The data center development boom is headed downtown

Sprawling gigawatt data center campuses are all the rage.

The physical manifestation of the economy’s AI frenzy has been gargantuan data center campuses across the rural corners of the nation. Multibillion-dollar developments for Big Tech players like Meta, Amazon, Microsoft, and Alphabet are taking shape in Mississippi, Louisiana, Wyoming, Indiana, and other places with cheap land and available power. More than 4,000 data center projects are currently in the pipeline.

But there’s a data center shift coming:

The next move in AI’s expansion is stuffing data centers into urban buildings to get them closer to the action.

There’s a good reason for doing this: placing smaller sites located near users in population centers, on the so-called “edge” of the network, can locally process data requests or process and infer for AI apps, helping apps and programs respond faster and with less delay, or latency.

Having more inference centers in place will make it easier for ChatGPT to produce and deliver photos more quickly, for example, or help chatbots, often teased for their long pauses, respond more rapidly when asked questions. You’ve probably already experienced the improvements of edge compute when watching previews instantly auto-play on Netflix.

The requirements for data center build-outs are changing too as smaller and more efficient chips, servers, and racks mean that small data centers can be set up in office buildings of 80,000 square feet. There’s even an opportunity to create what’s called a mesh network of small servers installed in, say, a series of parking garages. Equipment providers like Schneider Electric and Vertiv Holdings have been working for years to design new equipment for these smaller sites.

The Takeaway

Forecasts by industry analysts at The Proptech Connection predict AI inference traffic will grow 25% between 2024 and 2027, just below the 30% growth in AI training. As soon as the industry figures out the next new thing, it’ll require a new build-out.

These developments will likely face community pushback, considering the rising power costs attributed to data center demand, and could have significant impacts on downtown real estate value. This could be great for owners with vacant or obsolete office stock, as they could reposition the properties into hybrid tech campuses with inference hubs as anchor tenants, and their presence could attract a cluster of AI companies, life science companies, and other high-value tenants seeking compute and proximity.