Builders Pivot to Data Centers as Broader CRE Construction Slows

While most commercial construction is slowing in 2026, data centers are booming, powered by AI demand, deep-pocketed tech giants, and billion-dollar buildouts.

Nina Dale
January 20, 2026

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Good morning. Commercial construction is hitting a wall in 2026—except when it comes to data centers. As demand for AI infrastructure surges, builders are going all-in on these power-hungry, high-cost facilities.

Today’s issue is sponsored by 1031 Crowdfunding—helping investors pursue passive income through investment-grade commercial real estate.

🎙️This week on No Cap: Hoya Capital’s David Auerbach pulls back the curtain on the REIT market—breaking down public vs. private valuations, capital flows, and the signals investors can't afford to miss heading into 2026.

CRE Trivia 🧠

Which major U.S. retailer announced in 2025 that it would convert dozens of underperforming mall locations into mixed-use developments?

(Answer at the bottom of the newsletter)

Market Snapshot

S&P 500

GSPC

6,940.01

Pct Chg:
-0.064%

FTSE NAREIT

FNER

786.84

Pct Chg:
+1.17%

10Y Treasury

TNX

4.227%

Pct Chg:
+0.067

SOFR

30-DAY AVERAGE

3.70%

Pct Chg:
-0.00

*Data as of 1/16/2026 market close.

Builder Pivot

Builders Pivot to Data Centers as Broader CRE Construction Slows

With construction costs high and labor tight, the only thing booming in commercial real estate is data centers.

Construction cools off: Nonresidential building is expected to stall in 2026, pressured by high rates, material costs, and labor shortages. FMI forecasts a decline in spend across offices, hotels, warehouses, and apartments. Though rising to $844.4B, total spending will decline in real terms.

Defying the trend: Spending on data centers is set to jump 23% in 2026, rising from 2% to over 6% of the nonresidential construction market. Tech giants like Amazon, Google, and Oracle are investing billions in AI-ready facilities—undeterred by rising costs. “The cash is not an issue,” says Jay Bowman of FMI.

Big builds, bigger budgets: Data centers often exceed $1B per project, driven by complex electrical infrastructure like substations and generators. Firms like Skender say these builds can employ thousands—far more than traditional commercial projects.

Labor and policy pressures: Strong demand meets a shrinking workforce, with one-third of firms reporting that immigration enforcement is impacting operations. AGC is pushing for a guest worker visa program amid 2025’s rare net-migration drop—the first in 50 years.

Tariffs add to the squeeze: Tariffs are driving up costs for materials like steel, copper, and lumber. About 40% of firms raised bids in response, while just 11% absorbed the increases. The full impact is still playing out.

➥ THE TAKEAWAY

CRE’s bright spot: As traditional CRE slows, data centers remain the industry's bright spot—delivering scale and stability. But rising labor and material constraints could soon limit their rapid growth.

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✍️ Editor’s Picks

Fed fight: Trump’s clash with Fed Chair Jerome Powell over interest rates—and threats of criminal charges—raises alarm over central bank independence and potential fallout for CRE and markets.
Global gains: Global REITs posted strong 2025 returns, led by Asia (+29.5%) and Europe (+21.2%), while North America lagged at 3.2%.
Liquidity lift: Agency CMBS spreads tightened sharply to start 2026 after Trump pledged $200B in MBS purchases, boosting multifamily liquidity.
Rate freeze: J.P. Morgan sees the Fed holding rates steady through 2026 as strong job growth and persistent inflation leave little room for cuts.
Library impact: The $850M Obama Presidential Center opens in Chicago this spring, bringing cultural and economic promise alongside concerns about gentrification and housing affordability on the South Side.

🏘️ MULTIFAMILY

Data duel: New York Attorney General Letitia James is urging a federal court to dismiss RealPage’s lawsuit challenging the state’s ban on rent-setting algorithms, arguing the software stifles housing market competition.
Rental resilience: Wage growth, improved affordability, and shifting demographics are setting the stage for stronger apartment demand in 2026.
Aging pressure: Senior housing occupancy hit an 18-quarter high at 89.1% in 2025, driven by surging demand and limited new supply.
Flexible rent: Affirm is teaming up with Esusu to pilot buy now, pay later loans for rent payments, raising both hopes for financial flexibility and concerns about tenant debt traps.

🏭 Industrial

IOS influx: Heitman and Open Industrial have launched a $200 million partnership to acquire and expand a 25-site industrial outdoor storage (IOS) portfolio across the Mid-Atlantic.
Power play: Trump and bipartisan governors propose making Big Tech fund new power plants to offset soaring electricity costs from rapid data center growth.
Industrial infusion: PGIM Real Estate lent $108M to Longpoint Partners for the acquisition of a four-property, 760K SF industrial portfolio across Florida, Texas, and California.
Bridge boost: Bridge Industrial secured $60.4M from Barings to refinance its LEED Gold-certified South Bay II facility in Torrance.

🏬 RETAIL

Trade tactics: President Trump is threatening tariffs of up to 25% on eight European countries unless a deal is reached for the U.S. to purchase Greenland.
Retail refresh: Tabani secured $53M to refinance and redevelop Santa Ana’s Bristol Marketplace amid a rebound in Orange County’s retail market.
Legacy sale: Normandy Shopping Center in Ellicott City, MD sold for $57.5M in its first-ever trade, staying in local hands as retail stability returns to the Howard County market.
Sky shopping: Walmart is expanding drone delivery to 150 more stores in 2026 via its partnership with Alphabet’s Wing, aiming to reach over 40M shoppers.

🏢 OFFICE

Relocation watch: Societe Generale is exploring a move from its longtime NYC base at 245 Park Avenue, eyeing 500,000 square feet in newer Midtown towers.
Capital boost: Stiles and Shorenstein secured a $185 million refinancing for The Main in Fort Lauderdale, signaling renewed lender confidence in high-performing office assets.
HQ upgrade: Kroll Bond Rating Agency is upgrading its global HQ with a move to 121,000 square feet at Midtown’s iconic Black Rock tower.

🏨 HOSPITALITY

Club comeback: Soho House is reviving its $2.7B go-private deal after securing new funding from Morse Ventures and restructuring commitments.
Vegas milestone: Caesars Palace is ushering in its 60th anniversary with the debut of ultra-luxurious Presidential and Sky Villas.
Room boom: New York City and Phoenix are expected to lead the U.S. in new hotel room openings in 2026, as national development ramps back up to pre-pandemic levels.

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📈 CHART OF THE DAY

The wealthiest 20% of Americans now account for nearly 60% of all personal spending, a record high that highlights a K-shaped economy fueled by market gains and rising inequality.