Predicating is a hard game with investments in general. In commercial real estate, everyone is looking for a property or an asset class that can produce booming returns. For 2025, the CRE sector to watch might just be data centers, as PwC Bill Staffieri alongside co-partner Ricardo Ruiz in a presentation for ULI New York: Real Estate Outlook 2025 at NYU Stern School of Business, called it the "hottest piece of real estate right now."
THE NEED FOR AI
The reason for his strong opinion is related to the emergence of artificial intelligence, which is driving "the need for data centers."
"We were a little bit under $200 billion of spending in AI in 2024," Staffieri said, citing data.
"Heading into this year, we're expecting that to go all the way up to 800-plus billion dollars of spending in the next five years."
RECENT INVESTMENTS IN DATA CENTERS
Recently, tech giants have been wanting to explore the upside, and have announced billions of dollars of investments into the industry.
Not many have been bigger than EDGNEX Data Centers by DAMAC's $20 billion investment that includes existing data centers and platforms, which was announced by the Dubai-based firm this month. That will mark the company's first time in the US market.
Also, this year, Amazon's Web Services unit said it would pour a projected $11 billion into artificial intelligence infrastructure and cloud computing in Georgia to expand its data center presence. It's expected to create 550 new jobs.
And Meta late in 2024, said it would build a $10 billion artificial intelligence data center in Richland Parish, Louisiana. That marks one of the state's largest-ever private investments received.
Because of all the activity surrounding the sector — Staffieri took it a step further. He said if he won the lottery he believes he would put his money in data centers.
"I think it's going to continue to be a trend for the years ahead of us," he said.
DON'T SLEEP ON RETAIL AND SELF STORAGE
While maybe not to the same degree as data centers, Staffieri likes the current state of retail overall. The asset class has needed to adapt from traditional malls and growing demand from e-commerce by creating a unique shopping experience today.
"The majority of the resident or the retail subtypes are increasing as far as the ratings associated with them," he said.
"You're seeing rent growth there, and stability across across retail."
Meanwhile, Staffieri noted that two subtypes in retail are going through struggles — power centers and outlet centers.
Moreover, Ruiz, listed another property sector to keep an eye on — self storage. He noted that while there have been some issues with cap rate compression in the last couple of years, the asset class is still "standing strong."
"Self Storage has largely been institutionalized, strong, [with] demand," Ruiz highlighted.
On the flip side, Ruiz listed the life sciences space as his lowest-ranked asset class.
It's "really being affected by oversupply in the markets," according to Ruiz.