I
n downtown Los Angeles, where Wilshire Boulevard begins, thousands of miles of undersea fiber-optic cables disappear into the nondescript office tower One Wilshire. This building is the largest data center in the West, a crucial hub for digital links between Asia and North America that fuel the world's insatiable demand for data storage and computing power. Once home to lawyers and other professionals, the 30-story mid-century building now houses an array of cables, pipes, coolers, generators, and other equipment necessary to support online functions at unprecedented speeds.

    "We're all consumers of data centers," says Maile Kaiser, chief revenue officer of CoreSite, the largest tenant in One Wilshire. "Any content we create is stored in a data center." As the digital transformation of One Wilshire nears completion, with the recent departure of one of its last conventional tenants, it's part of a larger real estate boom underway across Los Angeles County.

    Artificial intelligence and cloud storage are driving demand for data centers, with developers racing to build new facilities or convert existing buildings. The need is so great that they're struggling to keep up, as businesses seek secure spots for their servers and rent nearly every available square foot. Large-scale backup generators are in short supply, essential for keeping 24/7 operations running in the event of a power failure.

    Construction of new data centers is at "extraordinary levels" due to insatiable demand, according to a recent report by real estate brokerage JLL. The biggest drivers are AI and cloud service providers like Amazon, Microsoft, Google, and Oracle. With occupancy in conventional office buildings still down sharply following the pandemic, data centers represent a rare opportunity for developers.

    "If you can find a cluster of power to build a site, they'll come," says JLL real estate broker Darren Eades. Development is taking place at an "extraordinary" pace nationwide but still not keeping up with demand. Vacancy rates have declined to a record low of 3%, and the pipeline of new projects has leveled off.

    The U.S. colocation market, where businesses rent space in data centers owned by another company for their servers and computing hardware, will triple in size from current levels when projects currently under construction or planned are complete. The huge amount of computing power required by generative AI is having the greatest impact on data storage, followed by continued cloud growth.

    Real estate investors and landlords are being drawn into the market because demand from tenants is high and they're likely to renew their leases after shouldering the costs of setting up data centers. Rents at One Wilshire can be double what they are at newer downtown office high-rises.

    The recent departure of a law firm that had been in the building for over 50 years cleared out five floors, which will quickly be re-leased to data tenants. Challenges in the rapidly expanding industry include finding trained workers to staff facilities around the clock and dealing with long hours, limited contact with the outside world, and working night shifts.

    Thirty percent of data center workers quit in the last year, citing unhappiness with their work/life balance. Filling second- and third-shift jobs can add an additional month or more to the hiring process due to applicants' reluctance to work off-hours, even when they pay more than day jobs.