From Desks to Data: The Rise of Data Centres in Vacant Office Buildings

The office space landscape has undergone a significant transformation with the rise of a new trend. Despite many office blocks sitting vacant, real estate agents have ingeniously repurposed them as data centres, meeting the demand from companies seeking secure locations for their servers. As reported by the Los Angeles Times, estate developers are struggling to keep pace with this demand, with nearly every available square foot being swiftly snapped up by businesses.

A recent report by real estate broker JLL reveals that the construction of new data centres has reached unprecedented levels, driven by an insatiable demand. The primary catalysts behind this surge are AI and cloud service providers, with industry giants like Amazon, Microsoft, Google, and Oracle leading the charge.

Given the substantial decrease in occupancy in traditional office buildings following the impact of the COVID-19 pandemic, and the subsequent decline in property values, data centers have emerged as a lucrative opportunity for real estate developers. They are now actively pursuing prospects in major markets like Los Angeles, as well as less urban areas with abundant and cost-effective power sources essential for running data centres.

The JLL data centre report highlights the rapid pace of construction nationwide, which is struggling to keep up with the insatiable demand for data centre space. As of midyear, data centre vacancy has dropped to a record low of three per cent, despite the ongoing construction activities.

Over the past two years, data centre development has increased dramatically, with the pipeline of new projects showing signs of levelling off in the first half of 2024. This trend could indicate a potential strain on the US power grid’s capacity to support faster development.

Once the projects currently under construction or planned are completed, the US colocation market is expected to triple in size from its current levels. This surge in demand has attracted real estate investors and landlords to the market, as businesses continue to seek space in data centres for their computing hardware.

One noteworthy development is a 30-story building that serves as a colossal data centre, where thousands of miles of undersea fibre-optic cables vanish into an unassuming office tower. A long-standing law firm in the building vacated five floors, which are now set to be quickly re-leased to data tenants. The building’s infrastructure has been modified, including the removal of two elevators to make space for water pipes used to maintain the servers’ optimal operating temperature.

Furthermore, Goldman Sachs analysts predict that by 2030, data centres could contribute as much as 11 per cent to the total power demand, a significant increase from the current three per cent.