Key Takeaways
- • The $66.7 billion Arizona State Retirement System, Phoenix, is scaling back data-center exposure at its Oct. 1 investment committee meeting, with data centers at about 13% of its $9.3 billion real estate portfolio and expected to exceed 20% by year-end due to markups on development assets.
- • CBRE reports North American primary data-center vacancy fell to a record-low 1.4% in the first half of 2026, with 80.4% of the 7,481 megawatts under construction already preleased, up from 74.3% a year earlier.
- • JLL forecasts average global data-center construction costs of $11.3 million per megawatt in 2026, up 6% from 2025, excluding land and AI computing equipment.
- • Consultants draw a sharp line between operating or power-secured facilities with established tenants and speculative developments that face power, entitlement and construction risks before generating revenue.
- • Consultants at Meketa, RCLCO, NEPC and PGIM describe data-center outcomes as highly dependent on power access, location, political risk and manager execution.
Summary
Some U.S. public pension funds are reassessing data-center investments as a growing divide emerges between operating or power-secured facilities and speculative developments that still must clear significant hurdles before producing revenue, according to Pensions & Investments. Real estate experts say this distinction is reshaping how institutions evaluate data-center managers, return potential and overall exposure to artificial intelligence.
The $66.7 billion Arizona State Retirement System, Phoenix, is one fund scaling back. At its Oct. 1 investment committee meeting, staff said they are working to reduce data-center exposure partly because existing investments have performed strongly. Data centers account for about 13% of the pension's $9.3 billion real estate portfolio, according to senior portfolio manager Mike Copeland, who said he expects that share to exceed 20% by year-end given anticipated markups of development assets based on signed leases. Copeland cited insatiable tenant demand and constrained new supply due to power availability and a growing political backlash limiting approvals.
Consultants say that constraint can create opportunities for owners of existing assets. Colin Hill of Meketa Investment Group said operating facilities with established tenants and long-term leases can benefit from scarce capacity, as growing demand supports property income and valuations. Market data supports the demand picture. CBRE reports North American primary-market vacancy fell to a record-low 1.4% in the first half of 2026, and 80.4% of the 7,481 megawatts under construction was preleased, versus 74.3% a year earlier. Construction capacity rose 24.8% year over year. The challenge, experts say, is determining which projects can secure electricity, obtain approvals and finish on schedule. JLL forecasts average global data-center construction costs of $11.3 million per megawatt in 2026, up 6% from 2025, a figure covering the shell and core only.
Investor selectivity is rising. Lori Campana of Monument Group said investors increasingly weigh the time needed to secure power, since a lengthy utility connection queue delays returns. Ben Maslan of RCLCO Fund Advisors said new development offers substantial rewards for investors able to secure power and a hyperscale tenant, but carries significant execution risk; he described the outcome as "a sort of a binary outcome," and his firm has favored established markets such as Northern Virginia over speculative locations with limited alternative uses.
Some consultants still see value in structured new projects. Shelley Santulli of NEPC said the firm has favored build-to-suit hyperscale developments run by experienced operators, noting that "Power, entitlements and construction risks are either avoided or mitigated." Cathy Marcus of PGIM said demand from cloud computing and other technology applications keeps data centers compelling, but investors must look beyond today's supply shortage, adding that even operating facilities may require costly upgrades as technical requirements change.
The $66.7 billion Arizona State Retirement System, Phoenix, is one fund scaling back. At its Oct. 1 investment committee meeting, staff said they are working to reduce data-center exposure partly because existing investments have performed strongly. Data centers account for about 13% of the pension's $9.3 billion real estate portfolio, according to senior portfolio manager Mike Copeland, who said he expects that share to exceed 20% by year-end given anticipated markups of development assets based on signed leases. Copeland cited insatiable tenant demand and constrained new supply due to power availability and a growing political backlash limiting approvals.
Consultants say that constraint can create opportunities for owners of existing assets. Colin Hill of Meketa Investment Group said operating facilities with established tenants and long-term leases can benefit from scarce capacity, as growing demand supports property income and valuations. Market data supports the demand picture. CBRE reports North American primary-market vacancy fell to a record-low 1.4% in the first half of 2026, and 80.4% of the 7,481 megawatts under construction was preleased, versus 74.3% a year earlier. Construction capacity rose 24.8% year over year. The challenge, experts say, is determining which projects can secure electricity, obtain approvals and finish on schedule. JLL forecasts average global data-center construction costs of $11.3 million per megawatt in 2026, up 6% from 2025, a figure covering the shell and core only.
Investor selectivity is rising. Lori Campana of Monument Group said investors increasingly weigh the time needed to secure power, since a lengthy utility connection queue delays returns. Ben Maslan of RCLCO Fund Advisors said new development offers substantial rewards for investors able to secure power and a hyperscale tenant, but carries significant execution risk; he described the outcome as "a sort of a binary outcome," and his firm has favored established markets such as Northern Virginia over speculative locations with limited alternative uses.
Some consultants still see value in structured new projects. Shelley Santulli of NEPC said the firm has favored build-to-suit hyperscale developments run by experienced operators, noting that "Power, entitlements and construction risks are either avoided or mitigated." Cathy Marcus of PGIM said demand from cloud computing and other technology applications keeps data centers compelling, but investors must look beyond today's supply shortage, adding that even operating facilities may require costly upgrades as technical requirements change.
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