This article was published on Sept. 4, 2025, at 2:40 p.m. on the ChosunBiz MoneyMove site.
As major corporations and domestic and international asset management firms are increasingly focusing on data center investments, concerns about market overheating are emerging within and outside the industry. While data centers gained attention during the COVID-19 pandemic, recent issues regarding logistics centers suffering from oversupply and declining revenue have raised questions about whether a similar situation will recur.
While it is somewhat predictable how necessary logistics centers are nationwide, it is uncertain how far investment in data centers will proceed. This is because demand for artificial intelligence (AI) investment continues to grow. Industry experts analyze that caution is necessary in investing due to the difficulty of predicting peak prices.
According to the investment banking (IB) industry on the 4th, domestic major real estate specialist asset management firm IGIS Asset Management is operating or developing six data centers in the metropolitan area, including Ansan and Goyang, with investments exceeding 4 trillion won. Another real estate specialist asset management firm, Koramco Asset Management, also announced plans to increase its data center investment scale to 10 trillion won by 2032. It is currently developing four large data centers in Ansan and Uijeongbu, and plans to launch a dedicated blind fund and listed REITs for data centers in the future.
It is not just real estate operators. Major corporations are also turning their eyes to data centers. SK Group has teamed up with Amazon Web Services (AWS) to build the largest AI-specific data center in Ulsan. The goal is to invest 7 trillion won and launch operations by 2027. LG Uplus, along with LG Group and KT, is also prioritizing data center investments and advancing development.
As domestic companies leap into the data center market as a new opportunity amidst the sluggish real estate market, concerns are gradually arising in the industry that 'this could lead to a sudden peak.' There are points that suggest following the precedent of logistics centers, which have seen increased vacancy rates and declining revenue due to oversupply.
Currently, the capitalization rate (Cap Rate) for data center investments stands at about 5%, which is higher than that of grade A office assets in Korea (4.5%) but similar to that of logistics centers (5.5%).
In the case of logistics centers, interest was only from overseas investors as recently as the late 2010s. However, as demands for logistics surged due to the spread of non-face-to-face consumption amid the COVID-19 pandemic, domestic investors entered the market. Currently, grade A logistics centers in the metropolitan area are experiencing vacancy rates exceeding 20%. Consequently, there are cases where relatively high vacancy cold storage facilities are being converted into room temperature warehouses or entirely into data centers.
A representative from a commercial real estate investment advisory firm noted, 'When domestic investors jumped into logistics centers, overseas investors turned their eyes to data centers,' adding that 'the data centers invested in during that time have recently been completed, and domestic investors have been moving to start construction one by one since last year.'
Overseas, where data center development began ahead of Korea, the 'bubble theory' has already been raised. Building a single data center requires enormous expenses, but achieving profitability is challenging, leading to the notion of becoming a 'money-consuming hippo.' Harris Kuperman, Chief Investment Officer (CIO) of Praetorian Capital, claimed in a report that AI data centers set to be constructed this year are projected to suffer annual depreciation of approximately $40 billion (about 56 trillion won).
He further pointed out that the revenue expected to be generated from data centers is capped at about $2 billion (approximately 28 trillion won). Due to the constant need to replace expensive components, revenue must increase more than tenfold to reach the break-even point.
A representative from a domestic asset management firm stated, 'In Korea, it seems that construction costs will be about 20 billion won for each 1 MW (megawatt) of power capacity, and to build a large data center classified as over 40 MW, a cost of about 800 billion won or more will be necessary,' adding, 'That is enough to build two to three ultra-large offices in the city center.'
The opportunity to secure large sites to build data centers in high-demand areas is also dwindling. Due to delay issues, it is important for data centers to be located close to customer companies, which makes the metropolitan area preferred. However, recent data center firms have been expanding new locations to the outskirts of the metropolitan area due to restrictions on power supply and land shortages in Seoul. Currently, the southwestern part of Seoul, including Gangseo, Guro, Geumcheon, Yangcheon, and Yeongdeungpo, accounts for 26% of the operational capacity of metropolitan data centers, but new developments are trending toward Incheon and Bucheon.
Another representative from a commercial real estate investment advisory firm expressed, 'In Korea, as interest in AI is high, there is a prevailing view that we should jump into data center development now to secure capacity (CAPA),' while also noting, 'However, no one knows how much or for how long AI demand will increase; if this trend continues, it could lead to oversupply, declining revenue, and a surge in power demand.'