How Data Centers Power The Profits Of CRE’s Biggest Brokerages

Ravenous demand for computing power has made data centers an increasingly large and important part of the commercial real estate market, with billions in investments planned from coast to coast.

With so much growth, CRE brokerages are increasingly turning to data centers to drive business, with larger and larger chunks of their revenue tied to the property type. Longtime stalwarts like office leasing and capital markets have run into challenges in the last few years, but data centers keep growing.

”There is about to be more data center development in process versus office, that`s just where a lot of the dollars in capital is flowing in real estate,” said Ryan Dobratz, co-lead portfolio manager for Third Avenue Management’s real estate value fund. “And so these real estate services companies are transitioning to take advantage of that.”

Data centers are simply becoming “a more important part of their overall profitability and overall investment proposition,” Dobratz said.

Growth this year has been so expansive — outpacing consumer spending for the first time — that it has raised concerns about overbuilding and even an AI bubble...

The major brokerages are using their multipronged businesses to profit from various aspects of the data center business, including capital financing, facilities management and consulting.

The services aspect of the business can be less capital-intensive for these brokerages and offer higher returns and recurring cash flows without the substantial capital investment required, Dobratz said.

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RSK: A large chunk of these profits are from managing the property as well as investing in them, not just sales revenue.