Data center construction skyrockets as vacancies drop

Growing demand for AI workloads and high-power computing capabilities is putting pressure on the data center market. Data center construction is hitting record highs, while vacancies are dropping to record lows, according to data from CBRE Group.

The global real estate services provider just released its North America Data Center Trends H1 2024 report, which tracks several trends affecting data center availability and construction in the U.S. and Canada. Here are some of the highlights.

Construction for data centers in key markets is skyrocketing

As more businesses demand high-power computing capabilities, new construction on data centers reached new highs, according to CBRE, which reports “under-construction activity in primary markets hit a record-high 3,871.8 MW, up by 69% from a year earlier.”

CBRE points to a few reasons behind this trend. To start, supply in primary markets increased by 10% in the first half of 2024, and by 24% year-over-year. Then demand for high-powered computing increased, with cloud providers and AI providers leasing most of the available power capacity. Other trends such as big data, more workloads in the public cloud, and “robust IT spending” could continue to increase demand in the coming years, according to CBRE.

Data center vacancy rates are a problem

According to CBRE, the overall vacancy rate for primary markets fell to a record low of 2.8% in the first half of 2024, down from 3.3% a year earlier. The same metric for secondary markets fell to 9.7% from 12.7% over the same time period.

This is a problem because demand for high-power computing is increasing, particularly from AI provides, and that has led to a gap in price between newly constructed data centers and older data centers, which might not have the adequate infrastructure to support the newer, high-powered workloads.

“Adoption and utilization of digital applications will continue to drive data center demand due to more storage, computing, and processing of data,” CBRE reports.

Most new construction has already been claimed

The data from CBRE shows that “nearly 80% or 3,056.4 of the 3,871.8 MW under construction was preleased.” Cloud providers continued to lease most available power capacity, according to CBRE, but it is noted that AI providers are also accounting for a “considerable amount of demand.”

The prelease trend will force “occupiers to prelease space between two and four years ahead of completion to meet their future data center requirements,” CBRE reports.

There’s a shortage of available power

Power availability continues to be a top consideration for data center site selection, and power delivery timelines “will continue to increase in H2 2024 due to a shortage of readily available equipment, such as transformers, switches, and generators,” according to the CBRE report.

CBRE also points to longer lead times for electrical infrastructure delaying construction completion, and an overall difficulty in procuring critical equipment causing delivery delays of up to four years.

New markets are emerging

While land and power availability are becoming more and more scarce in primary markets, new cities are emerging as potential locations for new data centers.

According to CBRE, “markets such as Northern Indiana, Idaho, Arkansas, and Kansas will continue to draw interest from hyperscalers and developers due to land availability and power availability timelines.”

If you don’t need HPC, you might be able to get a bargain

Legacy data centers are losing their appeal as they cannot handle the demanding workloads gaining traction with today’s businesses. According to CBRE, newer facilities will be built to take on AI and other high-power computing, lessening the interest in older facilities.

“Increased demand for high-power computing is creating a significant price disparity between new data centers and legacy facilities. Many existing data centers lack the infrastructure to handle these demanding workloads, further limiting their appeal,” CBRE reports.

It’s difficult to find suitable sites

While new data centers are needed to accommodate HPC, AI, and other demanding workloads, there aren’t many available options, CBRE reports.

“Determining value for sites that are suitable for data center development has never been more challenging due to the physical, legal, and timing aspects of various powered land opportunities. This involves an evaluation of the grid infrastructure to determine how much power will reach the site and by when. The dearth of suitable sites has led to bidding wars for the few that meet certain power and fiber requirements,” according to the CBRE report.