Building the Backbone of the Digital Economy: Canada's Data Centre Opportunity
January 10, 2025
By Allwyn Dsouza, Senior Analyst, Research and Insights, REIC/ICI
By Allwyn Dsouza, Senior Analyst, Research and Insights, REIC/ICI
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Data centres have transitioned from niche facilities to essential components of global infrastructure, driving the rapid growth of the digital economy. These facilities, serving as the physical backbone of the internet, cloud computing, artificial intelligence (AI), and Internet of Things (IoT), are reshaping the commercial real estate (CRE) landscape. Offering stable returns, low vacancy rates, and long-term leases, data centres present a unique and lucrative opportunity for real estate investors and developers. In this article, we take a look at the evolving role of data centres in CRE, their economic and environmental implications, investment opportunities, and Canada’s untapped potential to lead in this trillion-dollar industry.
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Data Centres: The New Asset Class in Real Estate
Unlike traditional real estate investments influenced by location, aesthetics, or amenities, data centre valuations are deeply rooted in technical infrastructure, power capacity, and the ability to ensure uptime and security. Long-term tenancy, low vacancy rates, and steady cash flows make them a compelling investment choice. Vacancy rates in established markets such as the United States are at a record low of 2.8%, with rents rising by 20% year-over-year due to high demand and limited supply [1].
The surge in demand for data centres stems from exponential data generation, growing by 18.5% CAGR to reach 21 zettabytes by 2027 [2]. AI and machine learning, especially, are reshaping requirements for high-performance computing (HPC) infrastructure and driving the demand for data centres.
1. The Global Surge in Data Centre Demand
Unprecedented Growth: The explosion of data generated by IoT devices, AI, 5G networks, and cloud computing is fueling unprecedented growth in the data centre sector. As businesses and consumers adopt increasingly digital lifestyles, the global data centre capacity, which stood at 17 GW in 2022, is projected to exceed 35 GW by 2030, reflecting a compound annual growth rate (CAGR) of 15% [3]. This surge is driven by hyperscale facilities designed to handle vast amounts of data while supporting scalable operations.
Unlike traditional real estate investments influenced by location, aesthetics, or amenities, data centre valuations are deeply rooted in technical infrastructure, power capacity, and the ability to ensure uptime and security. Long-term tenancy, low vacancy rates, and steady cash flows make them a compelling investment choice. Vacancy rates in established markets such as the United States are at a record low of 2.8%, with rents rising by 20% year-over-year due to high demand and limited supply [1].
The surge in demand for data centres stems from exponential data generation, growing by 18.5% CAGR to reach 21 zettabytes by 2027 [2]. AI and machine learning, especially, are reshaping requirements for high-performance computing (HPC) infrastructure and driving the demand for data centres.
1. The Global Surge in Data Centre Demand
Unprecedented Growth: The explosion of data generated by IoT devices, AI, 5G networks, and cloud computing is fueling unprecedented growth in the data centre sector. As businesses and consumers adopt increasingly digital lifestyles, the global data centre capacity, which stood at 17 GW in 2022, is projected to exceed 35 GW by 2030, reflecting a compound annual growth rate (CAGR) of 15% [3]. This surge is driven by hyperscale facilities designed to handle vast amounts of data while supporting scalable operations.
Figure 1.0
Source: CBREIM
Figure 2.0
Source: CBREIM
Economic Impact and Investment Opportunities
1. Data Centres as Economic Drivers
Beyond their technological role, data centres create jobs, stimulate local economies, and increase property values. Development of new data centre facilities is not only accommodating advanced technologies like artificial intelligence but is also contributing to widespread economic growth.
According to accounting firm PwC, data-centre-related jobs in the US between 2017 and 2021 have increased 20% nationwide to 3.5 million from 2.9 million, far exceeding the 2% rise in overall U.S. employment. Each direct job in the U.S. data centre industry helped to create 7.4 ancillary jobs on average throughout the U.S. economy [4].
Alberta’s goal to attract $100 billion in AI-related investments reflects how regional governments can incentivize the sector. These initiatives position data centres as anchors for broader tech ecosystems, with spillover effects for local businesses and real estate.
2. Diversification of Real Estate Portfolios
Institutional investors see data centres as a hedge against traditional market volatility. Offering higher yield potential and longer-term leases, these facilities diversify portfolios and ensure steady income. Real estate investment trusts (REITs) focused on technology infrastructure, such as Digital Realty or Equinix, are leading the charge.
Addressing Commercial Real Estate Decline through Repurposing
The decline of traditional office and retail spaces presents a unique opportunity to repurpose industrial buildings into data centres, transforming yesterday’s factories and offices into the digital factories of tomorrow. These conversions often leverage existing infrastructure, such as power and connectivity lines, to significantly reduce costs and accelerate time to market.
Constructing a greenfield data centre typically costs $600 to $1,100 per square foot, or $7 million to $12 million per megawatt of IT load. For example, building a 700,000-square-foot, 60-megawatt data centre in Northern Virginia—one of the world’s largest data centre markets—would cost between $420 million and $770 million, including powered shells and advanced electrical and HVAC systems [5].
Brownfield redevelopment projects offer a meaningful cost advantage, repurposing commercial real estate with savings of 10% to 15% compared to greenfield builds. QTS Realty Trust, for instance, has successfully converted semiconductor fabrication plants and newspaper printing presses into state-of-the-art data centres, translating to savings of several million dollars per megawatt [6]. These projects are particularly advantageous for colocation centres that require proximity to end users in urban hubs, minimizing latency and maximizing efficiency.
Repurposing industrial spaces into data centres not only revitalizes underutilized assets but also positions real estate as a vital enabler of the digital economy.
1. Data Centres as Economic Drivers
Beyond their technological role, data centres create jobs, stimulate local economies, and increase property values. Development of new data centre facilities is not only accommodating advanced technologies like artificial intelligence but is also contributing to widespread economic growth.
According to accounting firm PwC, data-centre-related jobs in the US between 2017 and 2021 have increased 20% nationwide to 3.5 million from 2.9 million, far exceeding the 2% rise in overall U.S. employment. Each direct job in the U.S. data centre industry helped to create 7.4 ancillary jobs on average throughout the U.S. economy [4].
Alberta’s goal to attract $100 billion in AI-related investments reflects how regional governments can incentivize the sector. These initiatives position data centres as anchors for broader tech ecosystems, with spillover effects for local businesses and real estate.
2. Diversification of Real Estate Portfolios
Institutional investors see data centres as a hedge against traditional market volatility. Offering higher yield potential and longer-term leases, these facilities diversify portfolios and ensure steady income. Real estate investment trusts (REITs) focused on technology infrastructure, such as Digital Realty or Equinix, are leading the charge.
Addressing Commercial Real Estate Decline through Repurposing
The decline of traditional office and retail spaces presents a unique opportunity to repurpose industrial buildings into data centres, transforming yesterday’s factories and offices into the digital factories of tomorrow. These conversions often leverage existing infrastructure, such as power and connectivity lines, to significantly reduce costs and accelerate time to market.
Constructing a greenfield data centre typically costs $600 to $1,100 per square foot, or $7 million to $12 million per megawatt of IT load. For example, building a 700,000-square-foot, 60-megawatt data centre in Northern Virginia—one of the world’s largest data centre markets—would cost between $420 million and $770 million, including powered shells and advanced electrical and HVAC systems [5].
Brownfield redevelopment projects offer a meaningful cost advantage, repurposing commercial real estate with savings of 10% to 15% compared to greenfield builds. QTS Realty Trust, for instance, has successfully converted semiconductor fabrication plants and newspaper printing presses into state-of-the-art data centres, translating to savings of several million dollars per megawatt [6]. These projects are particularly advantageous for colocation centres that require proximity to end users in urban hubs, minimizing latency and maximizing efficiency.
Repurposing industrial spaces into data centres not only revitalizes underutilized assets but also positions real estate as a vital enabler of the digital economy.
Figure 3.0
Sources: DgtlInfra
Table 1.0 Data Centre - Total Development Costs Example
Sources: DgtlInfra
Table 2.0 Cost comparison of Greenfield vs. Brownfield Data Centre
Sources: DgtlInfra
In Chicago, a former industrial warehouse was repurposed into a state-of-the-art data centre, leveraging its central location and existing power grid connections[7] underscoring the potential of urban retrofits to create advanced digital infrastructure while revitalizing local economies. This project not only reduced construction timelines but also revitalized the surrounding community by attracting tech-driven businesses.
Despite their advantages, retrofits do pose challenges:
3. A sought-after Investment Asset
High Demand and Stable Returns: Data centres represent a highly attractive asset class due to:
Despite their advantages, retrofits do pose challenges:
- Technical Upgrades: Retrofitting cooling systems, fire protection, and security to meet modern standards can be costly.
- Zoning and Permitting: Converting industrial spaces require navigating complex regulatory landscapes.
3. A sought-after Investment Asset
High Demand and Stable Returns: Data centres represent a highly attractive asset class due to:
- Low Vacancy Rates and rising rents: Averaging under 3% globally, with regions like Northern Virginia reporting rates as low as 0.94% .
- Long-Term Leases: Hyperscalers like Amazon and Microsoft sign leases ranging from 7 to 15 years, ensuring predictable cash flows.
- Superior ROI: Data centres offer unlevered internal rates of return (IRRs) between 8% and 12%, outperforming traditional CRE assets like office or retail [9].
Figure 4.0
Figure 5.0
Private Equity and Institutional Involvement
Private equity firms such as Blackstone and Brookfield are making substantial investments in data centres, drawn by their high returns and stability. In 2023, $4.8 billion in North American data centre assets were traded, reflecting a 29% year-over-year increase [10].
Private equity firms such as Blackstone and Brookfield are making substantial investments in data centres, drawn by their high returns and stability. In 2023, $4.8 billion in North American data centre assets were traded, reflecting a 29% year-over-year increase [10].
Table 3.0: Comparison between Data Centres and Traditional CRE
Source: CBRE Investment Management
4. Integration with Renewable Energy Development
One of the primary criticisms of data centres is their significant energy consumption. However, data centres can be a major force in driving renewable energy adoption. Power Purchase Agreements (PPAs) between data centre operators and renewable energy providers ensure long-term energy supply while funding projects like wind and solar farms. The industry has become one of the largest buyers of renewable energy PPAs, significantly influencing the global energy mix. In 2021, Amazon and Microsoft led corporate renewable energy purchases through PPAs, highlighting the sector’s role in advancing decarbonization and supporting grid-scale carbon-free energy[11].
To address environmental concerns, data centres are adopting energy-efficient technologies such as AI-optimized cooling, modular construction, and increased rack density. Leading tech companies are setting benchmarks: Amazon achieved 100% electricity matching with renewable sources seven years ahead of schedule, Microsoft aims for 100% renewable energy by 2025, and Google is targeting 24/7 carbon-free energy by 2030[12]. This comprehensive approach underscores the sector's transformative potential in fostering a sustainable energy ecosystem and expanding the digital economy.
Canada’s Lagging Progress Despite Strategic Advantages
Canada’s natural advantages—low energy costs, a cool climate, a vast and accessible landmass near urban centres, and a stable electricity grid—position it as one of the top five global destinations for data centres. However, significant regional and structural challenges limit its ability to fully capitalize on the sector’s growth potential. Despite its strengths, Canada’s data centre market significantly trails its peers, ranking fifth globally behind India, even while being adjacent to the world’s largest market, the U.S., which accounts for 50% of the global market.
One of the primary criticisms of data centres is their significant energy consumption. However, data centres can be a major force in driving renewable energy adoption. Power Purchase Agreements (PPAs) between data centre operators and renewable energy providers ensure long-term energy supply while funding projects like wind and solar farms. The industry has become one of the largest buyers of renewable energy PPAs, significantly influencing the global energy mix. In 2021, Amazon and Microsoft led corporate renewable energy purchases through PPAs, highlighting the sector’s role in advancing decarbonization and supporting grid-scale carbon-free energy[11].
To address environmental concerns, data centres are adopting energy-efficient technologies such as AI-optimized cooling, modular construction, and increased rack density. Leading tech companies are setting benchmarks: Amazon achieved 100% electricity matching with renewable sources seven years ahead of schedule, Microsoft aims for 100% renewable energy by 2025, and Google is targeting 24/7 carbon-free energy by 2030[12]. This comprehensive approach underscores the sector's transformative potential in fostering a sustainable energy ecosystem and expanding the digital economy.
Canada’s Lagging Progress Despite Strategic Advantages
Canada’s natural advantages—low energy costs, a cool climate, a vast and accessible landmass near urban centres, and a stable electricity grid—position it as one of the top five global destinations for data centres. However, significant regional and structural challenges limit its ability to fully capitalize on the sector’s growth potential. Despite its strengths, Canada’s data centre market significantly trails its peers, ranking fifth globally behind India, even while being adjacent to the world’s largest market, the U.S., which accounts for 50% of the global market.
Figure 6.0
Source: Datacentermap.com
Figure 7.0
Source: Datacentermap.com
In 2023, Canada added just 80 MW of capacity, a mere fraction of the 800 MW added in the United States. Moreover, Toronto, the country’s largest data centre market, has stagnated. Once comparable to Chicago in growth trajectory, Toronto’s market now stands at just one-third of Chicago’s capacity. This disparity highlights Canada’s challenges in scaling data center infrastructure.
Hurdles such as complex zoning laws, extended permitting timelines, and power grid bottlenecks have deterred investment.
Policy Recommendations for Growth
There is no coordinated effort by any province or the federal government to position Canada as a leader in data centre-driven economic growth and commercial real estate development. Recently, Alberta launched its first roadmap to attract $100 billion in data centre investments over five years[13]. The strategy leverages Alberta's growing AI ecosystem, renewable energy integration, and streamlined regulatory processes. By positioning itself as a hub for edge data centres, Alberta complements its existing strengths in technology and innovation, setting an example for other provinces to follow.
Canada must implement significant policy reforms to enhance its competitiveness in the global data centre market. For instance, Ireland, a recognized leader in data centre policy, has introduced a one-stop permitting system that reduced project timelines by 30%. Similarly, the United States leverages tax incentives under the Inflation Reduction Act to attract substantial investments. Without adopting comparable measures, Canada risks falling behind in this critical sector. To regain momentum and appeal to hyperscale developers, Canada must pursue a comprehensive, multipronged strategy:
These measures could help Canada better leverage its natural and technological assets, ensuring it becomes a more attractive destination for global data centre operators.
Future Prospects: The $1 Trillion Opportunity
Within Canada, domestic demand for data centres is poised for accelerated growth, fueled by the country's burgeoning AI innovation economy and its increasing role as an extension of U.S. data centre market. With its vast landmass, significantly lower operating costs (up to 30% less than the U.S.[14]), and a cooler climate, Canada is well-suited to meet the rising global demand for digital infrastructure.
By 2030, the global data centre market is expected to surpass $1 trillion[15], and Canada is well-positioned to capture a significant share. Strategic investments in renewable energy, coupled with policy reforms to streamline project approvals, could help attract hyperscalers and bolster Canada’s role in the global digital economy.
Data centres are transforming the real estate industry, merging advanced technology with stable financial returns. This shift drives investments away from traditional office spaces toward high-yield infrastructure. For Canada, addressing barriers like power constraints and regulatory inefficiencies could unlock immense potential, leveraging its energy resources, cool climate, and skilled workforce. As AI and digitalization reshape economies, data centres play a vital role in driving advancements in AI, blockchain, and IoT. With hyperscalers like Amazon and Microsoft expanding globally, Canada must act now to harness the transformative power of data centres and secure its leadership in the future digital economy.
The rapid evolution of data centres represents a pivotal moment for the real estate industry and the Real Estate Institute of Canada (REIC) empowers its members to capitalize on this paradigm shift by promoting education, ethical practices, and innovative solutions. By fostering collaboration between policymakers, developers, and investors, and advocating for sustainable and technologically advanced real estate investments, REIC ensures its members are at the forefront of integrating technological change into the real estate industry.
Hurdles such as complex zoning laws, extended permitting timelines, and power grid bottlenecks have deterred investment.
Policy Recommendations for Growth
There is no coordinated effort by any province or the federal government to position Canada as a leader in data centre-driven economic growth and commercial real estate development. Recently, Alberta launched its first roadmap to attract $100 billion in data centre investments over five years[13]. The strategy leverages Alberta's growing AI ecosystem, renewable energy integration, and streamlined regulatory processes. By positioning itself as a hub for edge data centres, Alberta complements its existing strengths in technology and innovation, setting an example for other provinces to follow.
Canada must implement significant policy reforms to enhance its competitiveness in the global data centre market. For instance, Ireland, a recognized leader in data centre policy, has introduced a one-stop permitting system that reduced project timelines by 30%. Similarly, the United States leverages tax incentives under the Inflation Reduction Act to attract substantial investments. Without adopting comparable measures, Canada risks falling behind in this critical sector. To regain momentum and appeal to hyperscale developers, Canada must pursue a comprehensive, multipronged strategy:
- Streamline Permitting: Centralized permitting systems, modeled after Ireland’s one-stop approach, could accelerate project approvals and reduce delays.
- Enhance Renewable Energy Incentives: Expanding tax benefits and fostering public-private partnerships would support clean energy integration, particularly in regions like Alberta.
- Modernize Power Grids: Addressing infrastructure bottlenecks is essential to meeting the high energy demands of hyperscale data centres.
These measures could help Canada better leverage its natural and technological assets, ensuring it becomes a more attractive destination for global data centre operators.
Future Prospects: The $1 Trillion Opportunity
Within Canada, domestic demand for data centres is poised for accelerated growth, fueled by the country's burgeoning AI innovation economy and its increasing role as an extension of U.S. data centre market. With its vast landmass, significantly lower operating costs (up to 30% less than the U.S.[14]), and a cooler climate, Canada is well-suited to meet the rising global demand for digital infrastructure.
By 2030, the global data centre market is expected to surpass $1 trillion[15], and Canada is well-positioned to capture a significant share. Strategic investments in renewable energy, coupled with policy reforms to streamline project approvals, could help attract hyperscalers and bolster Canada’s role in the global digital economy.
Data centres are transforming the real estate industry, merging advanced technology with stable financial returns. This shift drives investments away from traditional office spaces toward high-yield infrastructure. For Canada, addressing barriers like power constraints and regulatory inefficiencies could unlock immense potential, leveraging its energy resources, cool climate, and skilled workforce. As AI and digitalization reshape economies, data centres play a vital role in driving advancements in AI, blockchain, and IoT. With hyperscalers like Amazon and Microsoft expanding globally, Canada must act now to harness the transformative power of data centres and secure its leadership in the future digital economy.
The rapid evolution of data centres represents a pivotal moment for the real estate industry and the Real Estate Institute of Canada (REIC) empowers its members to capitalize on this paradigm shift by promoting education, ethical practices, and innovative solutions. By fostering collaboration between policymakers, developers, and investors, and advocating for sustainable and technologically advanced real estate investments, REIC ensures its members are at the forefront of integrating technological change into the real estate industry.
[1] https://www.cbreim.com/insights/articles/decoding-data-centers
[2] https://www.cbreim.com/insights/articles/decoding-data-centers
[3] https://rmi.org/how-data-centers-can-set-the-stage-for-larger-loads-to-come/
[4] https://www.cbre.com/insights/briefs/data-center-growth-has-economic-ripple-effects
[5] https://dgtlinfra.com/how-much-does-it-cost-to-build-a-data-center/
[6] https://dgtlinfra.com/how-much-does-it-cost-to-build-a-data-center/
[7] https://theconversation.com/the-factories-of-the-past-are-turning-into-the-data-centers-of-the-future-70033
[8] https://www.cbre.com/insights/reports/north-america-data-center-trends-h2-2023
[9] https://www2.hl.com/pdf/2024/real-estate-market-update-data-centers-summer-2024.pdf
[10] https://www2.hl.com/pdf/2024/real-estate-market-update-data-centers-summer-2024.pdf
[11] https://www.forbes.com/sites/siemens-smart-infrastructure/2024/04/30/smart-hospitals-digitalizing-healthcare-for-a-new-era/?
[12] https://stxgroup.com/strive/latest-news/how-data-centers-growth-sustainability/#:~:text=Moreover%2C%20tech%20giants%20like%20Amazon,diminish%20the%20sector's%20environmental%20footprint
[13] https://calgaryherald.com/opinion/columnists/alberta-rolls-out-plan-to-attract-data-centres-eyes-100b-investment-over-five-years
[14] https://reports.turnerandtownsend.com/dcci-2024/data-centre-cost-trends
[15] https://www.fierce-network.com/data-center/data-center-capex-could-top-1-trillion-2027-thanks-ai
[2] https://www.cbreim.com/insights/articles/decoding-data-centers
[3] https://rmi.org/how-data-centers-can-set-the-stage-for-larger-loads-to-come/
[4] https://www.cbre.com/insights/briefs/data-center-growth-has-economic-ripple-effects
[5] https://dgtlinfra.com/how-much-does-it-cost-to-build-a-data-center/
[6] https://dgtlinfra.com/how-much-does-it-cost-to-build-a-data-center/
[7] https://theconversation.com/the-factories-of-the-past-are-turning-into-the-data-centers-of-the-future-70033
[8] https://www.cbre.com/insights/reports/north-america-data-center-trends-h2-2023
[9] https://www2.hl.com/pdf/2024/real-estate-market-update-data-centers-summer-2024.pdf
[10] https://www2.hl.com/pdf/2024/real-estate-market-update-data-centers-summer-2024.pdf
[11] https://www.forbes.com/sites/siemens-smart-infrastructure/2024/04/30/smart-hospitals-digitalizing-healthcare-for-a-new-era/?
[12] https://stxgroup.com/strive/latest-news/how-data-centers-growth-sustainability/#:~:text=Moreover%2C%20tech%20giants%20like%20Amazon,diminish%20the%20sector's%20environmental%20footprint
[13] https://calgaryherald.com/opinion/columnists/alberta-rolls-out-plan-to-attract-data-centres-eyes-100b-investment-over-five-years
[14] https://reports.turnerandtownsend.com/dcci-2024/data-centre-cost-trends
[15] https://www.fierce-network.com/data-center/data-center-capex-could-top-1-trillion-2027-thanks-ai
Allwyn Dsouza is REIC’s Senior Analyst, Market Research and Insights. He can be reached at [email protected]. Media enquiries can be directed to [email protected]