The global data centre sector is entering a pivotal stage. After years of rapid expansion, the market is maturing – and with maturity comes complexity. In 2026, success will no longer be guaranteed by simply deploying capital. Instead, strategic discipline, site selection, and alignment with demand drivers will define winners and losers.
From Growth to Selectivity
Not every investment will succeed in this new environment. Constraints around power availability, land scarcity, and permitting hurdles in established hubs are reshaping the competitive landscape. These challenges will make value preservation and even growth possible for those who prioritise fundamentals.
Where the Opportunity Lies
Despite rising risks, the sector still offers outsized risk-adjusted returns for disciplined investors. The sweet spot? Network-dense facilities and flexibly designed assets in key availability zones. These remain critical for cloud and connectivity demand, while poor site selection increasingly risks creating stranded assets.
Capital Markets and Emerging Risks
Asset-level exits are still evolving, but capital markets are adapting. Reasonably priced debt continues to fuel transactions, though investors should monitor contagion risks from unproductive AI investments by tech firms, which could ripple into credit conditions and lender appetite.
Avoiding the Dot-Com Trap
Some observers draw parallels between today’s data centre boom and the fibre buildout that faltered after the dot-com bubble. While there are similarities, particularly in the surge of sites announced for generative AI training, key differences stand out. Utilisation rates remain above 90 percent in most mature markets, and high barriers to entry, especially power constraints, are curbing speculative development. The lesson: stay disciplined and resist the hype.
Beyond Data Centres: Broader Real Asset Trends
More broadly, the European real estate market has entered the early stage of a new cycle. Valuations appear to have largely bottomed out, sentiment is improving, and activity is gradually starting to recover. Beneath the surface, however, a key trend unfolding is the increasing divergence in performance across geographies and asset types. After the Great Financial Crisis, steep interest rate cuts fuelled a broad-based increase in real estate prices. In contrast, during this cycle, we expect investment returns to be driven primarily by income growth rather than falling interest rates and yield compression. This reinforces the importance of selecting the right sector, property type, and location with strong supply-demand fundamentals.
For example, signs of polarisation are visible in the office sector, where secondary assets in peripheral locations continue to see rising vacancy and value erosion, while modern offices in supply-constrained submarkets in London, Paris, and Madrid’s CBDs performed very well. Similarly, in the logistics sector, rapidly evolving tenant requirements are shifting demand decisively toward efficient, state-of-the-art, modern space.
Another major trend that is likely to shape the real estate market in 2026 and beyond is the new European strategic imperative to strengthen its security and modernise its infrastructure network. Indeed, the current geopolitical environment, marked by the war in Ukraine and the prospect of reduced U.S. engagement abroad, has fundamentally altered Europe’s priorities and fiscal stance. This policy shift could serve as a powerful new catalyst for both the economy and real estate markets.
Seb Dooley, portfolio manager at Principal Asset Management
