A New Driver of Industrial Demand

The industrial real estate market is at an interesting inflection point. After several years of record development and strong demand, the national industrial market is working through a period of elevated vacancy and a significant supply pipeline. At the same time, one of the fastest-growing segments of commercial real estate, data centers, is creating an entirely new source of demand for industrial space.

The scale of the data center boom is difficult to ignore. Since the launch of ChatGPT in late 2022, completed U.S. data center projects have increased roughly 220%, while development across other commercial real estate has grown less than 10%. There are currently more than 110 million square feet of data center space under construction nationwide, compared with approximately 67 million square feet of office space. Data center investment has become so significant that spending on data center development now exceeds spending on all other commercial building types combined.

Source: CoStar News

AI Is Changing the Development Landscape

Artificial intelligence is a major driver behind this growth. As technology companies expand AI and cloud computing capabilities, they require enormous amounts of computing power, electricity, cooling and physical infrastructure.

The average data center has more than doubled in size since 2022, reaching nearly 700,000 square feet in the second quarter of 2026. More than 1,500 data center projects are currently in some stage of planning across the country.

These projects are getting increasingly large and infrastructure-intensive. Developers are prioritizing locations with available power, water and transmission infrastructure, creating a new set of criteria for where major development can occur.

Source: CoStar News

The Industrial Ripple Effect

The impact on industrial real estate goes well beyond the data centers themselves.

Every new data center requires a network of contractors, electrical equipment suppliers, cooling-system providers, technology infrastructure companies and other service providers. Many of these businesses need warehouse and logistics space close to the data center campuses they serve.

That relationship is already showing up in leasing data. Data center-adjacent companies accounted for more than 6% of logistics leasing within five miles of data center facilities in 2026, up from less than 3% in 2020.

For industrial owners and investors, this creates an opportunity to participate in the data center boom without owning a data center.

Source: CoStar News

Location, Location, Infrastructure

While direct data center opportunities are concentrated in markets with the necessary power, land and infrastructure, the surrounding industrial ecosystem is much broader.

Dallas-Fort Worth leads the nation with approximately 10 million square feet of logistics space leased by data center-adjacent industries since 2025, followed by Houston, Atlanta and Phoenix. Other markets seeing increased logistics occupancy include Kansas City, Washington, D.C., Los Angeles, Chicago, Denver and California's Inland Empire.

This highlights an important trend: infrastructure is becoming an increasingly important component of industrial real estate value. Properties with access to power, transportation, labor and other critical infrastructure may benefit from demand generated by both traditional industrial users and emerging digital infrastructure.

Source: CoStar News

Industrial: Fort Collins, Loveland & Larimer County

Source: CoStar

Industrial: Greeley & Weld County

Source: CoStar

A Reset For Traditional Industrial

Meanwhile, traditional industrial fundamentals are beginning to reset.

National industrial vacancy is currently in the mid-7% range and is expected to remain elevated into early 2027 as new supply continues to outpace tenant demand. However, construction activity is slowing, and stronger leasing activity is expected to push net absorption ahead of new supply by late 2027. Rent growth is projected to average approximately 1.9% annually through 2026–27 before accelerating as the market moves back toward equilibrium.

The near-term outlook may therefore look different than the longer-term picture. Tenants have more options today, while owners are navigating elevated availability and slower rent growth. But as the development pipeline contracts, the balance between supply and demand is expected to improve.

Source: CoStar News

Looking Beyond the Data Center

The concentration of capital in data centers also presents an interesting counterpoint for traditional industrial real estate.

Construction starts across residential, office and industrial sectors have fallen significantly from their cyclical peaks, while capital continues to flow heavily toward digital infrastructure. Some investors view this shift not as a sign that traditional real estate is losing relevance, but as an opportunity created by reduced competition and future supply constraints.

The data center boom will not eliminate the challenges facing the broader industrial market, and there are certainly questions surrounding how sustainable the current pace of AI investment will be. Data centers are highly specialized assets, and their long-term value is tied closely to technology that continues to evolve.

But one thing is becoming clear: data centers are no longer simply a technology real estate story. They are creating a broader industrial ecosystem, one that is influencing warehouse demand, site selection and infrastructure investment across the country.

For industrial owners, developers and investors, the opportunity may not be in building the next data center. It may be in understanding what the data center boom needs around it, and positioning industrial real estate accordingly.

Source: CoStar News