Data centers enter a power-constrained era for real estate developers

The data center sector has entered a defining moment marked by unprecedented demand and constrained power availability. Artificial intelligence, cloud expansion and enterprise digital transformation are accelerating at a pace that’s challenging the limits of existing infrastructure. As a result, the limiting factor is no longer capital or land—it’s power. 

As utilities face multiyear interconnection delays and many communities push back on energy-intensive projects, developers are rethinking how they structure deals, select sites, deploy capital and manage risk. 

In this environment, the way projects are executed will determine whether developers can secure power, stay on schedule and withstand the rising capital intensity of development. Success over the next couple of years will depend largely on early alignment with energy providers, designs that can support higher computing density and capital structures built to absorb delays.

Data centers: A sector defined by scale and scarcity

The sector’s rapid acceleration is reshaping the capital cycle, with data center investment moving into the realm of infrastructure. This surge reflects the strategic role that data computing capacity now plays in productivity and industrial competitiveness.

Roughly 92% of U.S. gross domestic product growth in the first half of 2025 was attributable to information-processing equipment and software, an eye-popping figure from Harvard University economist Jason Furman. 

Looking ahead, the Federal Reserve Board expects investments in U.S. data centers will rise to an annualized rate of $370 billion by the second quarter of 2026. The board’s data center investment forecast for 2027 ranges from $360 billion to $930 billion, depending on new project flow. 

As a result, developers are underwriting projects differently.

Square footage has become secondary to megawatts in data center development. In turn, capital planning revolves around access to energy, high-density cooling requirements and long-term adaptability in an environment where compute loads continue to escalate.

These dynamics are beginning to show up most clearly in the pipeline itself.

Development pipelines accelerate, but power dictates speed

The soaring demand for AI-related computing capacity has driven such a push for data center sites that development pipelines for the next two years are double the levels of prior years. Approximately $3 trillion in global investment will be required through 2030 as capacity nearly doubles. 

The capital requirements underscore the data center sector’s shift toward larger, more complex projects. Megacampus developments now carry budgets between $5 billion and $20 billion, while power procurement alone can require $50 million to $70 million up front. 

These thresholds are prompting more club joint ventures and multitranche debt structures, concentrating activity among developers with the scale and balance sheet strength to commit early.

Pipeline data highlights the pace of growth. CoStar projects its completions will rise from 33.5 million square feet in 2025 to 76.1 million square feet in 2026, followed by another 73.4 million square feet in 2027. Much of this expansion is propelled by big tech self-build programs, which continue to influence regional grid planning and construction sequencing. 

Geographic markets also carry unique pressures for their gain. For example, while Virginia remains an established hub, three-to-four-year interconnection delays in northern Virginia, as well as in Atlanta, are pushing developers toward markets with faster utility timelines. 

Texas has emerged as the leading alternative, according to data from JLL, a global commercial real estate services and investment management firm. JLL projects Texas will capture 30% of the U.S. market by 2028 and is on track to become the world’s largest data center market by 2030, with 6.5 gigawatts of capacity now under construction.

For middle market participants, these shifts require evaluating markets not only by demand but by speed to energization, which increasingly determines competitiveness.

Utilities, regulation and the rise of power-independent solutions

Utility constraints are shaping construction timelines as much as permitting or financing are. To shorten schedules, developers are exploring behind-the-meter options, such as natural gas generation paired with storage. 

Some are moving fully off-grid with power-independent designs to bypass multiyear delays. However, this introduces new layers of diligence requirements, including fuel reliability, emissions, regulatory review and long-term cost stability. 

Meanwhile, many local governments are pushing back on tax incentives, imposing moratoriums and signaling policy fatigue. Energy strain, land use concerns and affordability pressures are souring public sentiment in some cases. 

These dynamics increase the importance for developers to engage early with utilities, municipalities and community stakeholders.

Capital intensity, exit dynamics and a maturing data center ecosystem

Development risk today is dominated by power delivery, capital intensity, supply chain bottlenecks and tenant concentration. Any delay in energization can unwind a hyperscale lease and materially reduce asset value.

As a result, exits have shifted away from traditional sales toward structured refinancings and securitizations. Commercial mortgage-backed securities (CMBS) and single-asset single borrowers have become primary liquidity channels for stabilized hyperscale facilities.

Market evidence indicates buyers are willing to pay premiums for energized megawatts, interconnected ecosystems, creditworthy tenants and multi-gigawatt scale. Recent examples include QTS’s $3.46 billion CMBS issuance, the $40 billion acquisition of Aligned Data Centers, and a record $61 billion in global deal activity.

This reflects a key challenge for investors: navigating a dual-track strategy to capture scarce opportunities in core markets while selectively entering emerging power-rich regions.

Navigating value, flexibility and risk in a power‑constrained market

For middle market developers, contractors and investors, the data center boom presents both a rare opportunity and a materially different risk profile compared to prior real estate cycles. One of their greatest challenges is understanding how to identify real value in real estate tied to the AI boom. 

This includes taking a more nuanced view of long-term adaptability, particularly since facilities designed for today’s AI-intensive loads may not align with the broader tenant universe in future cycles. Owners should design modular cooling and phased power to maintain “next user” optionality and limit exit cap penalties. Again, power availability—not capital or land—is the gating factor. 

Success in 2026 will be driven less by headline demand and more by execution at the project level—securing power early, controlling construction timelines and structuring capital stacks that can withstand interconnection delays and cost overruns.

Unlike scaled hyperscale players, middle market participants must be especially disciplined in site selection, design standardization and phasing strategies to preserve flexibility and protect returns.

As data centers continue to blur the line between real estate and infrastructure, those that approach development with a construction-first mindset—prioritizing energized capacity, deliverability and long-term adaptability—will be best positioned to compete, partner and ultimately exit successfully in an increasingly power-constrained market.