Data Centers Are the New Core Asset, and They Underwrite Nothing Like Offices

Data center real estate has taken the seat office used to hold in institutional portfolios, and almost none of the underwriting transfers. Office is priced per square foot, leased for five to ten years, and exposed to tenants who can shrink their footprint on renewal. A data center is priced per megawatt, leased for ten to fifteen years or more to hyperscale credit tenants, and constrained by power and land rather than by demand. CBRE reported primary-market vacancy at a record-low 1.4% at year-end 2025 with 92% of capacity under construction already precommitted, per JLL. The asset that replaced office looks nothing like it on the underwriting page.

Key Takeaways

Data centers are underwritten in megawatts of power, not square feet, because the constraint is electricity and cooling, not floor area.
Primary-market vacancy hit a record-low 1.4% at year-end 2025, and virtually all absorption is preleasing with delivery beyond 12 months, per CBRE.
Hyperscale tenants sign 10-to-15-year-plus leases with escalators, a duration and credit profile office almost never offers.
CBRE reported 92% of capacity under construction is precommitted, so the binding constraint is power and land supply, not tenant demand.
Development with long-term leases has reached up to 85% loan-to-cost from senior lenders, a financing structure office cannot support in this cycle.

Why Are Data Centers Priced in Megawatts Instead of Square Feet?

Data centers are priced in megawatts because power, not floor area, is the scarce input a tenant is buying. A hyperscale operator needs a fixed amount of compute, and compute is bounded by the electricity and cooling a site can deliver. Two buildings of identical square footage can differ by an order of magnitude in value if one has power and the other does not.

This inverts the office valuation logic. In office, the rentable square foot is the unit because usable floor area is what a tenant occupies. In a data center, floor area is cheap and power is dear, so the market quotes rent per kilowatt of critical IT load per month. CBRE reported the average monthly asking rate for a 250-to-500-kilowatt requirement rose 6.5% year over year to $195.94 per kW per month at year-end 2025, and that 10-megawatt-plus requirements saw the sharpest increases, driven by hyperscale demand, limited power, and elevated build costs. The unit of pricing tells you the unit of scarcity, and here the scarce thing is electrons.

How Do Data Center Leases Differ From Office Leases?

Data center leases run far longer, carry stronger tenant credit, and shift the underwriting from re-leasing risk to power and construction risk. Hyperscale tenants such as Amazon, Microsoft, Google, and Meta sign ten-to-fifteen-year-plus contracts with rent escalators, per CBRE, against the five-to-ten-year terms and weaker credit typical of office.

That contrast reshapes every line of the underwriting. Office underwriting lives and dies on rollover: when leases expire, will the tenant renew, downsize, or leave, and at what re-leasing cost and downtime. A hyperscale data center lease pushes that question a decade or more into the future and backs it with investment-grade credit, so the near-term risk migrates upstream to whether the developer can secure power, deliver the build on budget, and energize on schedule.

Dimension	Office	Data center
Pricing unit	Rent per square foot	Rent per kW of critical IT load per month
Typical lease term	5 to 10 years	10 to 15 years and up
Scarce input	Location and floor area	Power, cooling, and land
Primary risk	Tenant rollover and downsizing	Power access and construction delivery
Preleasing	Space leases after delivery	92% precommitted before delivery (JLL)

As one data center capital-markets specialist put it: "In office you underwrite the tenant leaving. In a data center you underwrite the power arriving." The sentence captures the whole shift. The office question is whether demand stays. The data center question is whether supply can be built at all.

What Is Actually Constraining Data Center Supply?

The binding constraint on data centers is power and land, not tenant demand. Demand is effectively unlimited relative to what can be delivered: CBRE reported primary-market vacancy at 1.4% at year-end 2025 with virtually all absorption occurring as preleasing, and JLL reported 92% of capacity under construction already precommitted through binding leases or owner-occupied development.

When 92% of the pipeline is spoken for before it opens, the market is not clearing demand. It is rationing supply. Primary-market net absorption set a record at roughly 2,497.6 MW in 2025 per CBRE, yet vacancy still fell to a record low, which only happens when new supply is claimed as fast as it is built. The scarce resources are grid interconnection, land near power, and construction capacity. This is why the underwriting question is upstream of the tenant: securing megawatts is the deal, and the lease is the confirmation. It is the inverse of the office problem, where space is abundant and durable tenant demand is scarce, a contrast our industrial two-speed analysis frames the same way for warehouse segments.

Why Do Data Centers Support Financing Office Cannot?

Data centers support aggressive financing because a ten-to-fifteen-year lease to an investment-grade hyperscaler is a bond-like cash flow that lenders will size against. CBRE reported that developments with long-term leases have achieved up to 85% loan-to-cost from senior lenders at competitive spreads, a structure the current office market cannot replicate given its rollover and vacancy risk.

The lender is underwriting the same durability the equity is. A decade-plus of contracted, escalating rent from a credit tenant looks like the cash flow lenders extend the most proceeds against. Office, in this cycle, offers the opposite: shorter terms, softer credit, and the prime-versus-commodity divergence CBRE flags in its 2026 outlook, where non-prime assets keep losing occupancy. The financing gap between the two is not sentiment. It is the difference between a contracted long-duration cash flow and a short-duration one exposed to renewal at every turn.

Frequently Asked Questions

Why are data centers considered a core real estate asset now? Data centers are considered core because they combine long-term leases to investment-grade hyperscale tenants with structurally constrained supply. CBRE reported primary-market vacancy at a record-low 1.4% at year-end 2025 with virtually all absorption preleased, giving the asset the durable, contracted cash flow that defines core real estate.

How are data centers priced compared to other property types? Data centers are priced per kilowatt of critical IT power load per month, not per square foot, because power and cooling are the scarce inputs rather than floor area. CBRE reported a 250-to-500-kW requirement averaging $195.94 per kW per month at year-end 2025, up 6.5% year over year.

What is the biggest risk in underwriting a data center? The biggest risk in data center underwriting is delivery, not demand: securing grid power, land near that power, and construction capacity to energize on schedule. With 92% of capacity under construction already precommitted per JLL, the constraint is supply, so the deal risk sits in whether the megawatts can be built.

Conclusion

Data centers inherited office's place in institutional portfolios and none of its underwriting. Office is a square-footage business exposed to tenant rollover in a market where quality space is abundant and durable demand is scarce. Data centers are a power business exposed to construction and grid access in a market where demand is effectively unlimited and supply is rationed, with vacancy at 1.4% and nearly all new capacity leased before it opens.

The operator who ports office instincts into data center underwriting will misread the asset at every line: pricing the wrong unit, underwriting the wrong risk, and sizing debt against the wrong cash flow. The correct model starts from power. Megawatts are the product, the ten-to-fifteen-year hyperscale lease is the cash flow, and delivery is the risk. That is a different asset class wearing the same core label, and pricing it like the office it replaced is the surest way to get it wrong.