Data Centers Drive Economic Growth: Insights from Edward Shugrue III

The rapid expansion of data centers is becoming a pivotal economic narrative as artificial intelligence (AI) continues to evolve. Edward L. Shugrue III, Managing Director of RiverPark Funds, emphasizes that the economic implications of this trend extend well beyond the realm of technology. Shugrue aims to highlight how the physical infrastructure supporting AI increasingly relies on sophisticated capital markets to meet surging demand.

Shugrue brings extensive experience in commercial real estate investing, lending, and securitization. His insights, shaped by a career focused on the commercial mortgage-backed securities (CMBS) market, underscore the movement of capital into income-generating real assets. He states, “Capital markets show their true power when assets grow beyond what balance sheets alone can bear.” This perspective is increasingly relevant as data centers transition from niche infrastructure to vital platforms in the economy.

The U.S. data center storage market is projected to surpass $1 trillion by 2034, driven by the rising demand for cloud services and digital security. Shugrue notes that construction activity reflects this trend. A recent report indicates that data center supply in major U.S. markets grew by nearly 35% year-over-year in 2024, with vacancy rates dropping below 2%. Additionally, prices for power-dense capacity have risen, signaling ongoing demand amid escalating development costs.

When discussing the financial requirements for building infrastructure to support AI, Shugrue poses a crucial question: “As AI grows, what does it actually take financially and structurally to build the infrastructure that keeps it moving?” An analysis by McKinsey suggests that by the end of the decade, over $500 billion may be necessary for U.S. data center infrastructure to add more than 50 gigawatts of capacity. Power demand from data centers is expected to triple from current levels, with McKinsey estimating nearly $7 trillion in global capital expenditure on data centers by 2030, a substantial portion of which will be directed toward the U.S.

Shugrue points out that while public discourse often highlights the software capabilities of AI, the financing of its physical backbone receives less attention. He views this imbalance as an opportunity to enhance understanding. “Technological adoption moves quickly, and financing tends to follow once scale becomes unavoidable,” he remarks. He contends that bridging this gap necessitates financial instruments that can handle multibillion-dollar needs without placing undue stress on individual lender or investor groups.

The CMBS market has emerged as one viable solution. Shugrue explains that while CMBS has existed for years, it initially focused on smaller properties, often valued in the tens of millions. Over time, the market has evolved, with billion-dollar transactions now common. Investors are increasingly gravitating toward single-asset, single-borrower (SASB) structures, reflecting a shift towards financing institutional-scale properties. According to the Commercial Real Estate Finance Council, private-label CMBS and Commercial Real Estate Collateralized Loan Obligation (CRE CLO) issuance surpassed $155 billion in 2025, with SASB transactions accounting for over $90 billion.

This transformation illustrates broader changes in ownership patterns and asset sizes. Shugrue notes that many large institutional investors now manage portfolios that can reach billions, often favoring securitized structures that accommodate such scale. Data centers fit this framework once they achieve a stabilized, income-producing phase. He explains, “Securitization is particularly efficient for billion-dollar-plus assets that are well occupied and generating substantial cash flow.”

Recent market dynamics further support the securitization of data centers within the CMBS framework. Despite being a relatively non-traditional asset class, demand from investors remains robust, with interest continuing to grow. Shugrue points to several significant refinancing efforts as evidence that CMBS has become a practical option for funding infrastructure traditionally managed by banks or private lenders.

Shugrue views these developments as indicators of the market’s adaptation to the needs of a rapidly expanding asset class. He emphasizes that the successful integration of AI into everyday economic activity hinges on the availability of data centers, which in turn rely on capital structures able to support their growth. The evolution of CMBS toward accommodating large, institutional assets has positioned it as a critical component of this infrastructure.

In summary, Shugrue’s insights reveal that technological advancement and financial architecture progress in tandem, each influencing the pace and scale of the other. As the demand for data centers continues to surge, understanding the financial mechanisms that support them will be crucial for navigating the future landscape of AI and its economic implications.