Investing in Canadian Data Centres

Data centres are at the core of seemingly every major conversation today, whether economic technological, or political. They’re also critical infrastructure: they power cloud computing, enable AI and support the massive volumes of data generated across the economy. As demand for computing power continues to grow, capital is flowing into the sector.

Canada is an increasingly key market. With abundant energy resources, a cold climate, political and financial stability, and close proximity and connectivity to the U.S., it is an increasingly preferred destination for data centre development. For Canadian energy, infrastructure, real estate, information technology and industrial businesses, data centres are also an opportunity to monetize existing assets and create new revenue streams tied to the growth of the digital economy.

To help investors and other market players weighing data centre opportunities in Canada, we discuss:

• Recent statistics and key commercial drivers of data centre investment in Canada and generally.
• The different business models data centres can adopt.
• Key commercial and legal due diligence issues in data centre investment, including: (1) contractual arragements, including interconnection rights, (2) power supply, (3) planning, zoning, First Nations and environmental considerations, (4) privacy and data residency, and (5) cybersecurity.

Join us for our next instalments when we’ll dive deeper into (1) financing data centre projects, and (2) energy supply considerations in Canada’s different power markets. Visit our Capital Markets and M&A Knowledge Hub and subscribe.

Key Commercial Drivers of Data Centre Investment

Pitchbook reports that digital infrastructure funds – those investing in data centres and related telecom infrastructure – raised a record US$26 billion in 2025, almost four times their average from 2021 to 2024. Canada is right in the mix:

• CBRE estimates that the Canadian data centre market, home to over 300 facilities and counting, was valued at US$10.4 billion in 2024 and is expected to reach US$16.8 billion by 2030.

• Mordor Intelligence calculates that the Canadian data centre market was valued at US$13.06 billion in 2025 and projects it to reach US$25.09 billion by 2031.^[1]

Four principal commercial drivers underlie data centre investment generally:

• Surging demand. The demand explosion for data centres lies not just with the exponential growth of AI but also with the continued adoption of cloud-based services and the digitization of the economy overall.
• Stable cashflows. Operational data centres, particularly when backed by long-term and creditworthy tenants, can produce healthy, consistent and reliable cashflows for institutional and other investors.
• Anticipated demand resilience. Because data centres are a backbone of the digital economy and projected economic growth going forward, they’re anticipated to be less susceptible to macroeconomic headwinds and resilient even during economic downturns.
• Revenue diversification. Data centres allow landowners, utilities, energy producers, technology companies and industrial businesses to monetize existing assets, including land, power infrastructure and transmission access, while creating new long-term revenue streams. For many businesses, data centre development presents an opportunity to diversify earnings while participating in the growth of the digital economy.

Canadian data centres enjoy several additional attractive qualities. Our cold climate reduces cooling costs. Our abundant energy resources present a diverse range of power supply, from clean to conventional. Canada’s position as the United States’ northern neighbour positions it as a near seamless extension of U.S. network traffic and data flows.

In addition, many Canadian businesses already own assets that are increasingly valuable to data centre developers, including large land holdings, power infrastructure, transmission access and industrial sites. Data centre development can, therefore, create attractive opportunities to diversify revenues and unlock additional value from existing operations. The Canadian federal government is also pursuing various initiatives to stimulate Canadian-owned AI infrastructure to support Canadian data and IP residency.^[2]

The Different Business Models Data Centres Can Adopt

Data centres can adopt a variety of different business models. The structure taken will determine the commercial and legal relationships created as well as the potential investment opportunities available.

• Retail Colocation: Much like a digital version of a multi-tenant office tower, tenants rent racks, cages or cabinets in shared facilities and bring their own servers. Leases are typically shorter in length and signed with a larger and wider group of tenants. Turnover among tenants can be frequent.
• Wholesale Colocation. Tenants rent larger portions of the data centre under longer-term contracts and are generally comprised of a narrower set of compute-dependent businesses (e.g., cloud providers, SaaS companies and AI start-ups). Tenants install their own hardware and typically have more flexibility to outfit leased space to align with their specific requirements.
• Hyperscale: Massive facilities (often called “campuses”) designed for extreme scalability that service the world’s largest users of data centre compute. They can be owned and operated by these “hyper-scalers” or, increasingly, they can be leased by hyper-scaler tenants. Hyperscale facilities are engineered to meet the specific requirements of the hyper-scaler(s) using them, who seek strict technical uniformity across their data centres globally. Tenant turnover is rare.
• Enterprise: These data centres are sited on a company’s own premises to support its own operations, typically because of highly sensitive or regulated workloads that require close and direct control, and to protect and preserve data sovereignty.
• Edge. These data centres are strategically located near users or the devices that generate data based on specific use cases (e.g., to reduce latency or for sovereign AI or data residency considerations). By processing information locally instead of routing it to distant, centralized cloud servers, in addition to reducing latency, they save bandwidth, and ensure faster, more reliable performance for real-time applications.

While these five models currently represent the great majority of data centres, in this article we focus on colocation (retail and wholesale) and hyperscale data centres.

That said, we note that hybrid models are emerging as the industry continues to evolve. One example is some retail colocation operators shifting pricing from fixed rack allocations to fees based on actual compute use or power draw. Another example is retail and wholesale colocation increasingly sharing the same, flexibly designed campuses.^[3]

Key Commercial and Legal Due Diligence in Data Centre Investment

The due diligence an investor should conduct regarding a data centre project or operator will be driven in part by the applicable business model(s). For example:

• A Retail Colocation facility may have hundreds of small tenants contracted on the operator’s standard terms. Pricing is typically per rack or per kilowatt, with additional fees for additional management services. The general result for facility operators is greater operational complexity but with potentially higher margins.

• A Wholesale Colocation facility will likely have far fewer tenants, who are contracted on less standardized or even highly bespoke terms. Pricing typically shifts from rack-based to mega-watt based. Margins can be lower, but this can also be offset by longer leases, larger or more established tenants, and more stable cash flows.

• Hyperscale leases can resemble highly customized project or infrastructure agreements, with long-term occupancy undertakings and tenant-specific buildouts. These projects can resemble a long-term economic partnership tied to the hyper-scaler’s growth trajectory more than a mere service-provider / customer relationship.

Investors should also consider whether a project generates strategic benefits beyond its direct operating income. For energy, infrastructure and industrial businesses, data centre development may create additional value through increased utilization of existing assets, enhanced land values, long-term power demand and broader business diversification.

Prospective data centre investors will want to undertake due diligence in respect of specific commercial and legal issues. These will include:

• Leases. Data centre leases are hybrid contracts that blend elements of real estate and technology service/support. Key due diligence questions for investors include: (1) Are there any change of control clauses? (2) Are there any price escalation clauses? (3) Does the tenant have any right of first refusal or offer regarding newly available space at the facility? (4) Does the lease address scalability and future technology upgrades? (5) How has risk been allocated with key suppliers, e.g., around late delivery of critical operational components such GPUs, generators or cooling systems? (6) How has risk been allocated among any construction contractors, e.g., in the event adjacent or buildout construction adversely impacts current operations?
  • The SLA or “Service Level Agreement” is typically scheduled to the lease and contains granular performance metrics for power, humidity and temperature at the data centre. Other key performance standards include (1) guaranteed uptime (subject to restricted maintenance windows), (2) processing speed and latency potential, (3) support response times, and (4) issue resolution time objectives/commitments. Key diligence items in connection with these metrics will include the extent of the facility operator’s liability for breach, e.g., whether this is limited to tenant service credits or a right of termination, or whether the tenant’s remedies include indemnification for further losses (and to what extent). Other issues for investigation include the data centre operator’s obligations on termination, e.g., around disengagement assistance and the client’s time to migrate/relocate. Master Services Agreements that apply to tenants with capacity at multiple operator sites and jurisdictions are common.
• Asset Sales, Carve-outs and Transition Services. Many data centre transactions, particularly divestitures by owners seeking to recycle capital or shed non-core assets, are structured as sales of assets rather than equity sales. Where the seller will continue to operate, occupy, access or use all or part of the divested assets for a period after closing, Transition Services Agreements and related operating protocols will be critical. Key issues include operational control, service levels, access rights, cost allocation, liability for outages or service failures, cybersecurity and data access and separation milestones.
• Power. Power supply is inherently critical to data centre operations. Projects relying on interconnection to regional electricity grids will need to obtain regulatory approval, negotiate utility agreements and transmission service agreements, and secure permitting for interconnection infrastructure. Projects adopting a BYOP (bring your own power) approach may also require approvals or exemptions. Power purchase agreements with developers of dedicated or proximate energy projects (gas, wind or solar) are also possible. Key contractual considerations include whether power costs are passed on to tenants, rights of recourse against power or feedstock (e.g., natural gas in the case of BYOP) providers for non-supply, and the extent of operator protection vis-à-vis tenants for power disruptions under applicable force majeure clauses.
  • Because many data centre investments involve refurbishment, redevelopment or redeployment of existing facilities, diligence should address not only existing access to power, but also the ability to secure additional power capacity for expansion, densification, new equipment, increased cooling needs and future tenant requirements. Investors should also review any arrangements involving the transfer or reallocation of load limits or capacity entitlements between facilities, including whether such load limit allocation transfers require utility, market operator, regulatory or other third-party approvals and comply with applicable electricity legislation, tariffs, interconnection rules and contractual restrictions.
  • Power generation, transmission and distribution in Canada is governed primarily by the applicable province or territory. Regulatory approaches range from rate-regulated government-owned utilities to open markets with privately owned utilities. We’ll discuss Canada’s different provincial power markets and their regulation in much greater detail in one or more articles to follow.
• Network Connectivity and Fibre Access. Connectivity is a core value driver for data centre assets. Investors should diligence carrier access, fibre routes, dark fibre or IRU arrangements, cross-connect rights, redundancy, latency and peering arrangements.
• Planning, Zoning and Environmental. Data centre locations should generally be selected with scalability front of mind, including locations that can readily accommodate future expansion without additional zoning approvals/entitlements and thus without go-forward regulatory or development risk. By contrast, will site-specific approvals be needed for intense power use, backup power generation, or cooling systems? How do the local bylaws classify data centres, e.g., as industrial or special-use facilities? Does any necessary interconnection infrastructure engage with First nations land and thus trigger consultation requirements? Rezoning applications can involve significant municipal review, community and First nations consultation and public hearings. Developers therefore put a premium on supportive municipal planning frameworks and proximity to major electricity transmission corridors. Due diligence considerations also include local regulations around water use and availability, water technology used to cool the data centre, noise and emissions. Many backup power systems also rely on fuel or oil storage tanks, which may require permits, registrations, spill-prevention measures, decommissioning obligations or other approvals in certain jurisdictions. These should be specifically addressed in environmental due diligence. Overall, different cities are taking widely different approaches to data centre development, from actively courting data centre investment to implementing temporary moratoriums on further development. Navigating the approval/entitlement process, particularly engaging with municipalities and local interest groups, is vital.
• Privacy/Data Sensitivity and Data Residency. All private entities that collect, use or disclose personal information as part of their commercial activities are governed by Canada’s federal Personal Information Protection and Electronic Documents Act (PIPEDA), absent an applicable provincial statute. Alberta, British Columbia and Québec each have their own private-sector privacy laws, and these are substantively similar to PIPEDA. For data centres, compliance requires, among other things, robust safeguards around physical security, technical security, operational measures and administrative processing. Similar concerns and approaches may also be applied in respect of data that is not personal information, but highly sensitive for business reasons. Regarding data residency, federal government data must generally be stored in Canada for national security reasons. Provincial legislation varies, including based on the nature of the data and the industry involved. Even where Canadian private entities are currently not required to store their data in Canada, as is generally the case, they may nonetheless have their own, internal requirements regarding local data storage. In addition, Bill C-36, the Protecting Privacy and Consumer Data Act,^[5] is intended to replace part of PIPEDA. At a high level, Bill C-36 would impose more detailed requirements around privacy governance, safeguards, cross-border transfers, retention, disposal, transparency, breach response, complaints, audits, penalties and private claims, among other things.^[6]
• Cybersecurity. Cybersecurity is a critical concern for clients when choosing among data centres. They will expect robust cybersecurity governance, including multi-factor authentication, network segmentation, continuous monitoring, penetration testing, and prompt security patch updates. Canada’s Critical Cyber Systems Protection Act (CCSPA) became law in June 2026 and imposes mandatory cybersecurity obligations on operators of “critical cyber systems” across federally regulated sectors.^[7] While data centres are not directly captured, those that are integral to any of these sectors (e.g., telecommunications) could fall within its scope. It is also expected that the classes of operators directly captured by the CCSPA may expand over time, as the regulator is expected to designate operators over the coming months and years.
• Construction and Development Risk. For greenfield projects, expansions and retrofits, diligence should address construction contracts, long-lead equipment, delay risk, liquidated damages, commissioning, performance testing, contractor creditworthiness and interface risk among contractors, suppliers, utilities and existing facility operations.
• Foreign Investment and National Security. Data centre investments may raise foreign investment and national security considerations, particularly where facilities support sensitive government, telecom, AI, defence, critical infrastructure or other strategic workloads. Diligence should assess whether the nature of the customers, data hosted, cybersecurity posture, data residency profile, foreign ownership or control rights, and access to sensitive systems or information could trigger review under the Investment Canada Act or other national security, privacy, cybersecurity or critical infrastructure regimes.

Coming Soon: Canada’s Main Provincial Power Markets

As mentioned, join us for our next instalments when we’ll dive deeper into (1) financing data centre projects, and (2) energy supply considerations in Canada’s different power markets. Visit our Capital Markets and M&A insights hub and subscribe.