The Digital Gold Rush: Investment in Data Centres and Related Legal Issues for Investors

The generative AI boom is fuelling massive demand for more expansive and powerful new data centres. Bloomberg Intelligence has estimated that the generative AI market will grow in size to US$1.3 trillion by 2032, up from a market size of only US$40 billion in 2022.¹ This growth, combined with solid growth in the adoption of cloud services, the proliferation of “Internet of Things” devices, and the continued rollout of 5G technologies is set to drive the continued increase in demand for data centre capacity.² Data centres have thus emerged as a sought-after investment class attracting capital from a broad range of investors, leading to a competitive market with EBITDA multiples being pushed ever higher.³ 

This article considers some of the driving forces behind the growth in data centre investment, recent trends in the industry, and specific legal issues for investors to consider.

Surging private equity investment

Against the backdrop of surging demand for computing capacity, investors are flocking to opportunities to invest in the data centre sector. Synergy Research Group has noted that “[a]part from the rapid rise in overall data center M&A activity over the [2015-2024] period, the most notable feature has been the extent to which private equity has flooded into the market. In 2020 private equity accounted for 54% of the value of closed deals, rising to 65% in 2021, and since then it has remained in the 85-90% range.”⁴

There have been a number of notable private equity investments in the data centre sector through 2024 and 2025, both within the Middle East and internationally. These include:

• BlackRock’s Global Infrastructure Partners’ US$40 billion acquisition of Aligned Data Centers, a Texas-headquartered developer and operator with facilities across the US and Latin America, being the largest data centre transaction to date.⁵ Larry Fink, Chairman and CEO of BlackRock, noted that “[w]ith this investment in Aligned Data Centers, we further our goal of delivering the infrastructure necessary to power the future of AI, while offering our clients attractive opportunities to participate in its growth.”
• Apollo Global Management’s acquisition of a majority interest in Stream Data Centers, a developer and operator of colocation and build-to-suit data centres across key US markets.⁶  Apollo partners Joseph Jackson and Trevor Mills described the acquisition as “a landmark digital infrastructure transaction for Apollo,” and noted further that “SDC is uniquely positioned to serve the infrastructure needs of the world’s most sophisticated technology customers.”
• KKR’s commitment to invest over US$5 billion in Gulf Data Hub, one of the largest independent data centre platforms in the Middle East, to support the latter’s market-leading position in the United Arab Emirates and its further international growth plans.⁷ Tara Davies, Co-Head of KKR EMEA and Co-Head of European Infrastructure, noted that “[t]he Middle East is a fast-growing region for hyperscale deployment. With competitively priced and readily available sources of energy, an unmatched ability to serve as a gateway hub for Asia and Africa, and sustained government commitment to power the growth of the digital sector, we believe it is today one of the most attractive investment destinations for long-term capital.”
• Silver Lake’s investment in Khazna Data Centers, the largest data centre operator in the Middle East and North Africa, as it seeks to expand into Saudi Arabia (the region’s largest data centre market) and capture a share of at least 25% of the Saudi market.⁸
• DigitalBridge’s acquisition of Yondr Group, a UK-headquartered global developer and operator of hyperscale data centres.⁹  Jon Mauck, Senior Managing Director at DigitalBridge, noted that “Yondr enhances our existing data centre portfolio and strengthens our ability to support hyperscalers. Together, we are well-positioned to capitalize on the increasing demand for hyperscale data centres – fueled by AI, cloud computing, and the ongoing digital transformation across industries.”
• Blackstone’s and the Canada Pension Plan Investment Board’s acquisition of AirTrunk, the leading Asia Pacific data centre platform, for an implied enterprise value of over AU$24 billion (including capital expenditure for committed projects).¹⁰  Notably, this transaction is Blackstone’s largest investment to date in the Asia Pacific region. Jon Gray, President and Chief Operating Officer of Blackstone, described the transaction as “another vital step as Blackstone seeks to be the leading digital infrastructure investor in the world across the ecosystem, including data centers, power and related services.”

Within the GCC, sovereign wealth funds from Saudi Arabia, the United Arab Emirates, Qatar and Kuwait have announced attention-grabbing commitments to invest in data centre and AI projects in the Gulf region and beyond Notable examples of these investments include:

• The Public Investment Fund’s investment in a new partnership with DigitalBridge to develop new data centres in Saudi Arabia and the wider GCC.¹¹
• The Public Investment Fund’s launch of HUMAIN, a new platform to provide a comprehensive range of AI services, products and tools, including next-generation data centres, AI infrastructure and cloud capabilities, and advanced AI models and solutions.¹²
• The Qatar Investment Authority’s investment in a new partnership with Blue Owl to launch a global digital infrastructure platform focused on data centres.¹³
• The Kuwait Investment Authority’s participation in the Artificial Intelligence Infrastructure Partnership, an infrastructure platform anchored by BlackRock’s Global Infrastructure Partners and others.¹⁴

A number of factors are contributing to the strong investor interest in the sector, including:

• Stable cashflow: Finished or “stabilised” data centres typically generate stable and predictable cashflows from long-term lease agreements with credit tenants, thus generating reliable and consistent income streams for investors.
• Demand resilience: Demand for data centre capacity has proven to be recession-resistant and resilient even during economic downturns, as it is tied to public demand for data-reliant services and therefore is less susceptible to macroeconomic headwinds.
• Booming growth in demand: Demand for data centre capacity continues to grow, driven by exponential growth in the amount of data produced globally, the continued adoption of cloud computing services, and the generative AI boom.
• Capacity constraints: In stark contrast to booming demand, supply-side constraints (most notably, access to power) may serve to limit or delay the addition of new data centre capacity, thus maintaining upward pressure on data centre asking rents.
• Widening access to investments: An increasing variety of investment and financing structures are being used on data centre transactions, spurred on by the need to meet the substantial capital requirements for developing the next generation of hyperscale data centre assets. This, in turn, is opening up the market to more and more investors and thus fuelling demand even further.

Categories of data centre and recent development trends

Individual data centre assets can be categorised into the following general classes:

• Enterprise: This class comprises assets that are owned and operated by a company to support its own operations, and are usually housed within the company’s own premises. This class is thus generally not accessible to third-party investors.  
• Colocation: This class comprises assets that are each shared by multiple tenants. In a retail colocation model, tenants lease space in racks, cages or cabinets within the data centre in which to deploy their own hardware. And in a wholesale colocation model, tenants who have extensive data storage and processing requirements (such as large cloud service providers, internet service providers and telco companies and government agencies) lease larger amounts of space within the data centre, and typically have greater flexibility to design and outfit the space to align with their own requirements.
• Hyperscale: This class comprises the most modern and highest capacity assets that are designed to meet the stringent technical and security requirements of the largest users of data centre services, such as Amazon Web Services, Google, IBM, Meta and Microsoft.
• Edge: This class comprises smaller assets that are strategically located near the “edge” of a network and in close physical proximity to end users or devices that collect or transmit data, to reduce transit time and latency.

Synergy Research Group’s data indicates that the number of large data centres operated by hyperscale users had grown to nearly twelve hundred at the end of Q1 2025, accounting for 44% of the worldwide capacity of all data centres.¹⁵ This data also highlights two clear trends: the growth of hyperscale data centre capacity – up from just over 22% of total capacity in 2018 to 44% of total capacity in 2024, and conversely, the reduction of enterprise data centre capacity – down from nearly 60% of total capacity in 2018 to approximately 35% of total capacity in 2024. Looking ahead to 2030, Synergy expects hyperscale capacity to account for over 60% of total capacity, and for enterprise capacity to drop to just over 20% of total capacity.

The shift towards development of hyperscale data centres is accompanied by a notable shift in the ownership model, with large hyperscalers increasingly looking to lease data centre capacity in addition to the data centres that they own outright. CBRE Investment Management has noted that “[t]he lease vs. build mix for the total hyperscale market has shifted from roughly 50:50 to 70:30, as the big players, such as Amazon, Meta and Google, move from owning to leasing.”¹⁶  According to Jim Footh, Managing Director and Portfolio Manager for Global Data Center Investments at PGIM Real Estate, “[hyperscalers] rely on the data center development community to build data centers that they can turn around and lease in order to keep up with their customer demand,”¹⁷  because they simply cannot keep up with customer demand using only the data centres they own.

The market for edge data centres is also expected to grow substantially in the coming years. IDC has forecasted that global spending on edge IT infrastructure will grow to US$378 billion by 2028,¹⁸  driven by the growing need for improvements to latency, reduced data transfer costs, improved network resilience and enhanced data security.

Given these trends, the continued growth in demand for data centre capacity, and the capital intensive nature of data centre development (hyperscale facilities in particular), the scope for investor capital to be deployed in the data centre industry is clear. CBRE Investment Management expects that, by 2027, the shift toward larger facilities will result in a market with roughly 50% hyperscale capacity, half of which capacity will be accessible to third-party investors, and that combined with non-hyperscale colocation assets, investors may be able to access about 50% of the total data centre market.¹⁹

Legal issues to consider in data centre investment

As with any significant investment, a number of legal issues need to be considered when investing in data centre assets. Some key issues are outlined below:

Economic terms in lease agreements

• Rent provisions: Lease agreements with major tenants may omit or include only weak price escalation mechanisms (particularly when based on such tenants’ model agreements), which can lead to the value of such agreements eroding over time due to inflation. In particular, rents may remain fixed below prevailing market rates in build-to-suit arrangements where developers/operators build bespoke facilities for tenants who commit to long-term leases (typically 10+ years), as rents in such arrangements may be determined as pre-agreed mark-ups to the underlying development costs rather than by reference to market lease rates.
• Power allocation costs: Although power costs are typically subject to pass-through arrangements, some lease agreements may instead provide for an all-in arrangement where power costs are subsumed within the rents charged to tenants. Such arrangements may restrict data centre operators from passing through to tenants any increase in power costs.
• Rights of first offer, rights of first refusal, restrictive covenants: Lease agreements may include rights of first offer or first refusal exercisable by tenants in relation to space within individual colocation facilities, which may restrict data centre operators from leasing space subject to such rights. Lease agreements may also include other restrictive covenants that prevent data centre operators from selling, assigning or encumbering affected facilities, which may impact operators’ flexibility to manage their data centre portfolios.

Service delivery and risk allocation terms in lease agreements

• Service Level Agreements (SLAs): SLAs establish performance standards and remedies for service level failures. Key components for data centre SLAs include service availability (for example, 99.999% guaranteed uptime), support response time, resolution time for reported issues, performance metrics such as processing speed and latency, and security measures to protect tenants’ data. Investors should ensure that the remedies for failure to meet the relevant service standards are limited to rent credits and termination rights; if this is not the case, investors may be indirectly exposed to tenants’ consequential losses and indemnity claims.
• Step-in rights: Tenants may have step-in rights exercisable in case of certain defaults, and they may also be entitled to reimbursement of expenses incurred in connection with the exercise of such rights. Investors should consider the potential impact of such rights on their targets’ revenues, in parallel with their consideration of relevant obligations under applicable SLAs.
• Risk allocation provisions: Given the very rapid growth in data centre scale in recent years, investors with existing portfolios of data centre investments should consider the extent to which the risk allocation provisions in contracts relating to their previous investments remain relevant for contemporary investments. Indemnity and exclusion provisions included in a 5MW colocation lease agreement, for example, may not be appropriate in the context of a 100MW lease agreement with a hyperscaler.

Foreign investment controls

• Critical national infrastructure: Data centres and related infrastructure are increasingly considered to be critical infrastructure in many jurisdictions across the globe. Acquisitions of data centre assets by foreign investors are among the most sensitive acquisitions that national screening authorities may consider, particularly where those assets provide services to government entities or entities that are of national significance (for example, telecoms operators, financial services, transport operators and other providers of critical infrastructure).
• Restrictions on foreign ownership: National screening authorities may subject foreign investment in data centres to specific ownership limitations and/or other conditions relating to matters such as governance and access to sensitive data, particularly where the investor concerned is a sovereign wealth fund or is otherwise controlled or influenced by a foreign government.

Real estate

• Property titles: A comprehensive review of property titles (or other documents governing land development rights) should be carried out to identify any liens, encumbrances or other restrictions on land use that may impact upon the construction or operation of data centres, particularly where the target is engaged in land banking (the practice of acquiring parcels of land for future data centre development).
• Planning/zoning issues: Continued proliferation of large data centres is bringing into sharper focus such facilities’ high energy and water consumption, and the noise and visual impacts they have on their local communities. As planning and zoning requirements become more stringent with a view to addressing these issues, investors should assess the likelihood and impact of developers/operators being denied planning consent to proceed with individual projects or needing to incur additional costs to adapt to tightened regulatory standards.

Energy and sustainability

• Power grid constraints: Growing demand for electric power, including from data centres, is outstripping the growth of existing generation and distribution capacity in several regions worldwide. A stark example of a power supplier running into distribution capacity constraints was provided by Dominion Energy, which powers the so-called “Data Center Alley” in Loudoun County, Virginia. In 2022, Dominion was forced to pause new power connections to data centres because it could not guarantee that new facilities would receive enough power through its transmission infrastructure.²⁰ Investors should therefore consider the extent to which insufficient availability of power may cause operators to incur liabilities to tenants under their contractual obligations (for example, for failure to deliver additional power capacity to tenants in line with the ramp schedules under their lease agreements, and whether force majeure provisions adequately cover against such possibilities), and what recourse might be available against power suppliers in such cases.
• Power Purchase Agreements (PPAs): Data centre operators are among the largest corporate buyers of energy under PPAs, which can help to meet their (and often their customers’) sustainability goals. To describe the operation of a PPA in broad terms, an operator will agree thereunder with an energy provider to invest in the development of a particular renewable energy project (such as a wind or solar farm) and to then offtake renewable energy generated by that project for a defined period of time following the commencement of its power generation operations. PPAs raise a number of regulatory and commercial issues for investors to consider, including compliance with national and international regulations (for example, the EU’s Renewable Energy Directive III), and alignment with lease agreements with tenants (for example, the ability of an operator to pass on costs associated with sourcing power under a PPA to its tenants).
• On-site power generation: Data centre developers and operators are increasingly considering how to incorporate on-site power generation, driven by the need to reduce the burden on local and national power grids, and also to contribute to decarbonisation efforts. Although significant investments have been made in renewable energy solutions, the power delivery of such solutions is location-dependent and often intermittent. Nuclear power has thus come into focus as a potential solution to these challenges, offering the potential of a reliable and consistent power source that is not affected by geographical placement. Alongside traditional nuclear power plants, the development of small modular reactors (SMRs) with an average capacity of 300MW – ideal for single data centres or small clusters – is drawing attention from hyperscalers, some of whom have in recent months committed to deploying SMRs at their data centres.²¹ However, investors should note that the development of SMRs is still at an early stage, and that further progress towards successful deployment of SMRs will require supportive government policies and regulatory environments,²²  as well as concerted efforts from a range of players and stakeholders.

Data privacy and cybersecurity

• Data privacy: Data privacy and protection laws have been passed or bolstered in numerous jurisdictions in recent years, though significant disparities remain between individual regimes. Certain regimes, such as the EU’s General Data Protection Regulation (GDPR) also have extra-territorial effect, which can impact data centre operators that process or store data belonging to EU citizens. The design and implementation of comprehensive data privacy frameworks therefore requires diligence and careful management. Investors should assess the extent to which operators are compliant with all applicable data privacy requirements given the real risks raised by non-compliance, including substantial fines, liabilities to tenants under lease agreements, reputational damage and loss of business.
• Cybersecurity: Cybersecurity laws have also been enacted in several jurisdictions worldwide in recent years. Amid growing threats from a variety of actors, the adequacy of cybersecurity measures is increasingly under focus, particularly as they relate to systems that support critical national infrastructure. Investors should thus also assess operators’ cybersecurity practices and operational resilience.

M&A transactional considerations

• Approach to due diligence: Data centre M&A transactions raise specific due diligence issues that may not be adequately addressed if the diligence is carried out without a specialist understanding of the industry. For example, a hyperscale data centre may serve only a handful of anchor tenants on long-term contracts, whereas a colocation data centre may serve hundreds of smaller tenants on the operator’s standard terms. In the former scenario, an investor should consider not only that the loss of an anchor tenant could result in a significant impact on the investor’s financial model, but also that each anchor tenant’s relative bargaining power may mean that it has been able to negotiate bespoke terms that vary considerably from the operator’s standard terms (and perhaps also from terms negotiated by other anchor tenants). Due consideration should be given to any such bespoke terms and their potential impacts in terms of risk management and economics. Conversely, in the latter scenario, extensively reviewing numerous standard form contracts that are of smaller economic significance may be of limited usefulness from a diligence perspective.
• Liquidity: Given the often very large valuations of individual data centre platforms, investors may find it difficult to sell their stakes in straightforward fashion. In such situations, sponsors may need to be flexible with respect to the manner in which they structure exits – for example, by selling partial stakes in staggered fashion, or by working with varied investor classes with a range of investment horizons such that different classes can sell down at different times.

In conclusion, while there are undoubtedly significant opportunities for investors in the data centre industry, successful investment requires careful consideration of a host of complex legal issues. Investors who adopt a careful and coordinated approach to navigating these issues will be better positioned to realise their commercial objectives and achieve optimal returns.

Freshfields’ market-leading data centre expertise

At Freshfields, we regularly support our clients on their data centre transactions worldwide, helping them to navigate the complex issues that can arise on entering into and exiting from their data centre investments.

Our corporate and private capital specialists work closely with specialist colleagues across the globe to provide seamless coverage for data centre transactions across the board, including financing, real estate, regulatory and tax matters.

Please get in touch if you have any questions or would like to discuss your existing or planned data centre investments. We would be happy to have an initial discussion with you to understand your requirements and determine how we might best support you together with our global specialist teams.
 

^[1] https://www.bloomberg.com/professional/insights/data/generative-ai-races-toward-1-3-trillion-in-revenue-by-2032/ 

^[2] Precedence Research has projected that the global data centre market will grow to reach approximately US$1008.65 billion by 2034, expanding at a CAGR of 11.24% between 2025 and 2034: https://www.precedenceresearch.com/data-center-market.

^[3] Valuations as high as 20-25 times EBITDA have been seen in recent years: https://www.oliverwyman.com/content/dam/oliver-wyman/v2/publications/WHY%20DATA%20CENTERS%20SHOULD%20BE%20LEFT%20TO%20THE%20SPECIALISTS.pdf 

^[4] https://www.srgresearch.com/articles/data-center-ma-deals-on-the-rise-again-heading-towards-record-levels 

^[5] https://www.global-infra.com/news/ai-infrastructure-partnership-aip-mgx-and-blackrocks-global-infrastructure-partners-gip-to-acquire-all-equity-in-aligned-data-centers/ 

^[6] https://ir.apollo.com/news-events/press-releases/detail/569/apollo-funds-to-acquire-majority-stake-in-stream-data

^[7] https://media.kkr.com/news-details?news_id=7a64b850-b2ae-4747-bc71-5d58b8e82f50 

^[8] https://www.bloomberg.com/news/articles/2025-04-28/dubai-data-center-leader-plans-saudi-push-after-silver-lake-deal 

^[9] https://www.digitalbridge.com/news/2024-10-28-digitalbridge-to-acquire-yondr-group 

^[10] https://www.blackstone.com/news/press/blackstone-announces-agreement-to-acquire-airtrunk-in-a-a24b-transaction/ 

^[11] https://www.digitalbridge.com/news/2023-05-24-digitalbridge-announces-pif-as-an-investor-in-a-new-partnership-aiming-to-develop-data-centers-in-saudi-arabia-and-the-gcc-region 

^[12] https://www.pif.gov.sa/en/news-and-insights/press-releases/2025/hrh-crown-prince-launches-humain-as-global-ai-powerhouse/

^[13] https://www.blueowl.com/news/qatar-investment-authority-and-blue-owl-capital-partnership 

^[14] https://www.bloomberg.com/news/articles/2025-06-03/kuwait-s-wealth-fund-joins-microsoft-blackrock-and-mgx-s-ai-partnership

^[15] https://www.srgresearch.com/articles/the-worlds-total-data-center-capacity-is-shifting-rapidly-to-hyperscale-operators 

^[16] https://www.cbreim.com/insights/articles/decoding-data-centers 

^[17] https://www.pgim.com/ae/en/institutional/insights/outfront/hyperscale/data-centers-lease-or-build 

^[18] https://my.idc.com/getdoc.jsp?containerId=prUS52587424# 

^[19] https://www.cbreim.com/insights/articles/decoding-data-centers

^[20] https://www.datacenterdynamics.com/en/news/dominion-energy-admits-it-cant-meet-data-center-power-demands-in-virginia/

^[21] https://www.datacenterfrontier.com/energy/article/55235902/google-and-amazon-make-major-inroads-with-smrs-to-bring-nuclear-energy-to-data-centers 

^[22] In a notable example of a nuclear energy firm chafing against existing nuclear regulation in the US, Last Energy, Inc. earlier this year filed a lawsuit (joined by attorneys general in Texas and Utah) against the Nuclear Regulatory Commission (NRC), which includes the rather punchy criticism that the NRC, “despite its name, does not really regulate new nuclear reactor construction so much as ensure that it almost never happens.” https://energycentral.com/c/um/texas-utah-and-smr-developer-attack-nrc-small-reactor-licensing