Are Data Centres Still Real Estate?

For REIT investors, it depends. And what it depends on is changing fast.

Data centres have become one of commercial real estate's biggest growth stories in the US. But as they become more power-hungry and technically complex, they raise a question traditional real estate structures were never built to answer: when does a data centre stop being real estate and become an infrastructure business? For investors, this isn’t purely an interesting philosophical question – it’s a tax bill.

Many of the sector's biggest owners, such as Equinix and Digital Realty, have elected to be taxed as US real estate investment trusts (REITs). That is a tightly defined legal status, not just a label for a listed property firm. In exchange for paying no corporate tax on the income they distribute, REITs must pay out at least 90% of their taxable income each year. They must also pass strict ownership tests: at least 75% of their assets must be real estate and at least 75% of their income must come from sources such as rent. Fail those tests and the tax advantage disappears. The rules were written for passive landlords. And a modern data centre is anything but passive.

Which parts of a data centre count as real estate?

The building shell qualifies easily. The systems inside are harder: certain structural components can qualify as real property, while machinery and equipment serving an active function may not, and a data centre's value lies precisely in that infrastructure. Services are riskier still. Services such as equipment monitoring and maintenance might go beyond what's customary for a landlord, and if impermissible service income from a property exceeds 1% of its gross income, all income from that property is treated as impermissible. One small service line can taint the rent from an entire building.

Why can data centre development put REIT status at risk?

Construction adds a timing problem. Developers pay for power and cooling equipment well before it's installed. In May 2026, Nareit asked the IRS and Department of the Treasury to confirm that deposit accounts count as cash items and that construction-in-progress for unaffixed materials and components counts as real property. Without that, the faster a REIT builds, the more its own pipeline threatens its tax status.

What happens when a REIT generates its own power? 

Power is where the tension is sharpest. Nareit also called for a workable standard for on-site energy generation by REITs, including data centre REITs. Fermi America provides an example of why this is critical. It underwent public planning to be a REIT built around a Texas campus powered by its own generation, while warning investors that its power entities may sell power directly to tenants or third parties, generating non-qualifying income. In March 2026, it moved its turbine-holding entities into a taxable REIT subsidiary. By August, it had deferred its REIT election and expects to be taxed as a C corporation at least through 2026. Its filings don't give a single reason, but the lesson is plain: once a landlord starts producing electricity, the REIT wrapper stops fitting neatly.

How do established REITs stay compliant?

Established players manage the line constantly too. Equinix keeps most of its Americas and EMEA operations inside its REIT but runs data centres in other jurisdictions as taxable subsidiaries, and says it continues to monitor its REIT compliance. That works, but every dollar that moves into a taxable subsidiary erodes the tax advantage that made the REIT attractive.

Headline growth no longer tells you what proportion is tax-advantaged. Pending IRS guidance could decide whether REITs can develop the next wave of AI capacity, not just own it. And private infrastructure funds, free of these constraints, may gain ground if the rules stand still.

Is this just a US data centre problem? 

Other markets face the same question. Singapore has already widened its REIT rules to cover co-location income, while data centre income that counts as trading rather than rent still generally rules out REIT-style structures in the UK and Australia.

Data centres clearly contain real estate. But they may just be the first of many buildings whose value comes from what they do, not just the space they provide. As offices, warehouses and homes become more technologically enabled – generating power, trading energy with the grid and running themselves – they will face the same question. Autonomous buildings are coming either way; the only question is whether real estate investors will own the most valuable parts of them.

For more coverage of data centres, head to the Verdantix Real Estate & Facilities Management insights page.