Data Centres as Real Estate: Demand Drivers and Valuations

The Server Farm Is the New Shopping Mall

When Blackstone's Steve Schwarzman told investors in early 2026 that data centres now represent the firm's single largest real estate conviction, he meant it. Blackstone has committed more than $70 billion to the sector globally — a figure that would have seemed fantastical even three years ago. But the arithmetic is hard to argue with. Hyperscale data centre capacity worldwide is forecast to grow by 35% annually through 2028, according to JLL's latest infrastructure report, and the capital required to build it — McKinsey puts it at $500 billion over the next four years — must come from somewhere. Increasingly, that somewhere is the balance sheets of sovereign wealth funds, family offices, and private real estate vehicles concentrated in the Gulf and across emerging markets.

The question is no longer whether data centres qualify as real estate. They do. They trade on cap rates, require land entitlements and power infrastructure, and generate long-duration lease income from creditworthy tenants. The real question is how to value them — and who is best positioned to capture the yield.

Demand That Defies the Cycle

The demand thesis rests on three reinforcing pillars: artificial intelligence training and inference workloads, sovereign data localisation mandates, and the migration of enterprise IT from on-premise to colocation and cloud. All three have intensified in 2026. OpenAI's latest generation of models requires roughly four times the computational power of its 2024 predecessors, according to estimates from Bernstein Research. Microsoft's capital expenditure guidance for its fiscal year ending June 2026 runs to approximately $80 billion, the majority directed at data centre construction. Amazon Web Services has disclosed $100 billion in committed but unbuilt capacity. Let those numbers sink in.

Vacancy rates tell the supply-side story with brutal clarity. In Northern Virginia — the world's largest data centre market — available capacity fell below 1.5% in the first quarter of 2026, according to CBRE. Frankfurt, London, Amsterdam, and Paris are similarly constrained. But the most acute imbalances are showing up in secondary and frontier markets where regulatory frameworks now require data generated within national borders to stay there. India's Digital Personal Data Protection Act, fully enforced since mid-2025, has triggered a building spree across Mumbai, Chennai, and Hyderabad. Brazil's data sovereignty provisions are producing similar dynamics in São Paulo. Few outside the region have noticed.

The Gulf's Strategic Play

No region has moved more aggressively than the Gulf Cooperation Council states. Abu Dhabi's G42, backed by Mubadala and partnered with Microsoft, is developing a 200-megawatt campus in Masdar City that will serve as a regional AI inference hub. Saudi Arabia's NEOM subsidiary has announced a 300MW data centre zone integrated into Oxagon's industrial platform, with first-phase delivery expected in late 2027. The Public Investment Fund has taken direct equity positions in both Vantage Data Centers and EdgeConneX through its international real assets portfolio.

Then there's DAMAC. Dubai's DAMAC Properties, traditionally a residential and hospitality developer, committed $20 billion in January 2025 to building data centres across the United States. That is a significant shift. It signals the asset class has crossed from niche infrastructure into mainstream real estate development. Meanwhile, Etisalat's Khazna Data Centers, majority-owned by Abu Dhabi's ADQ, is expanding its Ajman campus to 100MW and exploring greenfield sites in Oman and Bahrain.

For Gulf sovereign wealth funds, the logic runs on two tracks. Data centres provide long-duration, inflation-linked income from tenants with investment-grade credit — precisely the profile that pension-like sovereign capital seeks. They also serve a strategic objective: positioning the Gulf as a global node in the AI supply chain, reducing dependence on hydrocarbon revenues through technological relevance. One bet hedges the other.

Family Offices and the Private Capital Wave

Beyond sovereign vehicles, single and multi-family offices across Asia and the Middle East are piling into data centres with mounting enthusiasm. Singapore-based family offices, numbering over 1,400 following the city-state's wealth hub expansion, have emerged as significant limited partners in data centre-focused funds managed by DigitalBridge, KKR, and Stonepeak. A January 2026 UBS Global Family Office Report found that 23% of surveyed offices with assets above $500 million had direct or co-investment exposure to data centre real estate, up from 9% in 2023. That trajectory is steep.

The appeal is structural. Powered shell data centres — where the landlord delivers building, power, and cooling but the tenant installs their own IT equipment — generate yields of 8% to 12% unlevered in primary markets, according to Green Street Advisors. In emerging markets where construction costs are lower and power is cheaper, those returns can exceed 15%. Compare this to prime logistics warehousing, the previous cycle's darling alternative asset, where cap rates in major European markets have compressed to 4.5% to 5%. The spread speaks for itself.

Several prominent families have moved beyond fund participation to direct development. The Olayan Group has partnered with Digital Realty on a 50MW facility in Riyadh. India's Hiranandani Group, through its Yotta Infrastructure subsidiary, is building a 20MW expansion at its Navi Mumbai campus funded entirely from family capital. These are not speculative punts. They are underwritten by pre-lease agreements with hyperscalers willing to commit to 10- to 15-year terms.

Valuation: Where Real Estate Meets Infrastructure

The valuation debate is among the most consequential in institutional real estate today. Traditional property metrics — net operating income divided by cap rate — capture the real estate component but miss the infrastructure premium. A stabilised 50MW data centre in a Tier I market might trade at a 5% to 6% cap rate as real estate, but the embedded power capacity, fibre connectivity, and cooling systems command a premium that pushes effective multiples to 25 to 30 times EBITDA.

Public market comparables offer some guidance. Equinix, the largest global data centre REIT, trades at approximately 26 times forward funds from operations. Digital Realty commands a similar multiple. But private market transactions in 2026 have been clearing at even richer levels. Brookfield Infrastructure's acquisition of a controlling stake in Data4 in late 2025 was reported at 28 times trailing EBITDA. DigitalBridge's take-private of Switch in 2022 at 27 times now looks prescient rather than aggressive.

The risk, naturally, is that this pricing assumes uninterrupted demand growth. Power constraints — particularly in markets where grid capacity has not kept pace with data centre applications — could throttle supply and create stranded development pipelines. Ireland, which imposed a de facto moratorium on new Dublin data centres in 2022, offers a cautionary precedent. Regulatory risk around energy consumption is rising in Germany and the Netherlands too.

Yet for investors with access to power — whether through Gulf desalination co-generation, Indian renewable energy credits, or US utility-scale solar partnerships — these constraints look less like a threat and more like a competitive moat. The data centre, once a grey box on the periphery of institutional portfolios, has become the defining real estate asset of the decade. The capital flows of 2026 make that point hard to dispute.