The New Digital Infrastructure Geography: Green Street’s David Guarino on AI Demand, Power Scarcity, and the Next Phase of Data Center Growth

As the global data center industry races through its most frenetic build cycle in history, one question continues to define the market’s mood: is this the peak of an AI-fueled supercycle, or the beginning of a structurally different era for digital infrastructure?

For Green Street Managing Director and Head of Global Data Center and Tower Research David Guarino, the answer—based firmly on observable fundamentals—is increasingly clear. Demand remains blisteringly strong. Capital appetite is deepening. And the very definition of a “data center market” is shifting beneath the industry’s feet.

In a wide-ranging discussion with Data Center Frontier, Guarino outlined why data centers continue to stand out in the commercial real estate landscape, how AI is reshaping underwriting and development models, why behind-the-meter power is quietly reorganizing the U.S. map, and what Green Street sees ahead for rents, REITs, and the next wave of hyperscale expansion.

A ‘Safe’ Asset in an Uncertain CRE Landscape

Among institutional investors, the post-COVID era was the moment data centers stepped decisively out of “niche” territory. Guarino notes that pandemic-era reliance on digital services crystallized a structural recognition: data centers deliver stable, predictable cash flows, anchored by the highest-credit tenants in global real estate.

Hyperscalers today dominate new leasing and routinely sign 15-year (or longer) contracts, a duration largely unmatched across CRE categories. When compared with one-year apartment leases, five-year office leases, or mall anchor terms, the stability story becomes plain.

“These are AAA-caliber companies signing the longest leases in the sector’s history,” Guarino said. “From a real estate point of view, that combination of tenant quality and lease duration continues to position the asset class as uniquely durable.”

And development returns remain exceptional. Even without assuming endless AI growth, the math works: strong demand, rising rents, and high-credit tenants create unusually predictable performance relative to other property types.

Separating Structural AI Growth from Hype? Not Possible—Yet

DCF asked the perennial question: how much of today’s demand is structural AI adoption, and how much is short-cycle GPU procurement enthusiasm?

Guarino was candid: there is no clean analytical separation yet.

“Today’s market is overwhelmingly AI-driven. Some portion of that is future-facing, where companies are leasing ahead of revenue. But the indicators for AI monetization are moving in the right direction,” he said.

Traditional leasing—retail colo, non-AI cloud, CPU-based workloads—continues, but it is dwarfed by hyperscale AI demand. Mega-leases like Vantage’s 2+ GW across Milwaukee and Texas, he notes, “skew the numbers in ways unimaginable even two years ago.”

With hyperscalers accelerating CapEx into 2025 and 2026—and the neo-cloud providers triggering a second tier of demand—Green Street sees no slowdown indicators.

“If anything,” said Guarino, “the evidence points toward continued acceleration.”

Power Availability Now Outweighs Location in Forecast Models

Historically, Green Street’s models centered on primary markets: Northern Virginia, Silicon Valley, Dallas, Chicago, Atlanta.

That framework no longer holds.

“You simply can’t drop 700 MW into Ashburn or Santa Clara today with any reasonable timeline,” Guarino said. “The spillover is real—and happening faster than anyone expected.”

The result: new, unexpected markets are emerging with velocity—West Texas, North Dakota, Wyoming, and other geographies that would have seemed implausible even 12 months ago.

This shift is driven less by real estate fundamentals and more by megawatt availability—regardless of geography.

Power scarcity has become the great industry disruptor, rendering traditional market forecasts insufficient.

“This is the first cycle where the biggest constraint isn’t capital or land,” Guarino noted. “It’s how quickly you can secure megawatts. And that has flipped the map of U.S. data centers.”

The Rise of ‘Bring Your Own Power’

Behind-the-meter strategies—from natural gas turbines to microgrids—are no longer fringe. They are increasingly essential.

Guarino notes that many of the new markets Green Street is analyzing have little to no grid availability, making on-site generation the decisive factor in development feasibility.

“It’s fundamentally changing how analysts model location value,” he said. “When you can deliver hundreds of megawatts in a year or two with on-site turbines, it breaks every traditional forecasting approach.”

Private equity’s behavior reinforces the shift. Major infrastructure funds—Brookfield, Blackstone, KKR and others—are investing directly into off-grid energy technologies, a directional indicator Guarino views as impossible to ignore.

“When the savviest infrastructure investors are pouring capital into off-grid solutions, they’re sending a clear signal about where the market is headed,” he said.

REITs, Development Pipelines, and Why the Public Markets Aren’t Ready—Yet

The industry has lost five public data center REITs to take-private deals in recent years. Guarino believes more will eventually return—but not during this development boom.

The public markets remain skeptical of large development pipelines, even when the returns are strong. Guarino points to the sharp negative reaction to Equinix’s 2025 analyst day, where it boosted its annual development budget from $3B to $4–5B.

“Despite the attractive economics of development, public investors don’t like delayed earnings,” he said. “Right now, the REIT structure isn’t aligned with the pace of hyperscale buildout.”

But he emphasizes that this isn’t permanent.

“As the industry matures into more GDP-like growth—and as the next wave of companies look for exits—the public markets will be the natural endpoint. Investors are eager for new data center REITs. Just not until the development party winds down.”

How AI is Reshaping Real Estate Underwriting

Do investors view rapid hardware refresh cycles, liquid cooling adoption, or multi-gigawatt campus planning as new risk vectors?

Less than you’d think.

“If you’ve just signed a 15-year hyperscale lease, you’re not overly concerned about how often that tenant refreshes GPUs,” Guarino said. “The bigger question is whether the building remains valuable at year 15.”

Guarino argues that design evolution is real but slowing, constrained by basic physics.

“We’re hitting limits in how much power you can physically send into a building,” he said. “We can evolve, but we’re not reinventing the entire architecture every few years.”

Primary markets with dense interconnection—like Ashburn—retain enduring value regardless of cooling modality or rack density.

“If you’re building in the heart of a fiber hub, that connectivity creates long-term stickiness,” he said. “Tertiary markets don’t have the same guarantee.”

Rents: Rising Fast and Not Done Yet

Rents in major U.S. data center markets have outpaced nearly every other CRE segment. Guarino attributes this trend to three forces:

1. Demand vastly exceeds supply
   A textbook case of price pressure.
2. Construction costs have climbed
   Inflation plus material costs have added significantly to buildouts.
3. Liquid cooling adds ~$1M per MW
   Cutting-edge design comes with cutting-edge cost.

As a result, Green Street has tracked 10–12% rent growth over the past two years.

Looking ahead, Guarino expects:

• High single-digit rent growth in 2025.
• Mid-to-high single digits in 2026.
• Sustained elevated levels through 2029, even as growth decelerates.

“No other CRE property type comes close,” he noted. “Even 5% rent growth in 2029 would be outstanding for the sector.”

NIMBY Pressure Rises—But So Does Real Estate Value

Public opposition has escalated sharply in 2024–2025, delaying or derailing projects in dozens of municipalities.

Guarino says the dynamic matters—but unevenly.

“It makes life much harder for developers,” he said. “But it dramatically increases the value of existing in-market assets, especially in connectivity hubs.”

Ashburn is a prime example: rents have risen faster inside the core than anywhere else in Northern Virginia, precisely because new supply cannot easily enter the market.

At the same time, persistent community resistance accelerates the rise of tertiary markets.

“You can’t stop the pace of innovation,” Guarino said. “Developers will go where the electrons are.”

Looking Ahead: No Slowdown in Sight

With hyperscalers increasing 2025 CapEx, indicating further acceleration in 2026, and AI model-training companies signing massive long-term leases, Guarino sees no factual basis for predicting a near-term cooldown.

“Every indicator we watch points the same way,” he said. “Demand is rising. Capital is accelerating. Neo-clouds are on a leasing tear. This is not showing signs of deceleration.”

Even if AI valuations fluctuate, Guarino stresses that the real estate fundamentals stand on their own:

• Low speculative development.
• Long leases.
• High-credit tenants.
• Secular compute growth.
• Structural power constraints.

“If there’s ever a time to write ‘RIP data centers,’ it’s not now,” Guarino said. “The evidence simply isn’t there.”

The New Themes: Neo-Clouds and Tertiary Markets

Green Street’s two dominant themes going into 2026:

1. The Neo-Cloud Surge

New AI-native cloud platforms are aggressively locking down capacity across the U.S., shaping a second wave of hyperscale-like demand.

2. The Rise of Tertiary Markets

North Dakota, Wyoming, West Texas, and similar regions are rapidly evolving from “unlikely” to “central” due to power availability and on-site turbine strategies.

“These are the themes we’re talking about every day,” Guarino said. “They’re reshaping the industry faster than anyone expected.”

Bottom Line

The data center sector remains the standout performer in commercial real estate—and according to Green Street’s David Guarino, all forward indicators suggest continued strength rather than a looming correction.

With AI fueling unprecedented demand, power constraints redrawing the industry map, and rents climbing on the back of rising construction costs and liquid cooling adoption, the sector is entering a transformative phase. Whether through new markets, new power models, or new tenant categories, the next era of digital infrastructure will be shaped by forces few CRE analysts predicted just a year ago.

And for now, Guarino stresses, the fundamentals remain firmly intact.

At Data Center Frontier, we talk the industry talk and walk the industry walk. In that spirit, DCF Staff members may occasionally use AI tools to assist with content. Elements of this article were created with help from OpenAI's GPT5.

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