Data Center Sector Continues Growth in 2025
One thing to know about data centers is that it’s an expanding commercial real estate sector. Another is that the growth will continue in 2025.
JLL’s just-released “2025 Global Data Outlook” says that the international data center market is forecast to have a compound annual growth rate (CAGR) of 15% through 2027. But that’s just the baseline. “(There is) upside potential for a 20% CAGR through 2027,” according to the report.
“The eye-opening part of this is the sheer scale and pace of the growth that is coming in the industry,” Kristen Vosmaer, managing director of Data Center Work Dynamics, JLL, told Connect CRE. “We’ve been anticipating it, but there have been several unknowns in terms of timing and technology.”
The report noted that increasing artificial intelligence usage and more powerful graphics processing units continue to drive data center demand. Other issues impacting the sector include the following.
Power Grids
While the necessity of greater power usage to fuel these data centers is an ongoing concern, the JLL report noted that “data centers will only represent about 2% of global electricity consumption in 2025.” At the same time, “the increase in data center electricity demand through 2030 is projected to be less than a third of the increased electricity needed for both EVs and air conditioning.”
But as the demand for electricity for multiple industries ramps up, power solutions need to be found. The report pointed out that data center developments could be delayed for up to four years as power transmission challenges grow. On the other hand, alternatives like nuclear power are returning to the narrative. This is the case for small modular reactor (SMR) agreements. The report said the SMRs can provide power from 1.5 to 300 MW.
“The greener, robust nature of SMRs is very attractive and can solve a broader power infrastructure challenge,” Vosmaer noted. However, the technology is still in its early stages. There are also other challenges.
“The hurdles in terms of technology, regulation and public perception are significant,” Vosmaer said. “Supply chains for this type of power solution is also an unknown, for now.”
Capital Markets
The report observed that investor interest in data centers will remain robust through next year, with development likely in record territory. On the development financing end, approximately $170 billion in asset value will require either development or permanent financing in 2025.
Carl Beardsley told Connect CRE that technical attributes and large deal size have put a damper on data-center lending in the past. “Historically, there were a handful of lenders that would be involved on the large data center construction deals, but that has been increasing as more lenders are looking for ways to get exposure,” said Beardsley, U.S. Data Center Leader, Capital Markets, JLL. Furthermore, he added that specific lenders focus on data center financing as a specialized niche.
This isn’t to suggest that a developer can walk into their friendly neighborhood bank and ask for a multimillion-dollar loan to build a data center. Beardsley said that infrastructure and commercial real estate banks and debt funds tend to be the typical construction lenders for this field. “For stabilized product looking for long-term financing, the ABS (asset-backed securities) and CMBS/SASB market (commercial mortgage-backed securities/single asset-single borrower) is the most common execution,” he added.
Cooling Technologies
Another potential challenge in data center development involves cooling processes to prevent overheating. The report pointed out that this has “sparked a new wave of innovation, from the development of more energy-efficient chip architectures to advanced liquid cooling systems. “
Vosmaer said air-cooled technology will continue to be part of the overall data center operations strategy. However, “supply on the GPU side is already implementing liquid cooling in turnkey solutions,” he added. “Facilities need to be ready to maintain these new systems and manage to a different set of service-level agreements versus room temperature and humidity.”
Another form of cooling—immersion cooling—is in the planning stages, though it is a few years away from implementation. The report noted that immersion cooling developments will likely be concentrated in AI facilities and “requires a shift in structural design.”
