Why Data Centers, Self-Storage, and Life Science Labs Are Booming CRE Sectors

The commercial real estate landscape is evolving, and some niche segments are outshining traditional asset classes. In particular, data centers, self-storage facilities, and life science laboratories have emerged as three of the fastest-growing CRE sectors. These property types are benefiting from powerful macro trends – from digital transformation and changing consumer habits to unprecedented investment in technology and healthcare. Below, we explore why each of these sectors is booming and what investors should know about capitalizing on their growth.

Data Centers: Powering the Digital Economy

In our increasingly digital world, demand for data centers – specialized facilities housing servers and network equipment – has exploded. The proliferation of cloud computing, streaming services, 5G networks, and the Internet of Things (IoT) requires massive data processing and storage capabilities. Tech giants and colocation providers are racing to build new server farms, while investors pour capital into data center real estate investment trusts (REITs) to ride this wave. As a result, modern data center campuses are expanding across the globe, equipped with high-speed fiber connectivity and access to enormous power supplies to keep the internet running 24/7.

Even the rise of Bitcoin and cryptocurrency mining has contributed to this surge in data center demand. Blockchain mining operations require immense computing power and cooling, effectively turning warehouses into high-density data centers. Companies like Marathon Digital (MARA), Core Scientific (CORZ), and Iris Energy (IREN) have built out large-scale server farms to mine crypto, often in locations with cheap, abundant electricity. These facilities, once dedicated to Bitcoin, are now increasingly being repurposed or expanded to support other high-performance computing needs – from cloud services to artificial intelligence (AI) “factory” workloads. This convergence means that crypto mining infrastructure is bolstering the broader data center ecosystem, further fueling growth in the sector.

All these factors make data centers one of the hottest CRE investments today. Many facilities secure long-term leases with creditworthy tenants (think Fortune 500 tech firms or cloud providers) and generate steady income through colocation fees. Barriers to entry remain high due to the specialized construction and immense power and cooling requirements, which can limit competition in a given market. Below are some key reasons investors are flocking to data centers, as well as considerations to keep in mind:

Investment Highlights: Data Centers

• Unprecedented demand growth: The digital transformation of business and society is driving continuous expansion of data center capacity. Cloud computing, streaming, AI, and IoT usage are all surging, ensuring strong demand for data center space for years to come.
• New demand from crypto and AI: Emerging tech sectors are adding fuel to the fire. Cryptocurrency mining (e.g., Bitcoin operations by MARA, IREN, CORZ) and AI firms require power-dense computing environments, effectively expanding the market for data center facilities beyond traditional users.
• Stable, long-term cash flows: Data centers are often leased to major tech companies or service providers on long-term agreements, providing investors with reliable income. Tenants invest heavily in infrastructure, which makes them more likely to renew leases due to the high cost of relocation.
• High barriers to entry: Building a new data center is capital-intensive and requires specialized expertise (power management, cooling, security). Additionally, not every location is suitable – proximity to fiber-optic networks and robust power grids is essential. These factors limit supply in many markets, helping existing assets maintain value and high occupancy.

Key Considerations: Data Centers

• Power and location are critical: Evaluating data center investments means assessing power availability, energy costs, and connectivity. Facilities must have access to substantial and affordable electricity (often with redundant power feeds) and be near network hubs for low latency.
• Operational complexity: Data centers require specialized management to ensure constant uptime. Investors often partner with experienced operators or hire expert facility managers for cooling systems, physical and cyber security, and maintenance of backup systems (generators, battery backups, etc.).
• Capital expenditure: These properties can be expensive to develop or upgrade. Converting a warehouse into a Tier III+ data center, for example, may require significant investment in electrical infrastructure and HVAC. Investors should plan for higher CapEx and ongoing technical upgrades to stay competitive.
• Technology evolution: The IT hardware within data centers evolves quickly. New trends like liquid cooling or more powerful chips can change facility requirements. Owners need to design with flexibility and efficiency in mind to adapt to future needs (for instance, accommodating higher rack densities for AI servers).
• Sustainability concerns: Data centers consume vast amounts of energy and water. There is growing pressure for green solutions (renewable energy sourcing, efficient cooling designs). Sustainable facilities may have a competitive edge, but also consider any local regulations or community concerns regarding energy use.

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Self-Storage: A Resilient Growth Story

Self-storage facilities have quietly become a booming segment of commercial real estate, thanks to steady demand from both consumers and businesses. These properties – typically simple buildings filled with individual storage units – experienced a surge during recent years as people moved or reorganized their lives. The COVID-19 pandemic saw many individuals relocating or converting spare rooms into home offices, driving them to rent storage space for belongings. Even as that wave normalizes, long-term trends like high urban housing costs (with fewer big basements or garages) and Americans accumulating more stuff have kept demand for storage units high. In fact, occupancy rates nationwide often hover around 90%, reflecting how ingrained self-storage has become in modern life.

Investors are drawn to self-storage for its combination of stable cash flow and relatively low management requirements. A single facility can have hundreds of unit renters, which diversifies income and lessens reliance on any one tenant. Lease terms are usually month-to-month, allowing operators to adjust rents with market demand. Notably, the sector has a reputation for weathering economic ups and downs: during recessions or life transitions, people often downsize their living space but still need somewhere for their possessions, which can actually boost storage demand. Technological improvements have also enhanced profitability – think online rentals, automated access controls, and remote monitoring, all of which reduce staffing needs and operational costs.

While new construction of storage facilities has picked up in some markets, many fast-growing areas (particularly in the Sunbelt and suburbs of major cities) remain undersupplied. This leaves room for continued growth, though investors should be mindful of local competition. Below are key investment merits and considerations for the self-storage sector:

Investment Highlights: Self-Storage

• Strong, steady demand: Self-storage caters to a wide customer base – homeowners, renters, students, and businesses. Common life events (moving, marriage, retirement, military deployment) and general space constraints drive a constant need for storage. This consistent demand translates into high occupancy levels and dependable rental income.
• Recession resilience: Historically, self-storage is a recession-resistant asset class. In economic downturns, people may downsize or combine households, often using storage units to hold overflow belongings. This dynamic can keep facilities full even when other property types struggle.
• High yield and low operating costs: Compared to many other CRE assets, self-storage typically has lower construction and maintenance costs. There are no fancy lobbies or expensive tenant build-outs, and facilities can often be managed with minimal on-site staff. The result is attractive profit margins and solid cash-on-cash returns for investors.
• Opportunities for consolidation: The self-storage industry, while including big players, still has many mom-and-pop owners. This fragmentation offers upside for investors who can acquire and improve operations. Scaling a portfolio can increase efficiency (via centralized management and marketing) and potentially command premium pricing when sold to a larger REIT or fund.

Key Considerations: Self-Storage

• Localized competition: Self-storage is a very localized business – a new facility down the road can significantly impact another’s occupancy or rental rates. Before investing, it’s crucial to study the 3-5 mile trade area for existing supply and any planned projects. Markets can become saturated if developers overbuild, so look for high barrier-to-entry locations or unmet demand.
• Market dynamics: Broader economic factors can influence storage use. For instance, when housing sales slow (as seen when interest rates spiked), fewer people move, which might temporarily soften storage demand. Savvy investors will consider these cycles, though the overall usage trend remains positive.
• Security and maintenance: Keeping a facility attractive to renters means ensuring good security (gated access, cameras, proper lighting) and maintenance (clean units, pest control, functional doors). While simpler than an apartment or office building, neglecting these can lead to reputational damage and lost business.
• Zoning and community sentiment: Gaining approvals for new self-storage sites can sometimes be challenging. Some communities prefer other uses for prime land. Investors should be aware of zoning restrictions and community feedback when planning a new development or expansion.
• Rental management: Month-to-month leases allow operational flexibility, but also mean customers can leave at any time. Successful storage operators closely manage pricing and promotions to maximize occupancy without sacrificing revenue. New owners should be prepared to engage in dynamic marketing, especially in competitive areas.

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Life Science Labs: Fueling Innovation in Real Estate

Life science properties – the lab and research facilities used by biotech, pharmaceutical, and medical research companies – have become one of the most coveted CRE sectors in recent times. The world’s focus on healthcare innovation is at an all-time high, with billions of dollars flowing into drug discovery, genomics, and medical technology startups. This has translated into intense demand for modern laboratory space, especially in major biotech hubs. Cities like Boston, San Francisco, and San Diego boast life science clusters where vacancy rates for lab space are often extraordinarily low (even dipping into the low single digits or effectively 0% in some sub-markets) and rents are reaching record highs. Post-2020, many investors recognize that while traditional offices saw uncertainty, lab spaces remained in high demand as companies raced to develop vaccines, therapies, and new healthcare solutions.

The rise of life science real estate isn’t just a short-term blip; it reflects a structural shift in how institutions allocate capital. In fact, over the last decade, life sciences went from a niche alternative investment to a core holding for many institutional CRE investors, thanks to its strong performance. Lab properties have delivered impressive risk-adjusted returns, often outpacing traditional office or retail. One reason is the “stickiness” of tenants: biotech and pharma companies invest heavily in outfitting spaces with specialized equipment (think fume hoods, wet labs, clean rooms). Once a space is built out to their needs, they are likely to sign longer leases and renew, since moving a lab is costly and disruptive. Furthermore, government initiatives and funding bolster the sector’s outlook – for example, large increases in federal research funding (such as NIH budgets) and public-private partnerships in biotech mean more companies emerging and expanding, all of which will need lab space.

That said, life science real estate comes with its own set of challenges and nuances. Converting a conventional office building to labs, for instance, is expensive and not always feasible without major infrastructure changes. Successful investment in this arena often involves focusing on established or emerging research clusters and partnering with experienced life science developers or operators. Here are some top highlights and considerations for life science lab investments:

Investment Highlights: Life Science Real Estate

• Surging tenant demand: Biotech and pharmaceutical companies, as well as research institutions, are expanding rapidly, fueling demand for lab space. The sector saw enormous growth in the past few years (e.g., tens of millions of square feet of new lab requirements in top markets), and this momentum continues as scientific breakthroughs and health initiatives accelerate.
• High returns and investor appetite: Life science properties have produced superior returns relative to many other asset classes. Institutional investors have taken notice, making labs a large component of their alternative asset allocations. Strong rent growth and low vacancy in top markets translate to increasing property values.
• Long-term occupancies: Once secured, lab tenants tend to stay. Leases often span 10+ years, and companies prefer not to disrupt critical research by moving. This can lead to stable, long-term cash flow for landlords, especially if tenants succeed and grow (potentially expanding within the landlord’s portfolio).
• Public and private investment tailwinds: Robust funding from government (NIH, federal grants) and private sources (VC funding for biotech startups, big pharma partnerships) provides a strong pipeline of new life science ventures. This capital influx essentially underwrites future real estate demand, as new labs and facilities will be needed to house the research it enables.
• Limited specialized supply: The technical requirements for lab buildings – such as higher floor loads, specialized ventilation, backup systems, and safety features – mean not every building can be a lab. There is a finite supply of properties that either were built as labs or can be feasibly converted. In many markets, demand outstrips this supply, giving existing owners pricing power and high occupancy.

Key Considerations: Life Science Labs

• High build-out costs: Developing or converting lab space is capital intensive. Outfitting a lab can cost several hundred dollars per square foot in specialized improvements. Investors should be prepared for significant upfront costs and structuring deals (like offering tenant improvement allowances) to attract top tenants.
• Specialized location needs: Life science companies cluster in certain geographic areas to tap into talent, universities, and hospitals. If you venture outside established clusters (e.g., Cambridge MA, South San Francisco, Research Triangle Park), leasing may be tougher. Sticking to or near these hubs – or identifying the next emerging cluster – is key for faster lease-up and stable demand.
• Tenant credit and risk: Many lab tenants are pre-revenue startups dependent on venture funding or successful drug trials. This can pose credit risk if a company’s research fails or funding dries up. Diversifying tenant mix (including some established pharma or university-backed labs) or structuring leases with parent company guarantees can mitigate this risk.
• Regulatory and operational complexity: Lab buildings must comply with strict regulations (chemical storage, waste disposal, air quality, etc.) and often require on-site facility management knowledgeable in these areas. Owners need to account for the ongoing costs of compliance and the expertise required to operate these facilities safely.
• Adaptive reuse limits: Converting traditional offices to labs is not always straightforward. Ceiling heights, floor weight capacity, and mechanical systems in a typical office may not support lab needs. This means truly prime lab real estate often comes from either purpose-built facilities or extensive redevelopments, which can lengthen project timelines and affect returns if not planned carefully.

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Conclusion

The success of data centers, self-storage, and life science labs highlights how shifts in technology, lifestyle, and society can unlock new opportunities in commercial real estate. These once-specialized niches are now mainstream targets for investment, offering growth potential and diversification away from traditional office, retail, or residential properties. As with any investment, due diligence is essential – understanding the unique drivers and challenges of each sector will help investors make informed decisions. However, the overarching trend is clear: the digital economy, personal storage needs, and healthcare innovation are all on the rise, and real estate that supports these trends is reaping the rewards.

For investors looking to ride this momentum, Brevitas provides access to exclusive listings and opportunities across all these booming sectors. Whether you’re interested in a cutting-edge data center, a stabilized self-storage facility, or a state-of-the-art life science campus, our platform connects you with the sellers and brokers who can make it happen. Explore our marketplace, set up personalized searches, and let Brevitas help you capitalize on the next big CRE opportunity.