If you’re trying to secure data center space right now, here’s the reality: You’re probably out of luck for the next two years, and what little is available will cost you significantly more than you budgeted.
In the first quarter of this year, the average cost of data center space globally was up 3.3% year-over-year to $217.30 per kilowatt per month, according to CBRE’s latest Global Data Center Trends report. But that modest annual price increase masks brutal regional spikes hammering enterprise budgets: Costs jumped 17.6% in Northern Virginia, 17.2% in Chicago, and 18% in Amsterdam.
For context, enterprises typically count on 5-7% annual increases in data center costs, making these double-digit spikes particularly damaging for IT budgets.
The pricing pain comes with an even bigger problem: There’s simply nothing available. The global weighted average data center vacancy rate fell 2.1 percentage points year-over-year to 6.6%, according to CBRE’s report. In North America’s primary markets, the overall vacancy rate hit a record low of 1.9%, with only a handful of facilities with 10 MW or more slated for delivery in 2025 and not yet leased.
To put that in perspective, a 1.9% vacancy rate means less than 2 megawatts are available for every 100 megawatts of capacity—essentially nothing when enterprises typically need multi-megawatt deployments.
AI ate the market
The culprit is artificial intelligence. Cloud providers and AI-related companies are racing to lock in space early, leading to historically high absorption, CBRE found. Hyperscalers such as Amazon Web Services, Microsoft, and Google are competing with well-funded AI startups to secure massive capacity blocks, pushing traditional enterprise users to the back of the line.
But industry experts warn the situation may be artificially inflated. “Artificial scarcity is now a structural feature of global data center markets, not just a side effect of real demand,” said Sanchit Vir Gogia, chief analyst and CEO at Greyhound Research. He warns of a “braggawatt” phenomenon where developers file for massive power capacities without confirmed builds.
“The market is behaving more like real estate: Capacity is pre-booked, traded, or flipped, often before a shovel hits the ground,” Gogia noted.
This speculation concern is echoed by other industry analysts.
“Yes, there is verifiable evidence suggesting data center capacity speculation, often termed ‘data center flipping,’ driven by intense AI demand and investor interest,” said Biswajeet Mahapatra, principal analyst at Forrester. He points to warnings from industry executives about an “inevitable bubble” and reports of “fly-by-night” operators entering the market as red flags.
Both experts advise enterprises to scrutinize providers’ power permits and demand technical specifics for “AI-ready” infrastructure claims rather than accepting vague promises.
Budget shock
When prices jump this dramatically, it can force businesses to rethink their cost models.
“The era of flat-rate data center pricing is over,” said Gogia. “This is not a transient cost wave, it is a foundational repricing of enterprise infrastructure.” AI workloads now draw three to four times the power per rack of traditional compute, and power access has become the primary constraint.
Anshuman Magazine, Chairman & CEO for India, South-East Asia, Middle East & Africa at CBRE, echoed this. “While the rate of increase may moderate, prices are unlikely to return to pre-AI-boom levels due to demand for computing power, escalating costs of land, construction, and specialized cooling.”
The traditional enterprise IT budget allocation of 10-15% for data center costs is no longer realistic. Magazine advised CIOs to “baseline budgets on these elevated structures, prioritize power availability and pricing, engage in longer-term capacity planning, and integrate sustainability and talent costs into financial models.”
Strategic responses
Smart enterprises are adapting with creative strategies. CBRE’s Magazine emphasizes “aggressive and long-term planning,” suggesting enterprises extend capacity forecasts to five or 10 years, and initiate discussions with providers much earlier than before.
Geographic diversification has become essential. While major hubs price out enterprises, smaller markets such as São Paulo saw pricing drops of as much as 20.8%, while prices in Santiago fell 13.7% due to shifting supply dynamics. Magazine recommended “flexibility in location as key, exploring less-constrained Tier 2 or Tier 3 markets or diversifying workloads across multiple regions.”
For Gogia, “Tier-2 markets like Des Moines, Columbus, and Richmond are now more than overflow zones, they’re strategic growth anchors.” Three shifts have elevated these markets: maturing fiber grids, direct renewable power access, and hyperscaler-led cluster formation.
“AI workloads, especially training and archival, can absorb 10-20ms latency variance if offset by 30-40% cost savings and assured uptime,” said Gogia. “Des Moines and Richmond offer better interconnection diversity today than some saturated Tier-1 hubs.”
Contract flexibility is also crucial. Rather than traditional long-term leases, enterprises are negotiating shorter agreements with renewal options and exploring revenue-sharing arrangements tied to business performance.
Maximizing what you have
With expansion becoming more costly, enterprises are getting serious about efficiency through aggressive server consolidation, sophisticated virtualization and AI-driven optimization tools that squeeze more performance from existing space.
The companies performing best in this constrained market are focusing on optimization rather than expansion. Some embrace hybrid strategies blending existing on-premises infrastructure with strategic cloud partnerships, reducing dependence on traditional colocation while maintaining control over critical workloads.
The long wait
When might relief arrive? CBRE’s analysis shows primary markets had a record 6,350 MW under construction at year-end 2024, more than double 2023 levels. However, power capacity constraints are forcing aggressive pre-leasing and extending construction timelines to 2027 and beyond.
The implications for enterprises are stark: with construction timelines extending years due to power constraints, companies are essentially locked into current infrastructure for at least the next few years. Those adapting their strategies now will be better positioned when capacity eventually returns.
As Magazine puts it, “This proactive approach is crucial for managing costs and ensuring a future-ready infrastructure.”
Source:: Network World