Why data centres are no longer just a real estate business.
A developer can control a well-located site, raise construction finance and secure a technology tenant while still being months away from earning rent. The utility may be waiting on a substation upgrade, or the building may have power but still need to pass the tests specified in the lease.
In either case, capital is tied up while the customer waits for usable capacity.
The investment case therefore turns on the developer’s ability to deliver reliable, commissioned infrastructure at an acceptable cost. Land, entitlements and a strong tenant remain important. So do the terms of utility service, fibre access, cooling design, long-lead equipment and the point at which the customer becomes obliged to pay.
Power availability shapes site value
Powered land is valuable when the route from a parcel to usable electrical capacity is credible. A utility study, a commitment conditional on grid works and an energised connection carry different costs and risks.
| Stage | Evidence of progress |
|---|---|
| 1 | Utility study |
| 2 | A commitment conditional on grid works |
| 3 | An energised connection |
| Outcome | Usable electrical capacity |
Different costs and risks arise at each stage. This sequence is schematic, not to scale.
A buyer must establish:
- How much power is available.
- When it can be delivered.
- What upgrades are required.
- Who pays for them.
It should also distinguish capacity at the utility connection from capacity available to computing equipment after cooling and other facility loads. What matters to the tenant is what its equipment can actually use.
Demand growth provides context, not a site-level guarantee
The U.S. Energy Information Administration’s November 2026 outlook projected almost 4,390 billion kWh of electric power-sector generation for 2026, up 2.7% from 2025. It attributed the increase partly to rising commercial demand and a hotter summer. [1]
Berkeley Lab’s June 2026 update estimated that data centres could account for 11.8% of total U.S. electricity use in 2030 in its reference case, with a range of 9.5% to 15.3% across scenarios. [2]
| Indicator | Figure reported in the publication |
|---|---|
| U.S. electric power-sector generation projected for 2026 | Almost 4,390 billion kWh |
| Increase from 2025 | 2.7% |
| Data-centre share of total U.S. electricity use in 2030: reference case | 11.8% |
| Range across scenarios | 9.5%–15.3% |
These national figures give context for demand growth. Local delivery still depends on the network serving the site and the terms the utility can offer.
From land bank to operating capacity
In its 15 October 2026 investor materials, Prologis disclosed a 5.8 GW data centre power pipeline, combining secured and advanced-stage capacity. [3]
| Prologis data centre power pipeline | GW |
|---|---|
| Secured | 1.7 |
| Advanced stage | 4.1 |
| Total | 5.8 |
Split as reported in Prologis’s third-quarter 2026 supplemental information. [3]
The distinction matters when valuing a pipeline. A project with a utility application outstanding should carry a different probability, capital commitment and start date from a project with confirmed power, a signed lease and commissioning under way.
A property developer may bring land, entitlement expertise and access to institutional capital. Where engineering, utility procurement or operations are outside its experience, a partnership can help allocate those responsibilities to a party equipped to bear them.
| The developer brings | A partner may be equipped to bear |
|---|---|
| Land | Engineering |
| Entitlement expertise | Utility procurement |
| Access to institutional capital | Operations |
The appropriate structure depends on which capabilities the developer can contribute and which obligations it can price and control.
Cost overruns and delays affect returns differently
Consider a hypothetical 20 MW project with a $200 million development budget and $18 million of stabilised annual net operating income (NOI). Yield on cost is 9.00%. If total development cost rises by 15% to $230 million, the same NOI supports a yield of 7.83%, a decline of roughly 117 basis points.
Yield on cost = annual NOI ÷ total development cost.
- Base case: $18 million ÷ $200 million = 9.00%.
- Cost overrun: $18 million ÷ $230 million = 7.83%.
With debt service held constant, stabilised coverage is unchanged in the illustration. Funding the overrun with additional debt could also weaken coverage.
Table 1. Illustrative 20 MW development
| Metric | Base case | Cost overrun |
|---|---|---|
| Development cost | $200m | $230m |
| Development cost per MW | $10.0m | $11.5m |
| Stabilised annual rental revenue | $24m | $24m |
| Annual property operating costs | $6m | $6m |
| Stabilised annual NOI | $18m | $18m |
| Yield on development cost | 9.00% | 7.83% |
| Annual debt service | $12m | $12m |
| Stabilised NOI to debt service | 1.50× | 1.50× |
Hypothetical assumptions. Yield on cost equals annual NOI divided by total development cost. The coverage calculation uses NOI and assumes constant annual debt service. Only development cost, development cost per MW and yield on cost change in this illustration; every other line holds.
A six-month delay creates a different exposure
At $18 million of annual NOI, a six-month energisation or commissioning delay defers up to $9 million of NOI over the affected six months against a simplified baseline of immediate, fully stabilised operations. Each month represents $1.5 million of NOI ($18 million ÷ 12).
The actual shortfall depends on phased delivery, operating expenses and the lease’s rent commencement provisions. Financing and carrying costs, contractor claims and tenant remedies can compound the pressure on liquidity.
Where lenders require reserves or test covenants before full rent begins, the funding model must account for that gap.
Which measures belong in the investment case
| Measure | What it captures |
|---|---|
| NOI | Property-level NOI captures recurring property income after property operating costs under the definition used. |
| EBITDA | Excludes depreciation and amortisation. |
| EBITA | Retains depreciation while excluding amortisation. |
| Yield on cost | Relates stabilised NOI to total development cost. |
To test whether the project justifies its capital, the investment committee also needs a dated cash-flow model, project net present value and internal rate of return, alongside equity returns and debt-service coverage.
A project with the same stabilised yield can produce materially different equity returns if rent begins later or if the overrun changes the financing mix.
Finance Controls
Run the project from an integrated cost-to-complete and cash forecast.
Reconcile incurred, committed and forecast expenditure to the approved budget, with separate visibility over unplaced orders, change orders and contingency.
Link utility works, equipment delivery and commissioning tests to rent commencement, debt draws and interest carry.
A monthly review should show the date and amount of the largest projected funding gap, who owns the critical milestone and what happens if it moves.
Transaction Advisory
Start with the utility agreement and the lease.
| Utility agreement: verify | Lease: compare those obligations with |
|---|---|
| Committed capacity | Tenant acceptance tests |
| Upgrade costs | Rent commencement |
| Delivery milestones | Power-cost pass-throughs |
| Deposits | Remedies |
| Conditions on which service can be delayed or curtailed | Termination rights |
For assets under construction, verify remaining expenditure and lead times for transformers, switchgear and cooling equipment.
In operating assets, examine tenant concentration and the cost of adapting to higher power density or a different cooling configuration when a lease expires.
Strategic Advisory
Match capital releases to the evidence available at each stage.
| Capital decision | Evidence and considerations |
|---|---|
| A land option | Can protect the opportunity while utility terms and design requirements are confirmed. |
| Early orders for long-lead equipment | May protect the schedule, but the decision should account for deposits, cancellation rights and whether equipment can be redeployed. |
| Major construction spend | Release against a funded path to energisation, an agreed tenant acceptance process and a downside case the balance sheet can absorb. |
The board dashboard
The board dashboard should distinguish secured, under-construction, contracted and operational MW.
Put expected energisation and rent commencement dates alongside:
- Remaining spend.
- Contingency.
- Stabilised NOI.
- Coverage under the delayed case.
This shows how much capital is committed before it can earn revenue and gives the board a basis for deciding when to proceed, pause or change the scope.
The investment decision
Before acquiring a site or releasing construction capital, the developer should be able to show:
- Which party will deliver each critical dependency.
- When the customer begins paying.
- How the project will be funded if either date slips.
A credible route to operational capacity is what gives powered land its investment value.
Sources
- U.S. Energy Information Administration, Short-Term Energy Outlook, November 2026.
- Lawrence Berkeley National Laboratory, United States Data Center Energy Usage Report: 2025 Update, June 2026.
- Prologis, third-quarter investor materials, Form 8-K Exhibit 99.1, 15 October 2026.
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