The data center market in primary regions is experiencing unprecedented demand, driving both construction and investment activity to new heights, according to CBRE research.
Under-construction activity in primary markets reached a record 3,871.8 MW, a 69% increase from a year ago, though power shortages and extended lead times for electrical infrastructure continue to delay project completions.
In Atlanta, construction activity soared by 76% year-over-year to 1,289.1 MW, while Austin and San Antonio combined saw a fourfold increase, totaling 463.5 MW.
Nearly 80% of the under-construction capacity in primary markets is already preleased, with cloud and artificial intelligence (AI) providers driving much of the demand.
The average asking price for 250- to 500-kilowatt (kW) requirements in these markets rose by 7% in H1 2024, reaching $174.06 per kW/month.
The report noted investment in the sector remains robust, particularly in new developments, as demand for powered land and strong rental growth continue to fuel a landlord-favorable market.
Despite high capital costs, construction lending activity remains strong, especially for preleased projects on track to meet lease commencement dates.
The research noted CBRE anticipates increased investment volume and sales in the second half of the year as interest rates stabilize.
Pat Lynch, executive managing director and global head of CBRE’s data center solutions practice, noted vacancy rates in key markets like Northern Virginia and Silicon Valley are reaching record lows.
“This is leading to enterprises renewing their current leases, planning capacity needing two to three years in advance, and increasingly exploring build-to-suit projects or even owning their facilities to gain greater control over their IT infrastructure,” he said.
He said given the significant increase in construction activity, the primary challenges in getting new data centers fully operational involve securing the necessary power capacities and the timely procurement of essential equipment.
“Delays in obtaining power and infrastructure readiness are critical hurdles that can impact timelines,” Lynch said.
Meanwhile, hyperscale providers including AWS, Microsoft and Google Cloud are intensifying competition for premium sites, driving up costs for both turnkey spaces and high-quality locations.
“Additionally, these providers are land banking in strategic areas outside prime markets, further limiting availability for other enterprises,” Lynch said.
With nearly 80% of data center space in primary markets pre-leased during construction, organizations must turn to alternatives if they miss out on these opportunities.
“When businesses miss out on pre-leased space, they are optimizing their existing footprints, renewing leases even if the space isn’t ideal for their near-term needs, and offering above-market prices to retain critical capacity,” Lynch said.
He added that as some markets approach zero availability, businesses are shifting to new markets where supply is more accessible.
“They are also considering build-to-own options and strengthening partnerships with large cloud and hyperscale providers to secure the necessary capacity,” Lynch said.
Data Center Capacity Growing
The number of large data centers operated by hyperscale companies has surpassed 1,000, now comprising 41% of global data center capacity, according to a recent report from Synergy Research Group.
More than half of this capacity is in owned facilities, with the remainder leased.
Non-hyperscale colocation centers hold 22% of capacity, while on-premise data centers have dropped to 37%, down from nearly 60% six years ago.
By 2029, hyperscale operators are projected to dominate over 60% of capacity, while on-premise facilities will shrink to just 20%.
Earlier this month real estate firm JLL predicted rapid growth in edge data centers, driven by GenAI, IoT and the need for faster data transfer.
Edge facilities, closer to data sources, are key for low latency and high computation. The real estate services firm’s report highlights significant growth potential in Asia Pacific and MENA, with 21% of U.S. data center development in edge regions.
