In Conversation: The Shifting Equation in Data Center Valuation

As artificial intelligence accelerates demand for digital infrastructure, data center valuation is shifting away from traditional real estate metrics and increasingly centered on power access, infrastructure adaptability and long-term operational resilience. Andy Garrett, Head of Marketing at SitusAMC was joined by Heather Byrnes, Director, Valuation Management at SitusAMC; and TJ Hofheimer, Managing Director, Portfolio & Asset Management at National Real Estate Advisors to discuss the key trends. Watch the video above. 

Power Becomes the Primary Value Driver 

The roles of tenant, operator and power provider are quickly changing in today's data center environment. In the past, owner, operator and developer historically were passive utility customers, finding and securing sites, get zoning approvals and requesting power from the utility. 

“Today, every player must be an active partner with the power company, where you secure your power typically before you secure the site,” Hofheimer said. “The power is almost more important than the location today.” 

Byrnes agreed, noting that utilities are requiring credit-worthy tenants and long-term power purchase agreements of 15 to 20 years with guaranteed payment for a minimum level of usage. “You have to have these agreements in place, especially if there’s debt involved,” she said.  

Meanwhile, an array of quickly evolving issues are affecting data center valuation, such as delays between capital deployment and return. “There is a huge capital expenditure required at the beginning ,” Byrnes said. “How long is going to take before (stakeholders) are seeing any return on this investment... at a specific property in a region.” Appraisers are also looking at issues such as equipment backlogs, transmission set ups and supplemental power sources, she added. 

Powered Land, Tenant Mix and Exit Risk 

Powered-land is worth a significant multiple over unpowered or future-powered land, Hofheimer added. But other factors affecting the valuation of stabilized buildings include whether the facility is single or multi-tenant. There is a misperception in the industry that nearly all data center leasing activity involves hyperscalers, when many portfolios—including National’s—are still predominantly multi-tenant, with roughly two-thirds multi-tenant and one-third single-tenant assets. 

There are also second-use dynamics — the potential for repurposing an existing facility for a new tenant or a different industry down the road. “If a data center is in established network node for one of the hyperscalers, the second-use case is good,” Hofheimer explained. “If it’s in a more emerging area and it’s an AI training location, I think there are fewer buyers for that asset, and the cap rate should reflect that on exit.” 

Infrastructure Life Cycles and Technological Obsolescence 

The panel also discussed how market participants are addressing the gap between the life cycle of the data center building and the underlying infrastructure. For example, modular components containing cooling systems and other mechanicals are being deployed to allow system upgrades that don’t require altering  the building structure. Also, leases are getting longer to match up with the power commitments, Byrnes added. 

The tenant bears the technological obsolescence risk rather than the landlord, Hofheimer noted. But owners need to focus on ceiling heights and floor-load capacities as servers evolve. Newer, fully loaded server racks—especially those built for dense artificial intelligence—can weigh three tons. 

“If you don’t have the floor loads to support those you’re probably going to be left behind,” Hofheimer said. “Then you need really tall ceiling heights to evacuate the heat these servers are generating. If you have the right combination there, you can accommodate changes in server technology.” Landlords are also shifting to scalable liquid cooling systems and hybrid technologies to accommodate high-density AI workloads, he noted. 

Behind-the-Meter Solutions and Community Impact 

Hofheimer and Byrnes also discussed behind-the-meter solutions, which are becoming central to navigating aging power grids. Nuclear power is emerging as a key carbon-free solution for AI data center requirements, versus solar or wind. 

Meanwhile, new data centers are designed to consume relatively modest amounts of water, Hofheimer noted. For example, one National Real Estate Advisors facility in Texas uses the equivalent water of 15 homes, but generates the property tax equivalent of 600 homes, lowering the tax burden on homeowners and funding essential services. 

Listen to the conversation above, and explore our three-part series on data center valuation, including a look at key trends reshaping valuation; bridging the life cycle gap between data centers and digital infrastructure; and power reliability challenges and behind-the-meter innovation. 
 

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.