A data center is a commercial real estate property type built to house computing and networking hardware, leased primarily by electrical capacity rather than by square footage. Value tracks megawatts of power and cooling delivered, not floor area. Tenants range from single enterprises to hyperscale cloud and AI operators taking hundreds of megawatts.
How a Data Center Works
A data center works by delivering power, cooling, and connectivity to racks of servers, so the leasable unit is a megawatt of critical IT load rather than a square foot. Per CBRE, primary wholesale colocation asking rates for a 250-to-500-kilowatt requirement reached a record $196.25 per kilowatt per month at year-end 2025, up 6.6% year over year.
Operators run several models. Wholesale and hyperscale deals lease large blocks of contiguous power to a single tenant on long terms. Retail colocation leases individual racks or cages to many tenants. Enterprise data centers are owner-occupied. Across models the binding constraint is power procurement, because grid interconnection now takes years in many markets.
Model | Description |
Hyperscale / wholesale | Large contiguous power blocks to one cloud or AI tenant, long term |
Retail colocation | Individual racks or cages leased to many tenants |
Enterprise | Owner-occupied facility serving a single company |
Why a Data Center Matters
A data center matters because AI and cloud demand turned power capacity into the scarcest commodity in commercial real estate, pushing vacancy to record lows. Per CBRE, primary-market vacancy fell to a record 1.4% at year-end 2025, and North American primary supply grew 36% year over year to 9,432 megawatts.
The sector's underwriting inverts the usual real estate playbook, because the lease is written on power, not floor area, and much space is pre-leased before it is built. Primary markets posted record net absorption of about 2,497.6 megawatts in 2025 per CBRE, with pre-commitment rates approaching 89% at the Americas level per Cushman and Wakefield. An operator screens sites by available electricity and interconnection timeline first, and by land second.
Example
An operator leases a 30-megawatt wholesale block in a primary market at the record asking rate. At $196.25 per kilowatt per month, and 30 megawatts equal to 30,000 kilowatts, monthly rent is 30,000 times $196.25. Annualizing gives the facility's power-based revenue before operating costs.
Component | Amount |
Leased capacity | 30 MW = 30,000 kW |
Asking rate | $196.25 per kW per month |
Monthly rent | 30,000 x $196.25 = $5,887,500 |
Annual rent | $5,887,500 x 12 = $70,650,000 |
At the year-end 2025 record rate, a single 30-megawatt block generates about $70.65 million in annual rent in this illustration. The figure shows why a megawatt, not a square foot, is the unit that drives data center value and why power availability governs where these assets get built.
Variations and Edge Cases
Data centers vary by scale, tenant type, and reliability tier, and an underwriter should confirm which applies before comparing two deals. Pricing rises with requirement size and scarcity of contiguous power, and reliability is graded on a tier system that changes cost.
Variant | Treatment |
Requirement size | 3-to-10-MW rates rose 12.5% year over year in 2025 per CBRE, faster than smaller blocks |
Uptime tier | Tier III and IV add redundant power and cooling paths and raise build cost |
Powered shell | Building delivered with power but tenant-built interior fit-out |
Primary vs secondary market | Primary markets like Northern Virginia lead absorption; secondary markets emerge on power access |
The most common misread is valuing a data center on price per square foot. Two buildings of identical footprint can differ several times over in value if one delivers far more megawatts and cooling, so capacity, not area, sets the price.
Data Center vs Industrial
A data center is often confused with industrial warehouse space because both are large single-tenant boxes. A data center is leased by electrical capacity, carries dense power and cooling infrastructure, and rents at a high figure per megawatt. Industrial space is leased by square foot for storage and logistics and rents at a low figure per square foot.
The practical difference is what the building sells. A warehouse sells cubic feet and dock doors, so its constraint is land and location near freight. A data center sells reliable power and cooling, so its constraint is grid interconnection, and a site with no available electricity has no value regardless of how much land it holds.
Frequently Asked Questions
How is data center space priced?Data center space is priced primarily by electrical capacity, quoted in dollars per kilowatt per month, not per square foot. Per CBRE, the average asking rate for a 250-to-500-kilowatt requirement in primary wholesale colocation markets reached $196.25 per kilowatt per month at year-end 2025.
What is the difference between hyperscale and colocation?Hyperscale leases large contiguous power blocks, often tens or hundreds of megawatts, to a single cloud or AI tenant on long terms. Retail colocation leases individual racks or cages to many smaller tenants. Wholesale colocation sits between them, leasing whole rooms or suites of power.
Why are data center vacancy rates so low?Data center vacancy is low because AI and cloud demand has outrun the supply of power and buildable sites. Per CBRE, primary-market vacancy fell to a record 1.4% at year-end 2025, and much new capacity is pre-leased before construction, with Americas pre-commitment near 89% per Cushman and Wakefield.
Related Terms
Cold Storage
Self-Storage
Cap Rate
Net Operating Income
Absorption Rate