining some of the institutional characteristics of the asset class by delving into the performance of data center REITs. They found data center REITs provided a 1.9% average monthly return from 2000 to 2024, but that came with a stroke-inducing 22% standard deviation.1 Equity REITs, by comparison, earned 0.9% average monthly returns but at a far calmer 6.1% standard deviation. In fact, data center REITs outperformed by two times or more all the major real estate indexes and the S&P 500 during that period, but on a risk-adjusted basis trailed those metrics almost by half.
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