Data centers are getting a lot of buzz from GCC investors – it makes sense
Upfront investments will be sizable but the payoffs can be spectacular
In real estate investment, a new heavyweight has emerged: data centers. These have become essential infrastructure, driving investment returns and redefining real estate portfolios in the Gulf.
But these aren’t your typical real estate plays. These facilities house the digital backbone of our online lives—servers, storage systems, and networking gear that keep businesses and consumers connected. They require precise environmental controls, ample power supplies, and top-tier security, making them complex yet lucrative investments.
Surging digital economy
The GCC's cloud computing market is projected to grow at a compound annual growth rate (CAGR) of 17% from 2022 to 2027, according to MarketsandMarkets. Data centers offer steady returns through long-term leases with tech giants and enterprises.
Even in uncertain economic times, data consumption continues to soar. The GCC region's internet penetration rate reached 98% in 2023, emphasizing persistent demand.
High entry barriers
Developing a data center in the GCC involves navigating significant hurdles, including high capital requirements, stringent regulatory standards, and access to reliable power and fiber-optic networks. These factors reduce competition while enhancing asset value.
Private equity firms and institutional investors are pouring billions into the GCC's data center market. In 2022, Saudi Arabia announced plans to invest $18 billion in technology infrastructure, including large-scale data center developments.
As the data center market grows in the GCC, regional players are also expanding outside. Recently, US President Donald Trump announced a $20 billion investment of Damac into US data centers.
Challenges investors should watch out for
Even with strong investment fundamentals, data centers come with risks:
Massive capital needs: Building and running these facilities is expensive. Average construction costs in the GCC can reach $7,000 per square meter.
Tech obsolescence: Outdated infrastructure can become a liability.
Energy demands: Sustainability is a growing concern as data centers consume significant power. However, GCC governments are investing heavily in renewable energy.
Regulatory pressures: Security and compliance mandates add complexity, with increasing data privacy regulations across the GCC.
Trends like edge computing and AI will fuel demand for next-gen data centers across the GCC. The region's cloud computing market is expected to exceed $9 billion by 2027, according to IDC.
Additionally, sustainability will remain a critical focus, pushing operators toward energy-efficient technologies and green power sources. Data centers are no longer a niche investment—they’re at the heart of the GCC’s digital economy.
In the GCC’s competitive real estate landscape, data centers are the new frontier—ripe with opportunity, driven by data, and built for the future.
The writer is with Zabadani Real Estate.
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