The rapid expansion of data centers driven by the AI boom is facing a significant hurdle as rising borrowing costs create a disconnect between locked-in rental income and expensive financing. While five-year treasury rates have climbed over a percentage point since early 2024, many operators remain tied to long-term leases signed before securing debt in the securitized credit markets. This tension makes issuing bonds challenging as yields approach 8%, leading to a slight downward revision in issuance forecasts for 2026 and 2027. Despite these near-term pressures, U.S. data center power capacity is projected to grow from 60 to 150 gigawatts by 2028. Within this landscape, co-location data centers offer particular value; their diverse tenant bases and shorter lease structures allow operators to adjust more quickly to rising rental rates and market shifts than traditional single-tenant hyperscaler facilities.
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