Nuclear power is emerging as a preferred solution to meet the growing energy demands of data centers, particularly for AI and high-performance computing applications. Tech companies are the largest occupiers of data center space, and they have among the most aggressive net zero targets. Nuclear provides a solution to both challenges.

As traditional power grids struggle to keep up with increasing power demands, nuclear energy is gaining enthusiasm as a clean and reliable alternative energy source for data centers. Multiple nuclear PPAs were signed in 2024 involving active nuclear plants as well as decommissioned plants which will be reactivated around 2028. However, the development pipeline for additional large-scale nuclear facilities is limited. Instead, attention has turned to another form of nuclear energy: small modular reactors (SMRs).

SMRs can provide 1.5 to 300 megawatts of power. They are modular and scalable, making them potentially an ideal solution for data centers at a fraction of the traditional large-scale nuclear cost. It is important to note that SMR technology is still in the early stages of development, with commercial deployment in the U.S. not expected until 2030 at the earliest. However, if SMRs materialize as a credible power alternative, they could provide data centers with abundant green energy. This would have significant implications for site selection, data center design and ongoing operations.

Data center development financing will achieve another record year in 2025. Across the hyperscale and colocation segments, an estimated 10 GW is projected to break ground globally in 2025. Separately, 7 GW will likely reach completion. This equates to roughly $170 billion in asset value that will need to secure either development or permanent financing in 2025.

Data center development financing is typically arranged at 65% to 80% loan-to-cost while permanent financing is typically arranged at 65% to 75% loan-to-value. The majority of data center development financing has historically been originated by a handful of lenders, but as the deals get larger, the lending pool is slowly increasing and club deals are becoming more common.

A relatively limited number of data centers trade each year. For context, global data center investment sales (excluding entity trades and recaps) have averaged just $7 billion annually since 2020. This compares to an annual average of $241 billion for office assets over the same period.

An increased number of developers will be looking to exit positions and recycle capital in the year ahead. But in many cases, these developers will have challenges making the numbers work. As result, global data center trading volume is likely to record only a modest increase in 2025.

The modest increase, despite significant investor interest, is due to several factors. First, the significant upward move in interest rates in most G10 countries between the time assets were financed a few years ago and today has created a significant bid-ask spread. Second, there are variances in relet assumptions between buyers and sellers which are contributing to bid-ask spreads. Most owners are not in a position where they need to sell, so they are likely to hold on to assets over the next year and wait for financial conditions to become more advantageous.

As we look ahead to 2025, it is clear that the data center sector is on the precipice of enormous, transformative growth driven by the rapid advancement of AI and its increasing compute demands. This growth is creating both opportunities and challenges, the convergence of rising power requirements and data center growth is leading to a generational investment opportunity. The emergence of new technologies provide additional latitude for sustainability growth and value creation, but also highlight the fundamental importance of expert advice and guidance in this rapidly evolving sector.