Hyperscale tenants such as Amazon Web Services (AWS), Google Cloud, and Microsoft Azure are driving much of the demand for large-scale data center space. These tenants typically sign long-term leases with built-in escalations and renewal options, offering a high degree of cash flow stability. However, concentration risk is a key consideration. Investors should evaluate tenant credit, lease covenants, and diversification strategies, such as colocation or powered shells, to strike a balance between long-term stability and operational flexibility.

Location is a critical factor in data center performance and scalability. Key drivers include:

• Power availability: Proximity to reliable, high-capacity power infrastructure is essential.
• Fiber connectivity: Direct access to internet backbones and cloud on-ramps lowers latency and increases value.
• Low latency: Facilities located near end-users or business hubs reduce data transfer time.
• Regulatory environment: Some states and localities offer tax incentives or expedited permitting for digital infrastructure.
• Climate and risk exposure: Investors often prioritize markets with lower risk for natural disasters and favorable cooling conditions.

Top U.S. markets include Northern Virginia, Phoenix, Dallas, and Atlanta, with emerging hubs growing in regions like Salt Lake City and the Midwest.

For investors seeking exposure to data centers without directly acquiring or operating facilities, there are several options:

• REITs: Publicly traded data center REITs offer liquidity and scale.
• Joint ventures: Partnering with experienced operators can lower execution risk.
• Private equity or infrastructure funds: These vehicles allow for diversified exposure across multiple assets or markets.
• Debt strategies: Providing capital through structured finance solutions or development loans.

Walker & Dunlop’s capital advisory platform connects clients to a broad range of strategies aligned with their risk-return profile.

• Construction and bridge loans
• Preferred equity or mezzanine debt
• Joint venture equity partnerships
• Refinancing or recapitalization solutions

We work closely with sponsors, developers, and institutional investors to align capital to strategy and mitigate execution risk.

• Power redundancy and uptime: Is the facility Tier III or Tier IV-certified? What is the backup system design?
• Cooling systems: Are HVAC systems scalable and efficient enough to meet modern compute loads?
• Connectivity and latency: How robust is the fiber infrastructure? What’s the latency to key markets?
• SLAs and tenant performance: Are there enforceable service-level agreements in place?
• Expansion potential: Is the facility modular? Can it support future growth?

Understanding these technical factors is crucial for pricing risk accurately.

• New designs prioritize high-density racks, liquid cooling, and advanced power management.
• AI hubs are emerging in markets with access to renewable energy and high-capacity power grids.

• Specialized facilities are being built to support GPUs and ASICs used in AI training and inference.

This shift is transforming data center infrastructure and accelerating demand, creating long-term investment opportunities across core and emerging markets.

• High capital requirements: Development costs are significant, often exceeding $500–$1,000 per square foot.
• Power and equipment lead times: Long delivery timelines for transformers, switchgear, and chillers can delay projects.
• Zoning and permitting: Navigating local regulations and community concerns can be a complex process.
• Operational expertise: Managing a data center requires specialized knowledge not typically found in traditional CRE teams
• Tenant concentration: Over-reliance on a single hyperscaler can expose owners to renegotiation risk.