"AI Boom Turns Data Centers into Prime Real Estate, Reshaping the Commercial Property Market" [Real Estate AtoZ]

Concentration in the Metropolitan Area, Spreading to Non-Metropolitan Regions
Long-Term Leases and Customized Designs Boost Investment Appeal

The spread of generative artificial intelligence (AI) and the cloud industry is reshaping the domestic real estate landscape. Data centers have rapidly emerged as a new "core asset" within commercial real estate, which was previously centered around offices and logistics centers. As data centers transition from simple server storage facilities to AI-specialized centers capable of high-performance computing, they are drawing increasing attention from investors.

60% of Data Centers Clustered in the Seoul Metropolitan Area... "Due to Power and Network Accessibility"

Expected Image of SK AI Data Center Ulsan. SK Telecom

According to the real estate industry on October 6, KB Financial Group Management Research Institute recently stated in its "Commercial Real Estate Market Diagnosis and Outlook" report, "The rapid increase in demand for data centers driven by the spread of AI and cloud technologies is steadily expanding the domestic market." The report added, "While commercial data centers were previously concentrated in the Seoul metropolitan area, they are now spreading to non-metropolitan regions. This growth is expected to continue, supported by their resilience to economic fluctuations and government promotion policies."

The report noted that as of last year, there were 165 data centers in Korea, with 60.4% concentrated in the metropolitan area. Over the past decade, this figure has increased by 26.9%, and in the past five years, the annual average growth rate has been 1.4%.

Areas such as Sangam and Mokdong in Seoul, and Bundang and Pangyo in Gyeonggi Province, have become key hubs for global cloud service providers (CSPs) due to their stable power infrastructure, network accessibility, and physical proximity to major clients.

Data centers are categorized by size and purpose into enterprise (for internal use), colocation (for commercial use), cloud-type, and AI-specialized centers. Among these, the main tenants of domestic commercial centers are global CSPs such as Amazon, Google, and Microsoft.

Savills Korea, a global real estate services company, forecasts that more than 40 additional commercial data centers will be built in Korea by 2028.

"In the AI Era, Power Is Competitiveness"... Moving to Non-Metropolitan Coastal and Power Plant Areas

Number of domestic data centers (left), trend of commercial data center supply in the metropolitan area. KB Financial Group Management Research Institute

Recently, the surge in demand for AI-specialized data centers has rapidly increased the preference for locations outside the metropolitan area.

This is because the expansion of AI-based services requires high-performance graphics processing units (GPUs) and neural processing units (NPUs) capable of handling large-scale computation, rather than just simple storage. These devices consume massive amounts of power and generate significant heat, making efficient cooling systems essential.

However, the metropolitan area faces challenges such as limited land availability, constraints in power supply, resident complaints, and a slowdown in real estate project financing, making new supply difficult. As these restrictions accumulate, more companies are quickly considering relocating to non-metropolitan areas near power plants, coastal, or waterfront regions.

Currently, out of 39 data centers in the planning stage, 32 (82.1%) are expected to be built in non-metropolitan areas, with the government's regional decentralization policy supporting this trend. The government is simultaneously pursuing the establishment of a stable power grid and revitalization of local economies through the "Special Act on the Promotion of Distributed Energy," enacted in June last year.

With this full-fledged shift toward non-metropolitan areas, data centers are emerging as a new alternative investment asset. The report stated, "Data centers require long-term lease contracts and customized designs, making them less sensitive to interest rate environments or economic fluctuations compared to other commercial real estate. Investor interest remains high, and continued growth is anticipated."

Major Corporations Accelerate Investments... Construction Companies Join the "Data Center War"

OpenAI CEO Sam Altman is speaking during a meeting with President Lee Jae-myung at the Yongsan Presidential Office on the 1st. Samsung Electronics Chairman Lee Jae-yong and SK Group Chairman Chey Tae-won also attended the meeting that day. Photo by Yonhap News

Investment in AI data centers is spreading among major domestic corporations.

Samsung and SK are each considering building dedicated data centers for OpenAI, the developer of ChatGPT, and if realized, investments worth several trillion won are expected. SK is pursuing the construction of an OpenAI-dedicated center in the southwestern region (Jeollanam-do) and has already partnered with Amazon Web Services (AWS) to establish a data center in Ulsan worth 7 trillion won. SK has also proposed the "East-West AI Belt" connecting Ulsan and Jeollanam-do. According to the Presidential Office, Samsung is also discussing the construction of an AI data center in the southeastern region (Pohang), led by Samsung SDS, in collaboration with OpenAI.

The rapid growth of the data center market has also brought changes to the construction industry. Although the high level of technology and stable operational infrastructure required creates a significant barrier to entry, for construction companies, data centers are emerging as a new revenue base.

Hyundai Engineering & Construction has accumulated technological expertise by building major domestic data centers, starting with the Financial Settlement Center in Bundang in 2004, followed by the KT Mokdong Internet Data Center (IDC), NH Integrated IT Center, and Naver Sejong Center. DL E&C recently completed the "Gasan Data Center" in Geumcheon-gu, Seoul, expanding its scope to the commissioning stage. GS Engineering & Construction has increased its market share by consecutively completing projects such as the Hana Financial Group Integrated Data Center, Naver Sejong Center, and Daegu Bank Data Center. In 2021, it established a specialized subsidiary, "DC Bridge," for data center operations, creating a system for integrated management of operations and services.