Power Availability Defining Most Coveted Locations in CRE

A surge in demand for artificial intelligence has transformed the importance of location in commercial real estate transactions.

Markets with sufficient energy access and broadband connections coupled with the ability to quickly produce new power sources could gain advantages in attracting CRE investment, according to a new report from the Urban Land Institute (ULI) and Heitman shared exclusively with Commercial Observer.

The ULI-Heitman report noted that global data center investment is projected to reach $7.6 trillion by 2030, with $3 trillion directly connected to real estate. Other property sectors that could benefit from the new real estate economics, according to the report, include pre-approved powered land, battery storage properties and industrial facilities.

“Many times over it’s been thought that real estate value was driven by location, location, location, but increasingly access to reliable, deliverable power is becoming another critical determinant of where development can occur and where capital’s flowing,” Laura Craft, global head of portfolio sustainability strategies at Heitman, told CO. “In many markets today the demand exists, but does the power also exist to support the growth?” 

Aimee Witteman, chief impact officer at ULI, said Pittsburgh and part of the industrial Midwest will be well positioned to benefit from the new AI-driven real estate environment given their legacy infrastructure assets including transmission connections, substations and former manufacturing sites.

Witteman stressed, though, that the amount of power won’t be all that wins the day,  as markets that make the smartest use of their existing electrical grid also benefiting thanks to real estate development. She noted that some states like Texas and New York are advancing virtual power plants, while partnerships in the Mid-Atlantic region are showcasing how batteries can unlock additional capacity at a faster pace while also saving on expenses. 

“Reliable, affordable power is becoming a fundamental determinant of where development occurs and where capital flows,” Witteman said. 

Craft noted that, going forward, real estate values will be shaped in large part by power availability, proximity to users and technological readiness, with AI trends influencing how properties are designed. She stressed that industrial properties over time will need more automation and robotics operations, which will require resilient power sources.

All CRE asset classes will require a higher level of AI integration, according to Craft. Existing properties that have excess power or the ability to transition to more on-site technologies that can be utilized as a potential revenue source will stand out in the market, she said. She added that the industrial sector in particular could see evolutions to meet the growing AI needs, such as supporting construction equipment needed for data center buildouts. 

“This makes investors think about how, if you’re investing in land, it is not only the land itself in acres but how much access to megawatts or power does that land have,” Craft said. “If you’re investing in properties, you may have historically just looked at square footage of the building, but now you likely want to see what is the power capacity of that building, and can it support technology upgrades, or can you add additions such as inference or edge hosting alongside that investment and create some value.” 

Andrew Coen can be reached at acoen@commercialobserver.com.