While industrial warehouses have expanded rapidly to meet the demands of the ever-growing e-commerce economy, another type of “warehousing” is quietly reshaping the commercial real estate (CRE) landscape: data centers. These facilities—dedicated to housing servers, storage systems and networking equipment—are the backbone of our digital world.
As the CRE industry evolves, data centers are emerging as a cornerstone of global infrastructure, fueling a multi-billion-dollar market. But with their growth comes complexity. In this blog, we’ll explore the demand for data centers, discuss key considerations and challenges they present to developers and investors, and highlight significant title insurance factors to consider.
The Current Landscape
Although data centers can be traced back to the mid-1900s, the demand for data storage has skyrocketed in recent years, due to our growing reliance on cloud-based data solutions and everyday use of artificial intelligence (AI). In particular, there has been substantial construction of colocation centers (data centers leased to a third-party tenant) and hyperscale data centers (massive facilities engineered for large-scale workloads with an optimized network infrastructure, streamlined network connectivity and minimized latency.)
Colocation centers are in high demand with vacancy rates dropping to historically low rates. This tight supply is expected to persist through 2027, as nearly three-quarters of new capacity is already preleased. The colocation sector is estimated to grow approximately 20% through 2030, potentially reaching 42 gigawatts of capacity.
Meanwhile, hyperscale data centers are growing rapidly alongside development, expanding to secondary and tertiary markets to reduce latency and avoid power constraints. One industry source estimates that up to $1 trillion in new data center development will be required in North America alone by 2030 to meet demand.
As of October 2025, the U.S. data center market is one of the most dynamic and rapidly expanding sectors in commercial real estate. With industry sources estimating more than 5,400 active data centers nationwide, the sector continues to attract significant investment and development. The states presently hosting the highest number of data centers include Virginia, Texas, California and Ohio, each offering distinct advantages in projects from small regional centers to hyperscale environments.
Key Considerations
There are several key factors that developers and investors should consider before initiating a data center project. These include:
• Location. When selecting data center locations, key factors include physical accessibility, property values, labor costs, and climate risks like floods, earthquakes, or wildfires, which may require extra engineering and insurance measures. Cooler climates can maintain temperature regulation expenses.
Access to scalable, affordable, and reliable energy is essential due to high electricity demands. Proximity to fiber optic infrastructure and internet exchange points ensures strong network connectivity. Being near major markets reduces latency, which is especially critical for last-mile data centers delivering digital services to end users.
• Infrastructure. The cost of constructing a data center is substantial, given their intense power, data communication and equipment needs, not to mention the physical space that is necessary. A data center will also require a sophisticated cooling system to offset the heat generated by operating equipment, ensuring that temperatures support optimal performance of computing infrastructure. That said, it is not unusual for construction costs to fall in the hundreds of millions of dollars, with as-built values often exceeding $1 billion.
• Tax incentives. Some states offer tax incentives, such as sales and use tax exemptions on equipment and electricity, for the construction and operation of data centers built within certain parameters. Certain local jurisdictions have regulations that are more friendly to data center development.
At the federal level, the One Big Beautiful Bill Act (OBBBA) introduces a range of tax incentives aimed at encouraging strategic infrastructure investments, including investments in data centers:
- 100% Bonus Depreciation (through 2029): Data centers can deduct the full cost of qualified capital equipment and property in the year it's placed in service, rather than depreciating it over time. This significantly improves cash flow and accelerates cost recovery.
- Section 179D Energy-Efficient Building Deduction (until June 30, 2026): Allows deductions for energy-efficient systems like HVAC, insulation, and lighting—critical for data centers due to their high energy demands.
- Expanded Opportunity Zones: The OBBBA renews and enhances Opportunity Zone programs, including a new Qualified Rural Opportunity Fund offering a 30% basis increase for investments held at least five years. This can benefit data centers located in designated zones.
• Title insurance underwriting requirements. Title insurers face a uniquely complex set of risks when underwriting data center projects, particularly due to the high construction values and substantial loan amounts involved. One of the most significant concerns is managing mechanics lien exposure, especially in colocation centers where large-scale tenants often conduct their own buildouts or install specialized equipment. These tenants typically work with independent vendors and enter into lease agreements that restrict the landlord from disclosing details about tenant improvements. This lack of transparency can create a blind spot for title insurers if they do not remain aware of ongoing construction that could result in lien claims.
In jurisdictions that apply the relation-back doctrine, mechanics liens recorded during construction can take priority over previously recorded mortgages, potentially jeopardizing the insured lender’s position if the insurer was unaware of the work. Beyond lien risks, title insurers must also navigate challenges such as subdividing large parcels, ensuring accurate legal descriptions, and verifying utility easements, rights-of-way and other matters related to reliable utility access, which is essential for data centers due to their high power and connectivity demands.
Given the scale and complexity of these transactions, many are coinsured, with multiple title insurance underwriters sharing the risk. Working with an experienced commercial title underwriter is vital to navigate the nuanced title issues that often arise. As data centers continue to grow in strategic importance, the ability to understand and mitigate these risks becomes increasingly critical for the title insurance industry.
Challenges
Developers and investors should also be aware of potential challenges associated with data centers.
• Power outages. Because data centers demand very high levels of energy, they can tax older power grids, leading to outages and increased prices for customers.
• Noise pollution. Noise levels emanating from a data center can be substantial depending on the equipment being housed.
• Sustainability. With increasing international interest on the subject of sustainability, there are initiatives in the CRE arena for data center projects to responsibly adopt technologies that help reduce water consumption, electronic and toxic waste, and greenhouse gas emissions.
• Land use and infrastructure restrictions. Land use restrictions—such as zoning laws, environmental regulations, and infrastructure limitations—can significantly affect data center development. Ambiguous zoning codes may delay projects and create constraints, while environmental reviews of energy, emissions, and water use can add permitting and compliance costs. Limited power grid capacity can also make data center sites unsuitable, requiring additional capital for upgrades.
• Community pushback. Since 2023, over $60 billion worth of data center projects were blocked or delayed due to opposition from residents and activist groups. Virginia is currently the focal point for community opposition, with activist groups campaigning to slow, stop or further regulate data center development. Other states that rank among the top in opposition or are calling for increased regulation to data center development include Oregon, California, Arizona, Texas, Missouri and Indiana.
Conclusion
The need for data storage solutions will only continue to grow as technology drives innovation, turning data centers into an increasingly coveted CRE asset class.
As with any CRE transaction, it is vital for developers and investors to perform due diligence before committing to any project. Meticulously assessing the unique variables associated with data centers can help developers and investors make informed decisions about their investment. It is also essential to retain the services of a reputable title insurance company to confirm property ownership, identify potential liens and protect property owners from unforeseen title concerns.
At Old Republic Title, we understand what it takes to navigate complex CRE transactions. Our National Commercial Services Team has extensive experience supporting data center development across the nation and is ready to assist developers and investors with all their title and closing needs. To learn more about Old Republic Title’s title insurance products and closing services, or to connect with a knowledgeable team near you, visit oldrepublictitle.com/commercial/ncs.
Old Republic Title, its officers and employees do not provide, and this communication is not intended to be, investment, tax or legal advice. Old Republic Title makes no representations or warranties regarding the accuracy of the information or tax consequences addressed herein. You should consult an investment, tax or legal professional of your choosing to advise you of the benefits and risks of your specific transaction.
