The Winter 2025 Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey highlights significant changes in California’s commercial real estate market, driven by the growing adoption of cloud computing, machine learning, artificial intelligence (AI), and the shift to hybrid working models, all of which have led to data centers and related digital infrastructure being the largest growth sector in new industrial projects.
Some key takeaways with respect to data centers from the survey included the following:
- Shift in Industrial Development: Digital Infrastructure Leads – The growing adoption of cloud computing, machine learning, and AI is significantly reshaping the industrial market. Data centers and digital infrastructure has emerged as the primary driver for new industrial projects, with 38% of respondents this year citing it as the leading factor in their development—up from just 17% in the previous survey. In contrast, ecommerce now accounts for 28%, reflecting a notable decline from 50%. The industrial sector continues to thrive, particularly in Northern and Southern California, where 50% and 54% of respondents, respectively, have strong expectations for new projects driven by the high demand for technological infrastructure.
- Retail Market Evolution: Rise of Mixed-Use Spaces – As ecommerce continues to challenge traditional retail, there is a rising demand for internet infrastructure that is able to support the shift to online shopping and, for in-person shopping, experiential spaces designed to attract foot traffic in a diversified use setting. These mixed-use environments—combining living, working, and leisure spaces—are becoming the focus of new retail projects.
- Office Market Transformation: AI and Hybrid Work Models Influence Demand – The office market is undergoing a transformation, particularly in tech hubs such as San Francisco and Silicon Valley, however, respondents are more optimistic about the office market overall in Northern California and Southern California. AI job growth, up 59% since January 2024, is driving a decline in office vacancy rates, the first such drop in San Francisco since 2019. As hybrid work models continue to coexist with return-to-work mandates, there is increased demand for smaller office spaces and flexible layouts. With new office development slowing, the focus is shifting to retrofitting older office buildings to accommodate modern needs such as high-speed connectivity, energy efficiency, and improved accessibility.
The high-speed connectivity needs for industry and commerce, together with the continued growth in AI in all aspects of society, feeds into the shift in industrial development toward data centers in areas with reliable power, water, and fiber infrastructure and limited natural hazard risks. The survey results confirm that the growth in the needs for data centers is expected to continue in the coming years.
We invite you to join us for our Data Center Bytes Webinar Series: Data in 2025, including for the session on Real Estate and Environmental Considerations for Data Centers.