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.
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.
According to a report by CBRE, the vacancy rates in major markets have dropped significantly, reaching a new low of 2.8% in the first half of 2024, down from 3.3% the previous year. Secondary markets also saw a decrease in vacancy rates, now at 9.7% compared to the prior 12.7%.
This decrease poses a challenge due to the rising demand for high-power computing, especially from entities involved in Artificial Intelligence (AI). This increasing demand has created a notable price discrepancy between newly built data centers and older ones, which may lack the necessary infrastructure to handle modern, high-intensity workloads.
CBRE’s analysis suggests that “the ongoing adoption and utilization of digital applications will persist in driving demand for data centers as they require more storage, computing, and data processing capabilities.”
Furthermore, CBRE data illustrates that “a substantial portion of data center construction, representing nearly 80% or 3,056.4 MW of the 3,871.8 MW under development, has already been preleased.” While cloud service providers are leasing the majority of this power capacity, AI providers are also contributing significantly to the demand.
The trend toward preleasing will necessitate that “occupiers secure space two to four years before completion to address their upcoming data center needs,” according to a report by CBRE.
Power supply remains a crucial element in choosing locations for data centers, with expectations that power delivery timelines “will experience extensions into the second half of 2024 due to a scarcity of key components like transformers, switches, and generators,” the report by CBRE indicates.
The report from CBRE also highlights extended lead times for electrical infrastructure that delay construction completions and an overall challenge in obtaining essential equipment, leading to potential delivery postponements of up to four years.
As land and power grow increasingly scarce in primary markets, new cities are being considered as emerging hubs for future data centers.
CBRE indicates that regions like Northern Indiana, Idaho, Arkansas, and Kansas are becoming hotspots for hyperscaler and developer interest due to the availability of land and favorable timelines for power availability.
The attraction to legacy data centers is waning as they are not equipped to manage the intensive workloads that are becoming prevalent in current business environments. CBRE notes that newer constructions will be designed to support AI and other high-demand computing needs, diminishing the draw to older structures.
There is a growing cost difference between new data centers and older ones, driven by the heightened demand for high-capacity computing. According to CBRE, many of the existing data centers do not have the necessary infrastructure to support these intensive workloads, which decreases their attractiveness.
According to CBRE, the need for new data centers is significant to support HPC, AI, and other intensive computing demands, but the options for such facilities are limited.
“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.
