Data Center Leases Explained: Rent Starts When the Power Does

EXPLAINED · Mechanism · Last reviewed: 15 Oct 2026 · Next review: after Digital Realty's third-quarter 2026 results

A data center lease is a contract to rent powered capacity in a data center, measured in kilowatts or megawatts of IT load and priced per kilowatt a month, rather than floor space priced per square foot. The landlord gets paid when the lease commences, meaning the hall is powered and handed over, not when it is signed: at Digital Realty the average gap was nine months in the second quarter of 2026.

Why an investor cares: a landlord’s headline number is usually what it has signed. Its income is what has commenced. The space between the two is where AI data center money waits, and how long it waits depends on when the power arrives. This page builds on what an AI data center is and explains the contract that turns a powered hall into rent.

What is a data center lease?

A contract that rents capacity to run servers. The unit is power: a tenant leases, say, 10 MW of critical IT load, meaning the electricity its servers can draw, along with the space, cooling and backup power needed to keep them running. Floor area matters far less than in an office or a warehouse, because what is scarce is a powered, cooled hall.

Three kinds of lease cover most of the market. In a powered shell the landlord delivers the building and the grid connection and the tenant does the fit-out. In a fully fitted single-tenant lease the landlord delivers a finished hall to one tenant. In colocation the landlord runs a finished building and rents racks, cages or suites to many tenants.

From Digital Realty, Keppel DC REIT and Applied Digital filings, listed under References. "Lowest" is a description, not a reported figure.

How is a data center lease priced?

Per kilowatt of IT load per month. Size sets the price. In the second quarter of 2026, Digital Realty’s new leases of up to 1 MW paid $280 per kilowatt a month, and its new leases over 1 MW paid $157, about 44% less (our arithmetic). The big tenants bought that discount with time: their leases averaged 8.8 years, against 4.1 for small ones.

The largest AI leases go further. Applied Digital signed a 210 MW, 15-year lease at its Delta Forge 2 campus with an investment-grade hyperscaler, worth about $5.2 billion over the base term. That works out at about $138 per kilowatt a month averaged over the 15 years (our arithmetic, $5.2 billion divided by 210,000 kilowatts and 180 months). How the two kinds of hall compare is in hyperscale vs colocation data centers.

Rent usually steps up each year under escalators written into the lease, and many leases carry renewal options. Applied Digital says its leases are worth about $36 billion over their initial terms, and about $86 billion if every renewal option is used.

What is a powered shell data center?

A building with the land, structure and utility power connection in place, but without the fit-out: no power distribution to the racks, no cooling plant inside the hall, no backup generators or batteries. The tenant pays a lower rent and spends its own money finishing the hall to its own design. Digital Realty sells this product under the name Powered Base Building, alongside a finished version it calls Turn-Key Flex.

Why a tenant would choose it: the biggest AI tenants want control over how racks are cooled and powered, because their hardware changes every couple of years. Why a landlord would offer it: less capital at risk per megawatt, and the scarce part, the grid connection, is still the landlord’s to sell.

When does the rent start?

When the lease commences, not when it is signed. Commencement means the space is ready and the tenant takes control of it. Before that, a signed lease is a promise of future rent and nothing more on the income statement.

Digital Realty shows the gap in its numbers. Leases it signed in the second quarter of 2026 had an average gap of nine months before commencement. At 30 June it had a record $1.9 billion a year of rent signed but not commenced, counting its joint-venture partners’ share, or $1.4 billion at its own share. In July it signed two more hyperscale leases worth $410 million a year, including partners.

Digital Realty’s second-quarter 2026 earnings release and financial supplement. Rents are GAAP rent per kilowatt per month for new leases.

NEXTDC, the Australian landlord, shows the same thing in megawatts. At 30 June 2026 it had 740.1 MW contracted on a pro forma basis, 287.9 MW built and 175.0 MW billing. Under a quarter of what it had signed was paying (our arithmetic). Its accounts spell out the rule: the M3 Melbourne lease commenced during the year, so its income was recognised; the S4 Sydney agreement was signed during the year but had not commenced by 30 June, so it produced no lease income. More on that landlord in what NEXTDC does.

Why is the gap between signed and billing the stuck step?

Because the date a hall goes live is set by power, and power is the slowest part to arrive. A lease can be signed in a week. The grid connection, substation and switchgear behind it can take years, which is why building an AI data center takes about two years even when the money is ready.

Applied Digital’s Polaris Forge 1 campus in North Dakota is a clear example. It is fully leased to CoreWeave for 400 MW of critical IT load. On 2 October 2026 the company said 250 MW was operational after its latest three 25 MW halls came online. The other 150 MW is signed, financed and still being built.

Meanwhile the landlord’s builders get paid first. In the quarter to 31 August 2026, Applied Digital booked $183.5 million of revenue for fitting out tenants’ halls, almost three times its $65.8 million of base rent (our arithmetic), plus $13.3 million of costs recharged to tenants. Fit-out revenue is one-off; base rent is the 15-year stream. See what Applied Digital does.

Our view: for an AI data center landlord, signed megawatts measure demand and billing megawatts measure income. The ratio between them, and how fast it closes, tells you more than either number alone. A landlord with a big backlog and slow power is a landlord whose income arrives later than the headline suggests.

Who pays for power and running costs?

It depends on the lease type. In a triple-net lease the tenant pays rent plus the building’s running costs, such as power, maintenance, property tax and insurance. In a colocation contract the tenant pays rent and the landlord carries the costs.

Keppel DC REIT, the Singapore-listed landlord, sets this out asset by asset. Its colocation clients pay rent and the owner bears the expenses and runs the facility. Its shell-and-core tenants pay rent and all outgoings and run their own space. Its fully fitted single-tenant leases sit in between: the client pays rent, runs the facility and pays the outgoings, except insurance on the building shell. Across the portfolio it says most electricity costs can be recovered from clients under their contracts. See what Keppel DC REIT does.

Lease length follows the same split. At 30 June 2026, Keppel DC REIT’s colocation contracts made up 74.1% of its rent with an average of 2.8 years left, single-tenant halls 21.0% with 9.1 years left, and shell-and-core 4.9% with 6.8 years left.

Who gets paid, and when?

• Builders and equipment suppliers, first. Before any rent, the landlord or tenant pays for the shell, the electrical gear, the cooling and the fit-out. NEXTDC spent A$3.4 billion in its 2026 financial year and plans A$5.25 billion to A$5.75 billion in 2027, principally on capacity its customers have already contracted.
• The landlord, at commencement. Rent starts when the hall is handed over, then steps up under escalators. Digital Realty’s nine-month average gap is the wait.
• The landlord again, at renewal. Old leases on powered halls reprice. Digital Realty’s expiring leases over 1 MW renewed 66.7% higher in cash rent in the second quarter of 2026, from $159 to $265 per kilowatt a month. See what Digital Realty does.
• The tenant, only once its servers run. A hyperscaler or neocloud pays rent from commencement but earns nothing until its chips are installed and sold as cloud hours. That gap sits on the tenant’s side, covered in GPU utilization explained.

How does it work in Singapore and Australia?

• Singapore: short leases, rationed power. Most of Keppel DC REIT’s rent comes from colocation contracts with under three years left, so renewals reprice quickly; its renewals in the first half of 2026 started about 10% higher. New power is allocated by the government: on 21 August 2026 the EDB and IMDA gave the latest 200 MW to four operators, Digital Realty, Equinix, Keppel Data Centres and ST Telemedia Global Data Centres, 50 MW each. Our Singapore Pulse covers that allocation.
• Australia: a big order book converting over four years. NEXTDC says every megawatt in its 565.1 MW Forward Order Book is a binding customer contract. It expects 197 MW to start billing in its 2027 financial year and 221 MW in 2028, together 74% of the book. It now books its large hyperscale agreements as operating leases.

What would prove this wrong?

• The gap closes fast. If Digital Realty’s signing-to-commencement lag falls well below nine months, or NEXTDC converts its order book ahead of schedule, power is no longer the slow step.
• Signed leases get cancelled. A backlog only counts if tenants stay. Terminations before commencement would show that signed demand was softer than it looked.
• Renewal jumps fade. If big-lease renewals go back to single-digit increases, powered halls are no longer scarce enough to set the price.

What to check next

Digital Realty’s third-quarter 2026 results will show whether its signed-but-not-commenced backlog is still growing or starting to convert. Applied Digital’s next update will show whether the last 150 MW at Polaris Forge 1 comes online. NEXTDC’s next update will show how much of the 197 MW due in its 2027 financial year is billing.

Common misconceptions

• People assume a signed lease is revenue. Actually rent starts at commencement; NEXTDC’s S4 Sydney agreement produced no lease income in the year it was signed.
• People assume data centers are rented by the square foot. Actually the unit is the kilowatt of IT load, priced per month.
• People assume a lower rent per kilowatt means a worse lease for the landlord. Actually the big leases run roughly twice as long, and reprice sharply at renewal when power is scarce.

FAQ

Related: what is an AI data center; hyperscale vs colocation data centers; capex vs opex; what Equinix does; what Digital Core REIT does.

Stack doors

Layer: AI Data Centers. Also: Hyperscalers, Neoclouds, Semiconductors. Markets: US, Singapore, Australia.

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References