Digital Realty Data Center in Ashburn, Virginia, March 17, 2025.
Leah Millis | Reuters
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Calls to slow the pace of AI development have hurt related stocks in recent days and could have far-reaching implications for all industries involved. Real estate is no exception.
Cloud, storage, enterprise IT, and internet services all require data center capacity, but artificial intelligence is quickly becoming a key driver of demand. According to a McKinsey report, AI could account for about 70% of global data center capacity demand by 2030. The report estimates that by 2030, nearly $7 trillion in capital expenditures will be needed to meet total data center demand. According to JLL, which provides end-to-end data center real estate services around the world, the real estate portion alone could account for $3 trillion in investment over the next five years.
digital realty and Equinixtwo of the largest data center REITs, saw their stock prices fall on Monday following weekend warnings about advances in AI.
But Digital Realty CEO Andrew Power said the slowdown pledges by AI giants Anthropic, OpenAI and xAI do not mean “dropping the pencil” on AI and the real estate that supports it.
“There’s an incredible digital transformation happening that has nothing to do with AI,” Power said in an exclusive interview with Property Play. “We’re seeing incredible growth in cloud computing. Frankly, from my business perspective, from where I sit, I think the demand trends that are a big driver of our business are being subdued in this day and age of AI.”
Power said hyperscalers are having to choose between growing their commercial cloud businesses or allocating capacity to AI labs. He also said not all markets will be affected equally.
Digital Realty’s markets include Northern Virginia, Dallas, Chicago, Singapore, Tokyo, Frankfurt and Amsterdam, and customers are competing for the same space, Power said.
“Demand in our markets has exceeded supply for several years. There is pent-up demand for infrastructure in these markets. They are location sensitive. These workloads cannot choose one of the 50 states,” Power said. “We have a global portfolio of companies, so we have data sovereignty and support in other countries.”
Analysts agree that the slowdown won’t have a direct impact on AI’s physical needs, especially given how the change in pace of training new models will actually impact it.
“The real growth of data centers over the next few years is anything but speculation, and it’s about businesses and citizens adopting this tool into their daily workflows,” said Andrew Batson, global head of data center research strategy at JLL.
“Only 1 in 4 Americans uses AI every day, so even if the model release is delayed, there is a strong path for broader adoption and increased demand for data centers,” he said.
“We have high conviction in this space,” Batson said, citing institutional funding from Blackstone, BlackRock and KKR.
“On paper, despite some headlines, it still looks very strong,” he added.
Power said data center REIT stocks will be punished, but the message to shareholders is that the company is ready for this.
“The first and most important thing is to ensure that day-to-day stock price fluctuations do not impact our strategy and business,” Power said. “We evolved our funding model several years ago. We are an incredibly capital-intensive business.”
Digital Realty’s development pipeline totals $20 billion, up from $10 billion at the end of 2023, according to the company.
“We’re working on the next iteration in raising private capital. We’ve also done some one-off joint ventures, and we’ve positioned our balance sheet to be probably the most liquid, the least leveraged, and the best positioned for a potential storm,” Power said. “And I’m not saying today is the end of the world storm or anything like that.”
