Panattoni Development, one of the largest industrial real estate developers in the United States, has announced its foray into the data center market. Growing demand driven by artificial intelligence is behind this strategic decision.
The Irvine, California-based company has hired Adam Kramer to lead the team in charge of building and operating data centers in North America. Panattoni plans to develop one gigawatt of capacity over the next five years, enough to power approximately 876,000 homes.
Adam Kramer, formerly CEO of carbon emissions management platform nZero, and an executive at technology infrastructure provider Switch, will lead this new project. Kramer's experience is crucial in addressing the challenges presented by data center development.
Panattoni, who has developed 625 million square feet of industrial, office and retail space globally, joins other major developers who see an opportunity in warehouse-type buildings that house the Internet. Demand for these facilities has increased along with interest in generative artificial intelligence and machine learning technologies
Doug Roberts, president of Panattoni's North American development group, said the goal is to build data centers on owned land and acquire new properties. The buildings will range in size from 100 megawatts to 500 megawatts of capacity.
Tech giants such as Google, Microsoft and Amazon Web Services have increased their investment in data center space over the past four years. This boost is essential for running generative AI chatbots, apps, emails and photos stored in the cloud.
During the first half of this year, enterprises leased nearly three gigawatts of data center capacity in North America, up significantly from 1.4 gigawatts in the same period in 2023, according to research firm datacenterHawk.
The growing demand has attracted large investments to the sector. Blackstone disclosed that its data center portfolio is valued at $55 billion, with a development pipeline of more than $70 billion. Amazon announced that it plans to spend more than $100 billion on data centers over the next decade.
Prologis, the world's largest industrial real estate operator, also plans to build data centers. Hamid Moghadam, CEO of Prologis, highlighted the added value of converting warehouses into data centers.
Capacity in North America's largest data center markets, such as Dallas, Chicago and Northern Virginia, increased 26% last year, according to CBRE. The sector has about 98 gigawatts of new capacity in planning stages, scheduled to come online in the next decade, according to datacenterHawk.
However, there are significant challenges to building these facilities. Data centers are expensive to develop compared to warehouses and require access to large amounts of power to operate and cool servers, routers and other equipment, commented CBRE's Pat Lynch.
Lynch noted that it is a significant and highly specialized investment, with many associated risks. Other commercial real estate sectors have suffered valuation declines due to high interest rates and declining demand, but industrial real estate has remained strong.
Panattoni's Doug Roberts compared the increase in demand for data centers to the shift in industrial real estate over the past two decades toward e-commerce fulfillment centers. The company is determined to learn and adapt to this new opportunity, according to Roberts, quoted by The Wall Street Journal.
The evolution toward data centers represents a crucial transformation in industrial real estate, adapting to the needs of an increasingly digital world.
