A service road near the site of potential AI data centre 'Wonder Valley' in the district of Greenview, Alta. (Kelsey McMillan/The Globe and Mail)Kelsey McMillan
Artificial intelligence is reshaping the global real estate market at a speed few expected, and real estate investment trust (REIT) managers are assessing how unprecedented demand for data centres will affect asset values, power availability and long-term risk.
The surge is being driven by large tech companies pouring extraordinary amounts of capital into AI infrastructure. In a recent white paper, Hazelview Investments Inc. notes that global data centres have increased their market share within the REIT universe by 80 per cent since 2022.
Samuel Sahn, Hazelview’s managing partner, says the financial firepower behind this shift sets it apart from earlier technology cycles.
“What makes now different is the fact you have companies … that are very strong financially pouring hundreds of billions of dollars to grow a technology whose goal is to enhance productivity, enhance economic growth overall, and it’s going to lead to stronger profitability down the road,” Mr. Sahn says.
Recent earnings illustrate such momentum with large tech companies, including Meta Platforms Inc. META-Q, Microsoft Corp. MSFT-Q and Amazon.com Inc. AMZN-Q, forecasting large increases in capital expenditures and data centre power capacity.
Hazelview began increasing its exposure to data centres well before AI became a dominant market force.
“We’ve had significant investments in that segment of the real estate market for the better part of the past three to five years,” Mr. Sahn says.
Dennis Mitchell, chief executive officer and chief investment officer at Starlight Capital in Toronto, says the firm isn’t chasing the AI theme directly, but instead is examining what’s driving performance inside the real estate businesses already in its portfolio.
“You want the companies to be performing, and then you want to investigate to understand why,” Mr. Mitchell says. “So, in the case of AI, it touches data centre REITs, it touches cell tower REITs, and now, increasingly, it touches industrial REITs.”
Mr. Mitchell says about 16.5 per cent of his portfolio has direct or secondary exposure to data centres, including three tower REITs and two industrial REITs. One of the names he highlights is Goodman Group of Australia, which is building out a network of data centers globally.
He also sees opportunity in secondary global markets where power availability is more favourable. Mr. Mitchell points to Mumbai, Madrid, Lisbon, Dubai, Warsaw, Stockholm, Berlin, Helsinki and Munich as emerging centres where industrial infrastructure and ample electricity make data centre expansion more feasible than in many North American locations.
Overbuilding in the market is a concern, Mr Mitchell says, but he believes these worries are often overstated.
“There’s less risk of overdevelopment in data centers,” he says, arguing the economics of data centre development create a natural constraint. “There’s a bigger risk of overpromising than there is of actual overdevelopment.”
San Jose, Calif.-based Bloom Energy Corp. BE-N has also emerged as a surprising winner from the AI build-out, and Mr. Mitchell points to the company as proof of how power technology names are being revalued as data centre demand accelerates.
“If you want to see a name that has actually delivered on that promise, you can take a look at Bloom Energy,” he says.
A major turning point came in October, when Brookfield Asset Management Ltd. BAM-T agreed to invest up to US$5-billion to deploy fuel cells built by Bloom to power data centres for AI.
In Canada, power supply is the main challenge for building data centres. For example, in Ontario and British Columbia, data centres would be connecting to a government-regulated grid, so power availability becomes a “choke point,” says Kevan Gorrie, president and chief executive officer at Granite REIT Inc. GRT-UN-T. “That has an impact on land values and development costs.”
The head of infrastructure at Stockholm-based EQT Group, Masoud Homayoun, met with Prime Minister Mark Carney and Finance Minister François-Philippe Champagne last week as part of a Swedish delegation to Canada. The company may be pursuing data centre investments.
Infrastructure projects in Canada have sometimes been hampered by “limitations in terms of power access and permitting,” Mr. Homayoun told The Globe and Mail, “but we’re working through those to see if we can expand in that area.”
In other places, such as Texas, large data centre projects are being developed as self-powered hubs, Mr. Gorrie says. “They will operate independently, and they’ll use a combination of natural gas, solar, wind and even green hydrogen.”
Granite remains primarily a logistics-focused company, but Mr. Gorrie says data centre development or conversion is becoming a part of its strategy when a site can support higher power loads. The firm has already converted one high-power industrial asset to data centre use, demonstrating how existing buildings with strong electrical infrastructure may offer development potential.
“It all comes down to access to power,” he says.