Core real estate traditionally refers to stabilized, income-producing properties in prime locations. These assets include office towers in central business districts, high-quality retail centers, multifamily housing in major cities, and logistics warehouses with long-term tenants. Investors value core real estate for its predictable cash flows, lower risk profile, and strong correlation with economic growth and urbanization.
Digital infrastructure, by contrast, encompasses assets that enable the storage, transmission, and processing of data. This category includes data centers, fiber networks, cell towers, small cells, and subsea cables. These assets underpin cloud computing, streaming, e-commerce, artificial intelligence, and enterprise IT. While once considered niche or alternative, digital infrastructure has moved into the mainstream of institutional portfolios.
Demand Drivers and Economic Sensitivity
Core real estate demand remains closely linked to broad economic conditions, employment levels, and demographic dynamics, with office needs generally expanding as jobs increase, residential demand following population growth and new household creation, and retail activity hinging on consumer spending, while these asset classes often move in cycles and face vulnerability to downturns, evolving work habits, and shifts in buying behavior.
Various forces propel data centers and digital infrastructure:
- A rapid surge in how much data is being generated and retained.
- Widespread cloud integration across corporate and governmental sectors.
- Expanded engagement with streaming services, gaming platforms, and social networks.
- AI-driven tasks that demand intensive, high-density computational power.
Even during economic slowdowns, data traffic tends to grow. For example, global internet traffic has historically increased at double-digit annual rates, and hyperscale cloud providers continue to sign long-term leases for capacity. This makes digital infrastructure less correlated with traditional economic cycles than core real estate.
Revenue Stability and Lease Structures
Core real estate customarily depends on multi‑year leasing agreements that include scheduled rent increases, with office contracts often extending five to ten years and residential ones generally lasting a single year, while periods of economic stress or structural shifts like the move toward remote work can heighten vacancy exposure and the expenses tied to securing new tenants.
Data centers often benefit from long-term contracts with investment-grade tenants, including major cloud and technology companies. These leases can extend 10 to 20 years and frequently include:
- Embedded yearly rate increases.
- Fees for power and connectivity that grow according to consumption.
- Tenants incur significant switching costs owing to the complexity of migration.
This structure can generate reliable, inflation-linked cash flows that match, and at times surpass, the consistency usually linked to core real estate income.
Capital Intensity and Entry Barriers
Both asset classes demand substantial capital, though each does so differently. Core real estate involves major initial spending on land acquisition, construction, and continual upkeep, yet the development cycle is well established, and access to financing remains broad and highly liquid.
Data centers demand even higher technical complexity. Key barriers to entry include:
- Availability of dependable, easily expandable electricity.
- Sophisticated cooling mechanisms and built-in redundancy.
- Highly trained engineering knowledge and day-to-day operational skill.
- Required regulatory clearances and existing grid limitations.
For example, a modern hyperscale data center can cost hundreds of millions of dollars to build and may take years to secure sufficient power capacity. These barriers can limit supply and support pricing power for well-located facilities.
Location Dynamics and Land Value
Location matters greatly in both sectors, though the deciding factors are not the same. Core real estate tends to emphasize closeness to population centers, transit options, and surrounding conveniences, with value frequently influenced by ease of access, perceived prestige, and the intensity of urban development.
Data centers often choose sites close to fiber pathways, electrical substations, and end users to minimize network latency, which means high‑value parcels can lie in suburban or industrial zones instead of downtown districts. In certain regions, including Northern Virginia, land prices have surged because areas with ample power capacity suitable for data center development remain limited, creating a property landscape that echoes premium urban markets.
Risk Profile and Obsolescence
Core real estate encounters risks including:
- The waning usefulness of aging office structures.
- Regulatory shifts influencing zoning requirements or rent restrictions.
- Changes in what tenants look for.
Digital infrastructure carries distinct vulnerabilities, ranging from shifting technologies to limitations in energy capacity, and a data center originally built for low-density tasks might need significant investment to support contemporary artificial intelligence workloads; nonetheless, operators frequently offset these challenges through modular architectures and ongoing capital spending, much like prime real estate owners who continually refurbish their properties to stay competitive.
Portfolio Function and Investment Outcomes
Historically, core real estate has delivered moderate returns with relatively low volatility, making it a cornerstone of pension funds and insurance portfolios. Its role is income generation and capital preservation.
Digital infrastructure has demonstrated stronger growth patterns, with both listed and private data center platforms frequently surpassing traditional real estate indices over the past decade, fueled by robust demand and rising rents, leading many investors to regard digital infrastructure as a hybrid category that blends real assets with growth-oriented infrastructure.
Comparative Overview
- Core real estate: reliable, revenue-oriented properties influenced by economic shifts and designed around the needs of everyday users.
- Data centers and digital infrastructure: technology-led, information-focused assets backed by long-term agreements and typically less dependent on traditional economic cycles.
Both asset classes share real asset qualities such as long-lived structures, inflation protection, and essential service provision. The difference lies in what they serve: human activity in physical space versus digital activity in virtual space.
Comparing data centers and digital infrastructure to core real estate reveals how the definition of “core” is evolving. As economies digitize, the infrastructure that supports data flows becomes as essential as offices, homes, and logistics hubs. Core real estate remains foundational, but digital infrastructure increasingly occupies a parallel role, anchoring portfolios to the realities of a data-driven world. Investors assessing long-term resilience are no longer choosing between physical and digital assets; they are recognizing that both are integral expressions of how modern society lives, works, and connects.
