05 | Financing and Investment

The evolution of data centers has spurred material capital deployment over the past 20 years, as investors look to exploit the market opportunity presented by the increasing importance of data centers in providing the critical IT infrastructure essential to a digitalised world. This surge in demand for data processing, storage, and cloud services has attracted substantial financing from banks, corporates, private equity and other institutional investors, eager to capitalise on the sector’s robust growth prospects.

As the digital economy continues to expand, the financing and investment strategies in the data center market will play a pivotal role in shaping the industry’s future, with major stakeholders recognizing the long-term value proposition of these critical assets. The key pointers of the emerging landscape are tracked here through the broad categories of equity investments, debt financing, equity returns and major trends.

Data center REITs like Digital Realty and Equinix have become key players in the market, managing extensive portfolios of income- generating properties. These REITs not only manage extensive portfolios of properties but also play a crucial role in expanding global data center capacity. Additionally, their ability to attract and manage large-scale investments reflects the market’s confidence in their continued growth and the essential services they provide to the industry.

The attractiveness of these data center-focused REITs is evident in their growing weight within the FTSE Nareit All Equity REITs Index. Since 2017, the data center segment within this index has seen substantial growth, showcasing the sector’s increasing importance within the broader real estate market. This trend has also driven consolidation, with several publicly traded data center REITs being taken private or merged with other public REITs (Morgan Stanley, 2023).

Data centers have also outperformed other real estate sectors in terms of returns. As of the end of 2024, global real estate performance data shows that the data center segment ranks at the top for its returns, underscoring the strong investor interest and the robust demand for digital infrastructure (Nareit, 2025).

Beyond publicly listed REITs, unlisted REITs and evergreen funds are also playing a significant role in data center investments. Companies like Blackstone and Brookfield have made substantial commitments to the sector, with Blackstone managing assets valued at $112.0 Bn as of May 2024, and Brookfield overseeing $9.1 Bn in commitments since its inception in 2018 (PitchBook, 2024).

The rapid expansion of the data center market has also led to significant shifts in financing strategies, particularly as traditional financing methods face limitations due to market saturation and bank balance sheet constraints. As a result, project financing options are being reconsidered, with asset-backed securitisation (ABS) emerging as a notable trend. Historically, securitisation was primarily associated with long-term contracts involving major players like Microsoft and Amazon. However, in recent years, retail and colocation market participants have increasingly entered the securitisation space as well, benefiting from better creditworthiness and ratings. The sticky nature of contracts and the high reliability of renewals have made these players more attractive to financiers, leading to a deepening and growth of the ABS market (Infrastructure Investor, 2024).

Since 2023, the cost of data center asset-backed securities has decreased. Even as the base rate remains elevated, ABS spreads have narrowed compared to levels seen during the credit crisis, making securitisation an increasingly viable financing option. Although securitisation has predominantly been a U.S.-centric market, the model is gradually gaining traction in Europe, with ABS and Commercial-Backed Mortgage Securities beginning to make an entry into the region (Infrastructure Investor, 2024).

Debt financing remains a critical tool for data center operators, particularly for funding new developments and refinancing existing projects. There has been an important number of debt transactions over the past years that provide billions of dollars to the data center market with different investors involved. Many of these financings are aligned with sustainability- linked loan principles, where the pricing of debt facilities is adjusted based on the borrower’s performance in achieving greenhouse gas (GHG) reduction targets. For example, in 2024, Stack Infrastructure announced a $1.3 Bn financing package, including $506.0 Mn in green construction debt, to support its global development plans. This brings the company’s total raised capital to $12.0 Bn to date, with $2.6 Bn being securitized notes as of 2023, rated “A-” by S&P (Stack Infrastructure, 2024). Similarly, CyrusOne secured $9.7 Bn in debt capital in 2024, which is split into a $7.9 Bn Warehouse Credit Facility and a $1.8 Bn Revolving Credit Facility, both aligned with sustainability-linked loan principles (CyrusOne, 2024).

The rise of specialised funding entities has also been a key factor in the robust performance of private digital infrastructure over the past decade. These entities, including private equity firms and real estate funds, have committed a cumulative $800.0 Bn to private infrastructure and real estate funds that invest in digital infrastructure. Specialist digital infrastructure funds, which invest exclusively or near- exclusively in this space, have raised $44.0 Bn over the past decade, underscoring the growing investor interest in data center assets (PitchBook, 2024).

The data center market has demonstrated varying returns across regions, influenced by a mix of regulatory frameworks, market dynamics, and investor interest. In North America, the deal-level median IRR consistently surpasses those in Europe and the global average. This is largely due to the region’s favourable regulatory environment, which includes state-level tax incentives for data center developments and energy efficiency stipulations under the U.S. Inflation Reduction Act. These regulatory benefits have boosted returns, making North America a particularly attractive region for data center investments (PitchBook, 2024).

In contrast, the European market, while still attractive, shows lower IRRs at the deal level. The region’s stringent regulatory landscape, including policies under the General Data Protection Regulation (GDPR), has made investment slightly more challenging compared to North America. However, these regulations have also steered investments toward smaller European cities, enhancing the attractiveness of these locations for data center developments (PitchBook, 2024). Despite the lower IRRs, European data centers are still considered secure, long-term investments with strong potential returns, typically above 10.0% (Savills Research, 2024).

A closer look at deal-level IRRs reveals that Europe stands as the only region in the graph which contains negative returns for the bottom quartile range. Despite this, the European market is still drawing increased attention from investors, particularly as major asset management companies like PIMCO are in the process of raising capital for dedicated data center funds. PIMCO’s Europe-centric data center fund, which is currently in development, is targeting an ambitious IRR of 20.0%, reflecting the high level of confidence in the region’s long- term investment potential (PitchBook, 2024).

Moreover, data centers in the U.S. have shown remarkable resilience in maintaining their value, with year-end capitalization rates ranging from 5.5% to 7.5% in 2023, despite stress in the broader commercial real estate market (Moody’s, 2024) (Newmark, 2024).

In the fourth quarter of 2024, the data center sector experienced a notable compression in cap rates. The REIT implied cap rate for data centers decreased by 18 basis points, settling at 4.23%. This decline signifies a growing investor interest in data centers, likely driven by the increasing demand for digital infrastructure. Notably, the REIT implied cap rate for data centers is significantly lower than the private market cap rate of 5.48%, indicating that public market valuations have adjusted more swiftly to the sector’s dynamics compared to private market valuations (Centersquare, 2025).

The strong demand and confidence in the sector highlights the unique position of data centers as a secure and profitable investment class, even when other sectors, such as offices and retail, face higher capitalization rates and associated risks (Moody’s, 2024) (Newmark, 2024).

he data center market has seen a surge in innovative financing solutions and evolving investment trends that reflect the sector’s growing importance. One significant trend is the increasing reliance on green loans to meet data center operators’ debt financing needs. For instance, in April 2024, Vantage Data Centers secured a substantial $3.0 Bn green loan led by Wells Fargo Securities, with participation from TD Securities, Truist Securities, and Scotiabank. This financing supports Vantage’s North America expansion plans, covering both new and existing sites (Vantage Data Centers, 2024). Similarly, DataBank established a $725.0 Mn credit facility in the same month to fund its ongoing and future data center developments, with green loan facilities provided by a consortium of 14 banks (DataBank, 2024).

In addition, there have been further sustainable capital raising events like EdgeCore’s $440.0 Mn and Digital Edge’s $335.0 Mn debt financing solutions (Data Center Dynamics, 2023) (Data Center Dynamics, 2024). These examples highlight the growing trend of incorporating sustainability into the financial strategies of data center operators, driven by the need to align with global environmental goals.

Following the sustainability objectives and to maintain competitiveness, older data centers are also investing heavily in upgrades and adopting more efficient cooling technologies. For example, Empyrion DC obtained its first secured green loan of S$133.0 Mn in February 2024 to refinance and upgrade its existing operations (ET CIO, 2024). Similarly, Netrality secured a $380.0 Mn sustainability-linked loan in November 2023 to invest in innovative cooling technologies, highlighting the importance of energy efficiency in maintaining competitive data center operations (Data Center Dynamics, 2023).

Another key trend is the rise in the adoption of asset-backed securitization (ABS) as a financing route. In June 2024, Vantage Data Centers raised £600.0 Mn in securitized term notes, marking its first-ever securitization of data center assets in the EMEA region (Vantage Data Centers, 2024). The ABS route is increasingly favoured due to its ability to provide liquidity and stability for large-scale data center projects, especially in the U.S., where TierPoint completed a $1.06 Bn securitization financing in July 2023— the largest ABS issuance in the U.S. data center sector since 2021 (TierPoint, 2023).

In addition to ABS, Commercial Mortgage- Backed Securities (CMBS) are gaining traction as a financing method for data center projects. For example, in July 2024, CyrusOne secured $687.1 Mn in its first CMBS loan for its DFW1 data center in Carrollton, Texas, demonstrating the growing acceptance of CMBS in the sector (Data Center Dynamics, 2024). In relation to this, QTS Realty also secured a single asset, single borrower CMBS loan of $800.0 Mn in 2023 covering four US data centers (Data Centre Dynamics, 2023). This trend underscores the data center market’s maturity and the increasing willingness of investors to engage in complex financial structures to fund data center growth.

The market is also looking beyond traditional ABS and CMBS due to the high demand for data center capacity, leading to increased activity in project financing. For instance, Siemens Financial Services has been instrumental in providing customized project financing solutions, helping companies like Vantage Data Centers and Atman raise necessary funds for their development plans (Siemens Financial Services, 2024).

Institutional financing through partnerships and joint ventures is also playing a critical role in data center development. In April 2024, AdaniConneX, a joint venture between Adani Enterprises and EdgeConneX, secured $1.4 Bn in loans to develop data centers in India (Livemint, 2024), and PGIM Real Estate formed a $600.0 Mn joint venture to develop a hyperscale data center as part of its xScale hyperscale platform in Silicon Valley (Data Centre Dynamics, 2024). This illustrates the global reach and collaborative nature of modern data center financing.

The involvement of new banks and private credit groups in funding data centers, apart from traditional infrastructure investors, is expanding the investor spectrum and providing more flexible credit terms to data center developers (Newmark, 2024).

In conclusion, the data center financing landscape is evolving rapidly, with innovative financing structures such as green loans, ABS, and CMBS becoming increasingly prevalent. These trends reflect the sector’s robust growth prospects and the critical role that sustainable and flexible financing will play in supporting the continued expansion of global data center infrastructure.