The property recovery runs on more than data centers

Data centers may be grabbing the attention in commercial real estate, but they are not the only force driving growth. Randyl Drummer of CoStar News reports that a drop in construction across office, industrial and apartment markets is limiting the amount of space on the market, helping owners after years of elevated interest rates, overbuilding and shifting consumer habits.

The earnings side of the industry shows the breadth. CBRE, JLL, Cushman & Wakefield, Colliers and Newmark all reported double-digit revenue growth in the second quarter, and several raised their annual profit forecasts. CoStar describes the cause as an increasingly rare combination: a broad recovery in non-data-center real estate running alongside a boom in artificial intelligence systems.

The two forces feed the brokers differently. Data center work throws off fees across the life of a project, from site selection and construction management to leasing, financing and operating the finished facility. The conventional recovery shows up in leasing volume and transaction counts across office, industrial and apartment properties. Together they are powering stronger leasing, more deals and expanding profit margins at the largest brokerage and property services firms.

The revenue mix matters. Leasing generates recurring income, while transactions are lumpier. All five firms reported double-digit growth in the same quarter, which suggests both lines of business are moving. For private wealth allocators with direct real estate exposure, the brokers' numbers are a leading indicator: leasing and transaction volumes tend to move before appraisals and fund net asset values. The raised profit forecasts are the most telling piece; management teams do not lift annual guidance on a single good quarter.

The supply story is the quieter of the two. Years of elevated interest rates made new office towers and industrial buildings hard to underwrite, while shifting consumer habits pulled demand out of parts of retail. With new construction down across office, industrial and apartment markets, the space that exists faces less competition. CoStar writes that the drop in construction is helping owners by cutting the amount of space on the market; the owners who survived the downturn now have the advantage.

The freeze in construction also changes the nature of the transaction market. With few new buildings coming to market, deal activity is concentrated in existing assets, from refinancings to sales of stabilized properties. That is consistent with CoStar's description of the recovery helping owners rather than rewarding developers. It also means the brokers' transaction fees are tied to the value of the existing stock, not to a pipeline of new projects.

The construction drop is what makes the current moment rare. Historically, recoveries have been led by a single property type. This one pairs a conventional rebound with a technology-driven construction boom, and CoStar's reporting suggests the two are supporting each other rather than competing for capital and tenants.

That combination shows up in the office market, where the AI boom is not confined to data centers. CoStar cites Yerba Buena Gardens in San Francisco's South of Market district, where artificial intelligence companies have bolstered leasing in a traditional office hub. The example suggests the AI demand is leaking into conventional product, not just purpose-built facilities. Even in property types that have struggled, there are pockets of real demand.

Risks remain. CoStar points to elevated borrowing costs, geopolitical uncertainty and continuing weakness among older properties in oversupplied markets. The Yerba Buena example sits alongside that warning: prime office hubs can lease while older buildings sit empty. The split is likely to persist. For the brokers, that bifurcation is a fact of life; for allocators, it is a reminder that the recovery has a quality tilt. A credit shock could hit the older product first.

Executives quoted by CoStar still expect strong deal activity through the rest of the year. The brokers' guidance implies the combination is durable, at least for the next quarter or two. The bigger question is whether this is a trade or a cycle. A trade is concentrated, short-dated and crowded; a cycle spreads across asset classes and endures. The brokers' next few quarters will show whether their pipelines are filling from ordinary leasing or from data center construction alone. That mix decides if the recovery is broad enough to be called a cycle.