Data Centers in an AI-Driven Era: Key Trends Reshaping Valuation

The data center sector is shifting into a fundamentally different phase of growth – with significant implications for commercial real estate (CRE) valuation. Historically, appraisers borrowed from industrial valuation logic to value data centers, weighing variables such as rent per square foot, stabilized net operating income (NOI) and cap rates derived from a limited set of comps.  

But the AI revolution has upended this paradigm, as infrastructure requirements and power demands have highlighted this asset type’s reliance on power as its primary value driver. In today’s market, investors are effectively underwriting megawatts (MWs), replacing the “sticks and bricks” approach. Income models are now normalized around power: dollars per kilowatt per month. Institutional investors are swiftly increasing exposure to digital infrastructure. Between January and August 2025, there were 42 data center transactions with an aggregate value of nearly $13 billion, according to Preqin. That’s on top of the $52 billion in transactions in 2024. North America accounted for half of the deals, followed by Europe (26%), Asia (12%) and the rest of the world (12%).  

In just one example of investor activity in the space, Principal Financial raised $3.6 billion for its Data Center Growth & Income fund in February 2025, aiming to invest in hyperscaler facilities in partnership with Stream Data Centers, throughout the U.S. The results are robust: Data center REITs saw growth of more than 21% in year-over-year funds from operations (FFO), and a 7.2% gain in NOI in 1Q 2025, according to Nareit. 

A Shift in Leasing Variables from Tenant Diversification to Power Assurance 

A key data center development variable is secured power capacity via power purchase agreements, or PPAs, which can take from 12 to 36 months, depending on equipment backlogs, transmission upgrades and transformer availability constraints. Other variables include MW-driven pricing, CPI-linked escalations and take-or-pay structures. Power and utility providers have responded to the intense demand with these structures built into leases, guaranteeing they get paid regardless of the buyer’s movements during the length of the lease, incorporating risk-sharing.  

While data center buildings traditionally have 30- to 50-year economic lives, critical power and cooling infrastructure requires replacement or upgrading every eight to 15 years, increasing life cycle capital risk and influencing investment underwriting assumptions. This underscores the importance of longer lease agreements with hyperscalers to address risks of shorter-term life cycles of equipment and technology. With short- to medium-term commitments by these tenants (i.e., Microsoft, AWS) and long-term obligations of infrastructure and power providers, there is a massive focus from a lender standpoint on lease-length, tenant credit worthiness, termination rights and renewal risk. IT loads/GPUS and cooling technology continue to evolve at a break-neck pace compared to longer-life real assets. In short, the center of gravity in valuation of data centers has moved from tenant diversification to power assurance.  
 
Now more than ever, with current grids near capacity, users must secure power sources prior to development and leases being signed. Underwriting now relies on these PPAs for loan approval. Aging grids, largely built in the 1960s and 1970s, are suffering from significant wear and tear, functioning way past their intended lifespan. The digital era requires constant, uninterrupted power beyond what our current systems can handle. Electric demand is expected to increase by 25% by 2030, representing nearly 80% growth by 2050. Data centers have exacerbated the issue with astounding growth. They consumed more than 17 gigawatts (GWs) of power in 2022, a figure expected to rise as high as 130 GWs by 2030, according to The Boston Consulting Group. AI workloads use up to 10 times the power of standard servers.   

A Scramble to Modernize Power Grids  

Investors are increasingly recognizing the need for strategic planning and investment in infrastructure to support massive growth in data centers. This includes developing reliable energy infrastructure, maintaining efficient cooling systems, and ensuring power supply to accommodate rising energy consumption. Utility companies are scrambling to modernize national and regional grids following more than 20 years of flat electricity demand. The U.S. will need to spend nearly $2 trillion on grid modernization by 2030 just to address reliability issues, according to The National Council of State Legislatures. New substations are being planned and constructed, including high-voltage lines and feeder circuits.  

But these expansion projects take longer than the construction of data centers relying on them. For example, two big data centers in Silicon Valley are sitting idle while the local utility works to upgrade capacity – which isn’t scheduled to be completed until 2028, Bloomberg reported. To bridge this gap, grid operators are looking toward interconnection reform and streamlined permitting. Diesel generators are considered an interim solution to address peak-time power strain on existing grids.  

Strategies to Meet Escalating Power Demand 

Other important factors surround sustainability and renewable resources. Although power can be supported and workarounds created, this doesn’t solve the grid bottleneck. Ancillary sources include wind, solar and nuclear, considered the cleanest and highest capacity supplier to support intense future demand, where existing power grids may take years to expand to meet capacity. The future will most likely be in small modular reactors (SMRs), though adoption of these modular facilities will most likely not happen until 2030. 

In the meantime, some hyperscalers are signing long PPAs with nuclear plants to guarantee generation while transmission remains constrained, allowing users to hedge future power costs and reliability. For example, Microsoft signed a 20-year agreement to source 835 Mw of carbon-free energy for data center use with Constellation. The firm is spending $1.6 billion to restart Unit 1 of the dormant Three Mile Island nuclear plant, renamed the Crane Clean Energy Center, by 2028. 

Utility companies and data center owners are getting creative in order to stay relevant in this ever-expanding market. Fears of a bubble are thought to be unfounded thus far, due primarily to mega investments in the AI space by some of the world leaders of data themselves, such as Microsoft, Amazon, Google and Open AI, which have already spent billions in the space. Pairing large solar and wind projects, which can add new MWs of power for a stressed grid, with battery systems can help shift loads during peak times, smooth intermittency and reduce stress on substations.  

Meanwhile, demand from hyperscalers and AI workloads continues to push absorption to historic highs, while the global power grids struggle to keep up. Vacancies in Tier 1 markets such as Northern Virginia, Dallas, Phoenix, Chicago and Silicon Valley remain exceptionally tight. Pre-leasing dominates, and supply is limited less by land or capital than by truly dedicated MW power. 

A New Valuation Equation 

Alongside these trends, the valuation equation is shifting. Power availability, technology life cycles and sustainability pressures are exerting more influence on value than traditional real estate metrics. Investors are now pricing execution risk more heavily than tenant diversification. The new locus of value is centered on commitment and reliability—of power, speed of delivery, cutting edge technology and ESG factors. 

In this environment, investors want clarity: What determines value today? What risks are rising? And how should valuation frameworks evolve as the market continues to respond to intensifying AI-driven demand. 

In this four-part series, SitusAMC explores the major trends shaping data center valuation in 2025 and beyond, and the implications for income modeling, capital markets, and long-term underwriting. The series offers a forward-looking lens on the forces shaping data centers pricing, integrating the expertise and market knowledge SitusAMC brings to this rapidly evolving sector. In part one, we examine the changing landscape in data center construction. 

Modular & Prefabricated Construction 

The data center industry is confronted with several key challenges, from immense and early capital costs, to speed to market, to a critical labor gap. Data center construction is spiking demand for specialized skill sets, especially in certain markets. In 2026, an estimated 499,000 new construction workers are needed to meet anticipated demand, according to the Associated Builders and Contractors trade group, with the electrical trade facing a critical shortfall. These issues are already driving labor costs and could delay delivery timelines. Hyperscalers are scrambling to solve the issue: For example, Google announced a $10 million grant in 2025 to train electricians. Amazon, Microsoft and TSMC have launched partnerships with community colleges to support and promote data center-driven trade needs. 

Another emerging solution is prefabricated and modular data centers (PFM). These factory-built power, cooling and IT “building blocks”—constructed offsite where labor and materials are more abundant and then assembled on site—are rapidly becoming a strategic lever in global deployment. The modular data center development market hit $36 billion in 2025 and is expected to exceed $85 billion by 2030. North America dominated the global market last year with more than 43% of total market share.  

Factory-built “micro facilities” can make up 40% to 60% of data center components, according to McKinsey. They include skids, electrical rooms, uninterruptible power supply (UPS)/generation blocks and containerized pod data halls. These pre-tested and pre-wired facilities can be shipped to data centers as an all-in-one prefabricated resource of power, cooling and pre-tested racks. They are then assembled to meet local codes, grid interconnection requirements and specified tenant layouts. Power companies such as Compass, Schneider Electric and Supermicro have jumped into the modular construction space.  

A typical modular data center may be up and running in two to three months, compared to the much longer period required for conventional data center construction. That’s after obtaining community support, permitting and power commitments, which can take up to three years. For investors and appraisers, modular construction shifts multiple valuation levers, such as: 

·      Speed-to-market: Cutting delivery time may speed revenue ramp-up and improve IRR; 

·      Capex efficiency: Standardized modules reduce costs and labor uncertainty, although flexibility for switching out components based on customer needs will still be necessary; 

·      Scalability: Modular units allow phased AI-optimized expansion—critical as density requirements rise; 

·      Risk reduction: Factory testing and standardized components help diminish schedule risk; 

·      In DCFs or NAV models, shorter construction cycles reduce risk premiums and bring forward cash flows—materially influencing returns. 

However, the modular trend is not a silver bullet. Risks and limitations abound. Experts warn not to take shortcuts in the design phase, which can show up later as delays and issues in the construction phase. Site work and utility interconnections can still extend delivery timelines. Safety, electrical and regulatory mismatches can limit cross-border adoption. For valuations, modularity offers upside—but only where local grid, permitting and policy environments support the promised speed. 

Conclusion 

Data center valuation is not only about forecasting demand, but thinking about the timing of capital spend. Lenders and investors must focus on the risks to future revenues, especially as AI continues to redefine what “future-proof” means. The assets that secure reliable power, sustainable performance and adaptable infrastructure will be the ones that hold value through volatility and lead the next cycle of digital growth. 
 

SitusAMC is the leading provider of independent commercial real estate valuation and review services, offering valuation management, daily valuation, appraisals and more. For more information on SitusAMC’s Valuation services for data centers, contact Heather Byrnes, Director, at heatherbyrnes@situsamc.com, or visit our website. 
 

Coming up, the other parts of our data center series will address: 

·      the widening gap between the life cycle of digital infrastructure and that of the underlying real estate;  

·      challenges and innovations in power reliability;  

·      and the ways power grid constraints and environmental issues are shaping pricing, feasibility and underwriting.