Data Center Bytes

Cloud computing has been sold as elastic, on-demand access to virtually unlimited resources. However, the rapid growth of data-intensive and artificial intelligence–driven workloads has strained the availability of certain types of computing, particularly specialized processors and region-specific capacity. As a result, customers (and their lawyers) are questioning whether compute resources will be available when needed.

The continued expansion of data centers—driven by cloud adoption, artificial intelligence (AI), and high-performance computing—is reshaping how investors evaluate infrastructure risk and opportunity. Among the most critical, and often underestimated, components of this ecosystem are heating, ventilation, and air conditioning (HVAC) and related thermal-management infrastructure.

Explosive growth in cloud computing, AI workloads, edge deployments, and enterprise digitization continues to drive unprecedented demand for capacity, leading the data center sector to become one of the most closely watched segments of the digital infrastructure market. While investor attention often gravitates toward hyperscalers, colocation platforms, and real estate assets, commercial facility services are emerging as a compelling—and frequently underappreciated—source of value for investors and operators in the data center sector.

California lawmakers have recently focused renewed attention on the rapid growth of data centers, driven in large part by cloud computing and artificial intelligence capacity demands. Concerns about grid reliability, electricity costs, and environmental impacts prompted a flurry of legislative proposals in the 2024–2025 session. The result, however, is a more incremental regulatory approach than many industry participants initially expected. This post highlights what has passed, what stalled, and what data center developers and operators should be monitoring going forward.

The Federal Energy Regulatory Commission (FERC) issued its long-awaited order on December 18, 2025 (the Order), directing PJM Interconnection, LLC to reform its Open Access Transmission Tariff (Tariff) rules for generators co-located with large loads, most notably data centers, after finding the current Tariff lacks sufficient clarity and consistency regarding applicable rates, terms, and conditions of service.

Ayman Khaleq, a partner at Morgan Lewis, is widely recognized as one of the leading advisors on cross-border investments, digital infrastructure transactions, and securities technology–industry regulatory frameworks in the Middle East. Ayman guides institutional investors (including sovereign wealth funds), private equity investors, and regional operators as they navigate complex legal and regulatory landscapes and structure large-scale data center and tech-sector investments. His perspective offers valuable insight into how the United Arab Emirates (UAE) and Saudi Arabia have become two of the most dynamic and competitive data center markets globally. His on-the-ground experience offers helpful insight into where the market is today—and where it is headed next.

Professional investors eyeing data center opportunities may want to consider adaptive reuse of vacant real estate assets. A recent Chicago transaction demonstrates how power provisioning and strategic repositioning can unlock value in underutilized properties, particularly as demand for data center facilities expands.

The proliferation of artificial intelligence (AI) data centers and other high-demand facilities is imposing significant new energy and infrastructure demands on the electric grid. This rapid pace of development is testing the limits of legacy regulatory rules, forcing policymakers and industry participants to consider a patchwork of solutions, ranging from new tariff designs to special contracts. There is also growing concern in some corners of the industry over rate hikes, resource adequacy, and reliability.

Join us for the next chapter in Morgan Lewis’s Data Center Bytes webinar series Navigating the Capacity Race. This upcoming series dives into the big opportunities and pressing challenges shaping the fast-moving data center world.

While data center leases need to include most of the standard provisions of typical warehouse or manufacturing facilities’ leases, special attention should be given to their unique operational needs and special investments for the site. When leasing a data center building it is essential, among other things, to ensure the lease will address a high level of security, protect the privacy of both the tenant and the premises, and provide for continuity of operations throughout the lease term.