How Data Center Leases Work
Why data centers are leased by the kilowatt rather than the square foot, what triple net means here, how escalators and term work, and the difference between a letter of intent and a signed lease.
Every projection you will ever be shown for a data center investment is a lease with arithmetic wrapped around it. If you understand the lease you can check the arithmetic. This page is about the lease.
Rent is priced per kilowatt, per month
A data center tenant does not primarily buy floor area. It buys the right to draw a committed amount of electrical power, with the cooling to remove the resulting heat. The unit of rent is therefore dollars per kilowatt of committed capacity per month.
A tenant contracting for 2 MW at $200 per kW per month pays:
2,000 kW × $200 = $400,000 a month, or $4.8 million a year.
That is the whole revenue model. Multiply committed megawatts by the monthly rate by twelve. For benchmarks, CBRE put the global weighted average asking rate at $217.30 per kW per month in Q1 2025, up 3.3% year over year (CBRE, Global Data Center Trends 2025), and its North America commentary describes pricing holding at $200+ per kW per month (CBRE, North America H1 2025).
Three cautions about using those numbers as a benchmark:
- They are asking rates, not signed rates.
- They are weighted averages across markets that differ by a factor of three — Sydney at $140–215 against Singapore at $310–470 in the same quarter (same source).
- They mix deployment sizes. Small retail requirements and large wholesale blocks do not price alike, and CBRE tracks a 250–500 kW band separately for that reason. CBRE reported that single and continuous requirements of 10 MW or more saw the sharpest increases in lease rates in H1 2025, without publishing a rate for that band on the page we can cite.
So treat a published average as a sanity check on an offering's assumption, not as proof it is right or wrong. If a sponsor's model is far above the published range for its market and size, that needs an explanation. If it is at or below, that is reassuring but not sufficient — the rate only matters if somebody signs.
Committed capacity, not metered usage
The committed figure is what the tenant pays for whether or not it uses it. This is good for the landlord: revenue does not fall when the tenant's servers idle. It is also why "utilisation" is the wrong thing to ask about. The question is how many megawatts are contracted, not how many are drawing current.
Alongside capacity rent, tenants normally pay for the electricity they actually consume, either metered directly or recovered through a charge. Which side bears the power cost is one of the most important economic terms in the document, and it is the main thing "triple net" is about here.
Triple net, and what it means in a data center
In ordinary commercial real estate, a triple net lease makes the tenant responsible for taxes, insurance and maintenance. Data center leases borrow the language but the allocation is more varied. What you need to establish:
| Term | The question to ask |
|---|---|
| Power | Does the tenant pay the electricity bill directly, or does the landlord buy it and recover it? If the landlord is exposed to power prices, a tariff increase hits your income. |
| Property taxes | Who pays, and who bears reassessment after the build? |
| Insurance | Who insures the shell, and who insures the tenant's hardware? |
| Mechanical maintenance | Who maintains the cooling plant, generators and UPS — and who funds replacement? |
| Capital replacement | Chillers and switchgear have finite lives. A model with no reserve for them overstates long-run income. |
A "triple net" label on a term sheet is not an answer to any of these. Read the clauses.
Term, escalators and renewal
Term. Wholesale and build-to-suit leases typically run long — commonly ten to fifteen years, sometimes longer for a purpose-built campus. Retail colocation runs much shorter, often one to three years. Long term with a strong tenant is the thing that makes a building financeable and valuable; short terms with many tenants give you pricing flexibility and diversification instead.
Escalators. Most leases raise rent annually by a fixed percentage, or occasionally by an index. A 2% escalator against 3% cost inflation is a real decline in income. Check the escalator against the expense growth the model assumes; a sponsor forecasting flat operating costs for fifteen years is not forecasting, they are decorating.
Renewal and rollover. What happens at expiry drives the terminal value. Does the tenant hold renewal options, and at what rate — market, or a fixed figure set years earlier? A below-market fixed renewal option is a gift to the tenant that your exit valuation pays for.
Termination rights. Look for early termination clauses, what triggers them, and what the tenant pays to use them. A fifteen-year lease with a tenant break at year five is a five-year lease for underwriting purposes.
Letter of intent, term sheet, pre-lease, lease
This distinction decides whether a projection is a forecast or a wish, and offering documents are often written to blur it.
- Letter of intent / term sheet — a statement of what the parties might agree. Usually non-binding. Frequently does not complete.
- Memorandum of understanding — same, with more pages.
- Pre-lease — a binding lease signed before the building exists, with commencement on delivery. This is the real thing, and it is what "build-to-suit" is supposed to mean.
- Executed lease — signed, binding, with a term, a rate and a named counterparty.
What preleasing tells you about the market
74.3% of the capacity under construction in North American primary markets was already preleased (CBRE, H1 2025). Operators with land, power and a track record are signing tenants before they pour concrete.
Read that figure the right way round. It is evidence that credible capacity gets leased early. It is therefore also evidence about what it means when a specific project has reached construction without a tenant: in a market where three-quarters of pipeline is preleased, an unleased building is the exception, and the explanation matters.
Next: why power is the constraint — the input that decides whether a lease can be delivered at all.