The long boom in data infrastructure
The growth of the data economy has only just begun. And as AI-driven data storage and processing demands accelerate, investment in supporting infrastructure will grow exponentially.
Data is emerging as a standalone real asset class. Data centers have become a specialized investment theme, while companies are also racing to invest in supporting infrastructure such as sustainable power sources.
The data economy is an electric economy and the sourcing of clean electric power is an increasingly significant part of the real data assets investment story. Global internet traffic has grown at least 20-fold since 2010, and since data centers and transmission infrastructure account for around 1% of global carbon emissions (a figure likely to grow due to the high power needs of AI), this has created an urgent need for new and more efficient real data assets and for retrofitting of existing infrastructure.
Data and energy develop in lockstep
The net result is that a new asset class that reflects the symbiotic nature of digital and clean energy infrastructures is creating global appetite for real asset investment.
“Everyone — from seven- to 70-year-olds — is creating data,” said Chye Ong, Managing Director and Head of Data Center at Gaw Capital, a real-estate private equity firm focusing on Asia Pacific and other high-barrier-to-entry markets globally. “But all that data needs to be stored somewhere. So first we’ve seen the creation of huge server farms all around the world, and that in turn has created the need for more and cleaner sources of energy. Right now, the industry is taking steps to effectively solve its own problem by underwriting new renewable energy investments because, in the end, that’s what will make data center investments viable.”
The rise of the data economy is changing the way real asset investors think and operate. Where digital data and power generation were once treated as different worlds with contrasting risk profiles and business models, they’re now converging.
“Investing in digital infrastructure and the global energy transition today places you at the forefront of future growth and innovation,” said Ersin Yorulmaz, Managing Director and Co-Head of European Capital Formation at DigitalBridge. “We’re seeing a growing trend of investors integrating these two sectors. Recently, several partnerships have emerged where managers are collaborating to deliver both digital infrastructure and renewable energy solutions, reflecting the convergence of these critical industries.”
A new frontier
This tendency of the data economy to draw together multiple investment streams is creating an interlinked investment universe. Along with data centers and power generation, other assets in play include cabled networks, mobile infrastructure, and computing hardware.
“Data centers are important, but there is also activity in fiber networks and physical connectivity, wireless connectivity with mobile phones, and 5G data networks,” said Rob Martin, Global Head of Investment Strategy and Research, Private Markets at Legal & General Asset Management. “This is all being built out. If you add together clean energy and digital infrastructure, it’s going to require a lot of asset creation and a lot of financing.”
Yorulmaz of DigitalBridge agreed, saying, “Combining clean energy and digital infrastructure demands significant asset development and substantial financing. For instance, in AI infrastructure alone, big tech companies invested more than USD100 billion in capex in the first half of 2024, and that figure continues to grow. With demand for data center capacity projected to grow at a CAGR of more than 22% through 2030, this is more than a trend — it represents a fundamental shift in the market.”
Where’s the downside?
Where trends point relentlessly upward, and where evolving technology is combined with uncertainties about costs of construction and the stability of future demand, there are clearly risks of over-investment and sector crowding. The data economy is quite unlike traditional investment in core real assets, where risk and returns can be forecast with relative confidence. That means informed and analytical investment approaches command even more of a premium than elsewhere.
“When investing in digital infrastructure, selection and discipline are key,” said Yorulmaz. “Success relies on the expertise of the manager, rigorous underwriting, and thorough due diligence. In this complex and fast-changing sector, working with a specialist is essential. Digital infra specialists understand the industry’s nuances and are better equipped to navigate challenges and seize opportunities.” He goes on to say that generative AI and its rapid advancements are widely discussed, but significant knowledge gaps remain, highlighting the critical need for expertise in this space.
There are also sharp differences emerging between geographical markets, in part because the early phase of data-economy development was concentrated in relatively few countries. “If you take Asia, the region is still seen as the last frontier in terms of digitalization,” said Ong of Gaw Capital. “There are more people living in Asia than the rest of the world put together, but in terms of internet penetration, in terms of data infrastructure, it lags behind the rest of the world by several years. Now is the time for these countries to catch up.”
The result is that in some parts of the world real data assets are already close to oversupply, while in other regions unmet demand is pushing up prices. In Singapore, for example, the cost of data center rental per kilowatt hour is around double the cost of equivalents in Amsterdam or Paris.
Such disparities are reminders that there is always a need to mitigate the risks of investing in fast-moving technologies, said Ong. “The mission-critical nature of data real assets for hyper-scalers means they typically enter into very long-term contracts, for example 15, 20, or even 30 years,” he explained. “Obviously a lot depends on your risk appetite, but if you’re looking at stable cash flows with good credit tenants like Microsoft or Amazon Web Services (AWS) and they’re willing to pay you for the next 30 years, that’s attractive.”
Data may well be the real asset investment story of the era — not least because the data economy comprises so many elements drawn from across the real asset universe, including core infrastructure, real estate, and energy transition. Yet the data economy is also a new frontier and in any rapid market evolution there’s a risk of animal spirits outpacing fundamental knowledge and investment judgment. As ever, informed investment is the order of the day.
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