A Different Way to Tackle Data Center Demand

Article originally posted on Commercial Property Executive on October 29, 2025

The current level of data center demand has brought the industry to a never-before seen dynamism.

The state of the market means that any data center, whether it’s an older or smaller site or a newer mega-scale facility, is likely to sell quickly, Amy Polvado, chairwoman of the U.S. PropTech Council and founder & CEO of Facilimax, told Commercial Property Executive.

“There was an older government office for sale in Austin that had a server room and a back-up generator, which is all anyone was interested in,” said Polvado. The building sold for about $5 million because it had up to 0.5 MW capacity, she added.

Urban data centers tend to be smaller and have older equipment, but they’re still making money and serving a purpose, pointed out Sean Farney, vice president of data center strategy for the Americas, JLL.

“You can also invest a few million dollars into a 30-year-old data center with good bones and traditional equipment to upgrade it to support AI GPUs (graphic processing units). The fastest-growing demand is coming from AI but less than 5 percent of data centers can support GPUs,” Farney added, underscoring accelerating AI data center demand.

Location dynamics

The key element in where to build or retrofit a data center is power, according to Bill Stein, co-founder & chief investment officer of Primary Digital Infrastructure and former CEO of Digital Realty.

“Former hot spots like Northern Virginia and the Silicon Valley don’t have enough power to build more data centers and some major urban hubs don’t have enough either,” Stein said.

Some tenants want to move out of urban data centers because of the higher cost of utilities compared to more rural areas, said Merrie Frankel, president of Minerva Realty Consultants & a professor at NYU and Columbia.

When Ed Glickman’s client wanted to move their data center out of downtown Philadelphia, resilience was the issue.

“They were concerned about losing financial data in the event of civil unrest, so they were looking for a data center about an hour from the city,” said Glickman, principal with Associated Real Estate Consultants. “A location with power, water for cooling and fiberoptics or satellite connectivity worked.”

Other tenants prefer an urban data center for low latency, which provides quicker data delivery, said Howard Berry, principal & director of data center solutions for Avison Young.

“You want low latency, especially if you’re introducing driverless cars, robot deliveries and for gaming,” Berry said. “Traders want low latency because if they can get information or do a transaction a millisecond faster than others it can make a significant financial difference.”

While data centers are now found throughout the U.S., initially many were built on the East and West coasts to take advantage of proximity to undersea optic cable transmissions. Today, however, there’s less land and power available for data centers in those regions, so existing data centers are more likely to be upgraded rather than new ones built.

Adaptive reuse for aging data centers

Unlike obsolete office buildings that can be converted to residential or other purposes, data centers typically have few windows and large floor plates that make them workable for few uses other than a warehouse.

“If you can get more power to an existing data center, then it makes sense to keep it and upgrade it to increase its capacity,” Berry said.

Another option for an older data center, he added, is to sell the components including the racks, servers, generators and metal.

“That way you can refurbish it back to the shell of the building at zero cost, then either recreate a data center or turn it into a warehouse or incubator space,” Berry reasoned.

Retrofitting to data centers

While the number one need for data centers is power, another important element is the capacity to handle the heavy weight of servers. For example, while Stein was with Digital Realty, the company converted a former printing facility in Chicago into a data center, as well as a former Macy’s warehouse in San Francisco.

A single-story building works best, but you must build vertically in downtown areas, where the need for heavy infrastructure can cost more.

One textbook example is One Wilshire in downtown Los Angeles, which became a telecom center in the 1980s with the addition of a microwave station for long-distance carrier MCI on the roof, according to Farney.

The property was built as a 30-story office building in the 1960s and extensively upgraded with back-up generators and new cooling systems in the 1990s.

Outside of cities, some options for data center conversions include abandoned mills or steel plants that have a nearby power source, according to Farney. Obsolete shopping malls or similar buildings can also be converted depending on their access to power.

“Former industrial sites and abandoned factories in rural western Pennsylvania, Ohio and central Michigan are attractive right now for adaptive reuse into data centers and state governments are offering incentives for them to be built in those locations to revitalize former manufacturing towns,” Stein said.

In some cases, it’s more cost effective to tear down existing factories or mills to replace them, but in others the structures can be converted into data centers.

“There’s value in putting data centers everywhere,” Berry said. “Every city needs data centers to meet intense latency needs, and companies need hyperscale data centers for storage that can be built in more distant locations.”