AI: The real estate opportunity

AI will have far reaching impacts on how we live, work and play, and therefore how we interact with the built environment. Advances in machine learning and generative AI are accelerating innovation, automating complex tasks, and unlocking new efficiencies and revenue opportunities for companies.

As these new technologies change the business landscape for companies, they’re also changing the ways that companies use real estate. If not today, they will impact in the very near future. No one truly knows how this transformation will reshape society. What we do know however, is that this is not a short-lived phenomenon.

^{Source: Note: Labour productivity index (1760-100) created using UK and US data. UK data from 1760 to 1889 taken from BoE's 'a millennium of macroeconomic data for the UK'. US historical series from 1890 to 2017 created using Kendrick (1961) and BLS (non-farm business sector; real output per hour) data. US and UK historical series spliced together to arrive at a longer data history starting from 1760 up until 2017. Source: Kendrick (1961), BLS, BOE, Barclays Research, Blackrock, March 2025. The black dots represent the new technological innovations with the major ones labeled.}

By identifying the property sectors positioned for success, and those likely to face challenges in an AI-driven future, we can build conviction on which sectors and markets will outperform. For example, real estate investors will play a crucial role in the data-center value chain. At the same time, real estate investors can also benefit from AI’s potential to support the energy transition.

Real estate investors will play a crucial role in the evolution of the AI value chain. The scale-up of AI is fueling enormous demand for data centers. AI is valued as a roughly US$4 trillion global opportunity¹. Data center demand is a representation of the physical infrastructure needed to achieve that.

^{Source: JLL Research, 2024, Structure Research, Note: Capacity includes hyperscale and colocation, BlackRock, March 2025. Forecasts may not come to pass.}

Data centers share similar fundamentals with traditional real estate, such as logistics, however they are more complex than simply a ‘shed with power’. Both rely on site selection, land availability, connectivity, and infrastructure, but data centers do not have docks, have increased site coverage and can have different physical characteristics. The availability of power, however, is vital, along with proximity to urban hubs and transport routes. Investment timelines are also similar, with typical hold periods of around four years.

The acute supply-demand imbalance in the data center market is evident, as existing infrastructure struggles to meet the soaring demands of AI applications.

As with any growing sector, real estate investors should consider risks related to data centers, especially regarding exit strategies and liquidity. Strong expertise and robust relationships with key stakeholders and operators are essential to ensure a favorable risk-return profile.

At many points in the data-center supply chain, investment into data centers follows a duration and level of risk appetite that can align with the risk return profile of value-add real estate investment.

Source: 1. McKinsey and Company, 01/28/2025