Has The Data Center Craze Created a New Bubble?

• Overheating data centers: Data centers have long been a hot spot in industrial real estate, but are signs of a bubble starting to appear?

• Power play: Industrial landlords are learning that smarter buildings and energy insights help keep modern tenants happy and loyal.

• Politics and interest rates: The Trump administration is hoping to change the way that the Fed determines interest rates.

• Copper caper: The rise in copper prices has added extra risk of theft on construction sites and empty buildings.

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Focus: Industrial

Has The Data Center Craze Created a New Bubble?

Data center investment is heating up. Will it overheat? Over the past year, billions of dollars have poured into data center development. Private equity firms like Blackstone are aggressively funding new facilities, backed by long-term leases with tech giants such as AWS and Google. Much of the momentum is driven by artificial intelligence, which has created a surge in demand for computing power and storage. Some industry experts believe this is just the beginning of a multi-decade expansion.

Not everyone agrees. At a recent investment summit, Alibaba chairman Joe Tsai warned that a speculative bubble may be forming. He pointed to developers racing to build data centers without firm tenant commitments. Some analysts share his concern, especially as open-source AI tools lower the barrier to entry. While Alibaba is investing heavily in AI, Tsai emphasized that its strategy is tied to clear business needs, not blind optimism.

Despite the caution, the fundamentals remain strong. Most data center projects are already pre-leased, and limited power availability is slowing down speculative construction. According to CBRE, this could help prevent overbuilding. Whether this moment leads to sustainable growth or a painful correction will depend on how well capital, infrastructure, and demand stay aligned.

Overheard

Politically Motivated Interest Rates Could Upend CRE Math

Donald Trump is turning the Federal Reserve into a campaign issue—again. The former president is pushing for a dramatic interest rate cut, down to just 1%, a level not seen since the height of the pandemic. This isn't just political rhetoric; it's a challenge to the very independence of the Fed. While Trump argues that low rates would spur growth and help tame the national debt, economists warn that such a move could overheat the economy and trigger a second wave of inflation. What’s more, it puts Fed Chair Jerome Powell, already on thin political ice, directly in Trump’s crosshairs.

The idea of slashing rates while the economy is still growing and inflation is only just beginning to stabilize breaks with modern monetary orthodoxy. It could also create headaches for real estate investors and lenders alike. Artificially low rates distort risk pricing, inflate asset values, and can ultimately lead to sharp corrections—something anyone who lived through the 2008 crisis remembers well. Trump's comments are already affecting bond markets, pushing Treasury yields higher on fears of Fed instability.

For property owners, the takeaway is that political risk might be the most underpriced variable in today’s economic models. The Fed’s decisions used to be apolitical and technocratic, but that assumption no longer holds. If Trump wins and follows through on these threats, expect an unpredictable interest rate environment. That kind of volatility might be good for traders, but it’s a nightmare for anyone trying to underwrite a deal that pencils out for more than a year.

New Copper Theft Wave Puts Vacant Buildings in the Crosshairs

A nationwide surge in copper theft is putting commercial property owners on high alert. Fueled by record-high prices and increasing demand from sectors such as renewables and data centers, copper has become a prime target for criminals. In July, HVAC thefts totaling $1 million hit buildings in Las Cruces, New Mexico, an incident emblematic of a broader trend.

The price of copper spiked to $5.60 per pound following President Trump’s announcement of a 50% tariff on copper imports, pushing year-to-date gains above 35%. As prices rise, so do thefts. Nearly 4,000 copper-related thefts were reported across logistics sites in the U.S. and Canada in 2023, and this number is expected to continue climbing.

Cities like Denver and St. Paul are responding with policy crackdowns, banning cash payments at scrap yards, requiring licensing, and mandating transaction records. Early results suggest these efforts are working, with St. Paul reporting a 50% drop in theft complaints.

For landlords, vacant properties are particularly at risk. Experts suggest implementing proactive security measures, such as AI-powered loitering detection and designated perimeter zones, to deter criminals before damage occurs. In today’s copper rush, safeguarding building infrastructure is no longer optional. It’s a matter of operational risk management.

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Propmodo Daily is written and edited by Franco Faraudo with contributions from readers like you and the Propmodo team.

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