Data center coming to your market? What real estate agents must know

Artificial intelligence (AI) is growing quickly, from smart assistants and chatbots to self-driving cars and powerful business tools. But what most people don’t realize is that all those tech tools need physical homes: data centers. 

These massive buildings are filled with servers that process and store the information behind everything we use online, including AI-based applications and platforms. And when a data center opens in your area, it can quietly shift the real estate landscape. 

You might see stronger demand for housing, improved internet infrastructure or rising land values. But there are tradeoffs, too, like high energy and water use, few permanent jobs and increased strain on utilities. 

Check out this story of how one woman’s home life was disrupted twice by the massive increase in data centers.

If you’re a residential real estate professional, or an investor or consumer who’s interested in where the market’s going, understanding how data centers and AI are connected to your local market is becoming more important than ever.

The upside opportunity from data centers

There are a variety of ways in which a data center can improve certain aspects of a real estate market:

1. Infrastructure commonly gets a boost with the addition of fiber networks, road improvements and power grid upgrades. Some surrounding properties may become more attractive to logistics and tech businesses and service providers.

   
   

2. Contractors and support staff may increase short-term housing demand, at least temporarily, and some retail, hospitality and other commercial segments may benefit from increased traffic associated with getting the data center up and running.

   
   

3. Land and industrial properties see a spike in value, with vacant lots and underused industrial zones near the site appreciating quickly. This is a great time to reposition listings or acquire overlooked and underdeveloped properties.

   
   

4. Zoning and development potential improves, with areas around the site often fast-tracked for rezoning. This may present an opportunity to work with clients or investors looking for an opportunity to develop flex spaces or utility-adjacent assets.

   
   

The downside challenges you can’t ignore

Unfortunately, most markets will see more downside than upside from the addition of a data center. Here are some of the concerns to be aware of if a data center has been announced for your market. 

Remember, it’s not just about what this will do to your business in the short term; it’s about how buyers and homeowners will perceive the market in your area.

1. Data centers provide very few jobs; they are capital-intensive, not labor-intensive. That means that unlike other industries and commercial endeavors, they don’t provide much of the employment or neighborhood revitalization and will probably have limited long-term impact on residential demand.

   
   

2. Data centers consume massive amounts of energy and water. Some centers require as much power as a small city, and water use can be significant, depending on the method used to cool the heat coming off of those servers. Sustainability concerns have been among the most galvanizing sparks for local opposition to data centers.

   
   

3. Stress on the power grid can impact the feasibility of other developments, especially large-scale residential or mixed-use projects. This may lead to delays or complications with permitting for other builders and developers and their projects.

   
   

4. Data centers are big, boxy, heavily fenced and often loud, due to their cooling systems. This can drag down the aesthetic appeal of your town or county, along with the perception of nearby neighborhoods and developments. NIMBY resistance to data centers is common.

   
   

5. Data centers buy additional land for security buffers, which may sit unused and poorly maintained. This reduces available inventory and the potential for residential development in an already supply-constrained market.

   
   

How should you respond to data centers as a real estate pro?

In order to ensure that you can speak reliably and professionally about the potential impact of a data center on your market, do your due diligence:

• Vet the data center development process and find out what vendors, contractors or secondary businesses are likely to follow the building and implementation of a proposed data center.

  
  

• Position existing industrial and flex property as plug-and-play for data center service providers to avoid losing property that’s currently zoned residential to new projects.

  
  

• Educate buyers, homeowners and investors on the real pros and cons, building trust through transparency.

  
  

• Use this as an opportunity to get engaged in your community, including working with local officials on zoning, infrastructure and grid capacity issues that can affect your deals directly.

  
  

• Track community sentiment and pivot your strategy and marketing language as needed. You want to be on the right side of history, aligned with and serving the interests of the people who make your business run.

  
  

A data center is, in many cases, not a boon for local real estate, but it is a major market signal. It can bring upside potential, if you navigate the complexity and position yourself wisely.