Digital infrastructure: asset hype or the foundations of the future?

COMMENT For decades, core real estate investments have been dominated by office buildings, retail centres, residential properties and industrial spaces. These core categories were seen as stable, income-generating assets that could weather economic cycles and offer investors predictable returns. However, in recent years, a new contender has emerged: data centres. The rapid growth of cloud computing, e-commerce, AI and streaming services has driven unprecedented demand, establishing data centres as a core asset class underpinning the economy – no longer a specialised investment. Data centres have a foundational role in the modern economy. Data is as essential as electricity or water, and data centres are the facilities that store, manage and protect this resource. Fiction versus fact Consider Kao Data, a UK data centre operator known for high-performance, environmentally conscious facilities. Previously, its campus in Harlow, Essex, may not have seemed an obvious core asset. Now, its appeal is undeniable, exemplifying the broader market trend that this critical national infrastructure is here to stay. In science fiction novels, cities ran on humming machines hidden in industrial zones, where technology quietly powered society’s needs. Today, data centres – digital fortresses – are reshaping Europe’s real estate market, turning yesterday’s forgotten properties into today’s prime assets. The definition of “prime” in real estate is changing fast, and nowhere is this shift clearer than in the rise of data centres across the UK and Europe. As the demand for data grows, so does the demand for the right kind of space to house it. Furthermore, data centres offer investors something particularly valuable: resilience. They are less affected by economic downturns than traditional core assets such as retail and office spaces, which are highly susceptible to changes in consumer behaviour and work patterns. The Covid-19 pandemic highlighted this resilience, as demand for digital services skyrocketed and data centres became even more critical. One of the hallmarks of core real estate investments is stable, long-term income. Data centres deliver this through long-term leases with high-quality tenants, including big tech, financial institutions and healthcare providers, who have a vested interest in staying put. Moving data centres is not as simple as changing office space; it involves re-establishing critical infrastructure and can risk significant downtime. In many ways, this relationship resembles the stable, long-term leases associated with core assets in office and industrial real estate. Once the domain of specialised REITs and tech-focused funds, data centres are now drawing interest from broader spheres: institutional investors and sovereign wealth funds looking for stable, high-performing assets. According to JLL’s European Data Centre Report, data centre investment in Europe has reached unprecedented levels, with Frankfurt, London, Amsterdam, Paris and Dublin seeing significant activity. These markets are attractive owing to their proximity to major tech and finance hubs, as well as their regulatory environments, which are conducive to both growth and sustainability. Wizardry and alchemy Data centres, with their intricate ecosystems of servers, systems and networks, embody an alchemy of technology and infrastructure that goes beyond conventional real estate. These facilities require a blend of technical knowledge and strategic foresight to be successfully managed, and the wizardry to balance the power, cooling, connectivity and cybersecurity requirements which shape the operational integrity of this critical infrastructure. This alchemy explains why discerning investors appreciate that navigating the world of data centre investments requires collaboration with established experts who can transform complexity into advantage. This is just the beginning of an AI-driven boom that shows no signs of slowing down. For real estate investors, the parallels are striking: data centres offer secure revenue, reminiscent of traditional core assets, but are resilient and future-centric, offering growth potential like no other sector. The land that can facilitate the AI boom is fast becoming prime real estate and, for the firms willing to leverage their conviction and invest in data by partnering with the right expertise, now is the time. David Bloom is chief executive of Goldacre Photo © Goldacre