Data Centres as Real Estate: Demand Drivers and Valuations

The Server Room Becomes the Boardroom's Favourite Asset

When Blackstone closed its $16 billion acquisition of QTS Realty Trust in 2022, it sent a clear signal about how institutional capital views data centres. Four years later, that bet looks prescient. Global data centre capacity is projected to exceed 35 gigawatts by the end of 2026, according to JLL's latest infrastructure report, and the asset class has migrated from the margins of institutional portfolios to the very centre. For family offices and private wealth managers across the Gulf and emerging markets, data centres now represent what logistics warehouses were a decade ago: a generational opportunity dressed in concrete and copper.

The Demand Equation: AI, Sovereignty, and the Cloud

Three forces are converging to make data centre demand structurally insatiable. The first is artificial intelligence. Training and inference workloads for large language models devour vast quantities of GPU-dense computing infrastructure. NVIDIA's supply chain partners estimate that AI-related data centre capital expenditure will surpass $250 billion globally in 2026, up from approximately $154 billion in 2024. Microsoft alone has committed over $80 billion to AI-enabled data centre capacity through 2026, with a meaningful share directed toward international expansion.

The second driver is data sovereignty regulation. More than 70 countries now enforce some form of data localisation law, compelling multinational enterprises and hyperscalers to build capacity in jurisdictions where they previously relied on cross-border data flows. That has been particularly transformative in the Gulf. Saudi Arabia's National Data Management Office mandates that certain categories of government and financial data remain within the Kingdom's borders. The UAE's evolving regulatory framework under the Telecommunications and Digital Government Regulatory Authority imposes similar requirements. These rules effectively guarantee a domestic tenant base for locally built facilities. No developer needs to spend much time on speculative leasing when the law does the marketing for them.

The third force is straightforward cloud adoption. Enterprise migration to public and hybrid cloud architectures continues at pace across the Middle East and Southeast Asia — regions where on-premise legacy infrastructure still dominates. Gartner forecasts that Middle Eastern IT spending on cloud services will grow at a compound annual rate of 22% through 2027, roughly double the global average.

The Gulf as a Global Data Centre Frontier

The Gulf Cooperation Council states have moved aggressively to position themselves as data centre hubs. Abu Dhabi's Khazna Data Centers, backed by Mubadala and Abu Dhabi Investment Authority subsidiary funds, is developing a 300-megawatt campus in the Masdar City free zone, with the first phase expected to be operational by Q3 2026. In Riyadh, the $500 million data centre campus being developed under the ROSHN Group's mixed-use mandate reflects Saudi Arabia's strategy of embedding digital infrastructure within broader Vision 2030 urban projects.

Qatar's Supreme Committee for Delivery and Legacy has repurposed portions of its World Cup infrastructure planning apparatus toward digital logistics, including cold storage and edge computing facilities near Lusail. Oracle, Amazon Web Services, and Google Cloud have all announced or expanded dedicated cloud regions in the Gulf during 2025 and early 2026, creating anchor tenancy demand that de-risks development for private investors. That is a significant shift.

What makes the Gulf particularly compelling for family offices is the alignment between sovereign wealth fund strategy and private capital opportunity. When PIF-backed entities co-invest alongside private developers, the risk profile changes materially. Gulf-based family offices — including those affiliated with the Al Ghurair, Olayan, and Al Rajhi groups — have reportedly allocated between 3% and 7% of their real asset portfolios to digital infrastructure plays, according to a 2025 survey by the Campden Wealth and KPMG Family Office Report. Few outside the region have noticed.

Valuation Frameworks: Where Real Estate Meets Infrastructure

Data centres sit uncomfortably between two valuation paradigms. Traditional real estate appraisals emphasise location, replacement cost, and capitalisation rates. Infrastructure valuations focus on contracted cash flows, weighted average lease terms, and regulatory frameworks. The market is converging toward a hybrid model.

In practice, stabilised Tier III and Tier IV data centres in primary markets trade at capitalisation rates between 4.5% and 6.0%, compressing from the 7.0% to 8.5% range seen as recently as 2021. For powered shell facilities leased to hyperscalers on 10-to-15-year terms with embedded escalators, cap rates can fall below 4.5%, approaching the pricing of core infrastructure assets such as regulated utilities. That compression tells you everything about where institutional appetite sits right now.

Equinix, the world's largest listed data centre REIT, trades at approximately 25 times forward funds from operations as of early 2026 — a premium to nearly every other REIT subsector. Digital Realty, its closest publicly traded peer, commands a similar multiple. For private market transactions, CBRE's latest data centre investment report records average deal sizes exceeding $400 million in the Asia-Pacific region during 2025, with Middle Eastern transactions still smaller in scale but growing rapidly in frequency.

The valuation variable that matters most remains power. A facility's contracted megawatt capacity, the cost and reliability of its electricity supply, and its power usage effectiveness ratio increasingly determine pricing more than square footage or geographic prestige. In markets such as Oman and Jordan, where electricity costs remain below $0.05 per kilowatt-hour, the operating margin advantage can add 200 to 400 basis points to unlevered returns compared with facilities in Singapore or Frankfurt. Cheap electrons beat prime postcodes.

Risks Worth Measuring, Not Ignoring

The asset class is not without hazards. Technological obsolescence, while slower than in other tech-adjacent sectors, remains a genuine concern. Liquid cooling systems are rapidly supplanting air-cooled architectures for AI workloads, and facilities built to legacy specifications may require costly retrofitting within five to seven years. Construction risk runs high, too. Global supply chain constraints on transformers, switchgear, and backup generation equipment have pushed lead times for high-voltage transformers beyond 18 months in many markets.

Concentration risk deserves equal attention. Many emerging market data centre projects depend on one or two hyperscale tenants. If a single anchor tenant consolidates its footprint or renegotiates terms, the hit to asset-level cash flows can be severe. Prudent investors are increasingly demanding diversified tenant rosters or securing sovereign-backed offtake agreements as a hedge.

Then there is water. Facilities relying on evaporative cooling in water-stressed Gulf climates face both regulatory scrutiny and community opposition. This is not a hypothetical — it is already shaping permitting timelines. Developers who invest early in closed-loop or air-based cooling systems will likely command a green premium from ESG-sensitive institutional co-investors.

The Allocation Case for Private Wealth

For family offices and high-net-worth investors, the allocation case rests on three pillars: inflation-protected income, portfolio diversification away from traditional real estate cyclicality, and exposure to secular digital growth without the volatility of public technology equities. The entry points vary. Co-investment alongside sovereign-backed developers in the Gulf offers risk mitigation and deal access. Fund structures managed by specialists such as DigitalBridge, Stonepeak, and EQT Infrastructure provide diversified exposure with professional operational oversight.

Data centres are no longer an alternative allocation. They are becoming a core real asset class. The investors who recognised this shift early — and priced the risks accurately — will likely find themselves on the right side of one of the most consequential revaluations in commercial real estate history.