Dive Brief:
- A continued worldwide power shortage is significantly hindering global data center market growth, while secondary markets with ample power are set to attract more investments, according to CBRE’s 2024 Global Data Center Trends report.
- As vacancy rates hit new lows across major markets, sourcing power is a top priority for operators across North America and other regions, CBRE says in the report, released June 24. Despite corporations facing increased difficulty securing data center capacity, inventory in North America grew 24.4% year over year in the first quarter of 2024, led by 807.5 megawatts of growth across northern Virginia, Dallas, Chicago and Silicon Valley, per the report.
- To address the rise in demand, local governments are alleviating power constraints by simplifying permitting and integrating renewable energy into the grid, CBRE says.
Dive Insight:
Public cloud providers and AI companies are driving robust demand for data centers in North America, CBRE says. All four major markets studied in the report — northern Virginia, Chicago, Dallas-Fort Worth and Silicon Valley — had “major” year-over-year net absorption increases, led by northern Virginia, which saw a net absorption of 407.4 MW. Chicago absorbed 218.7 MW of capacity, while Dallas and Silicon Valley secured 140.2 MW and 62.6 MW, respectively.
As absorption rises, North American data center availability continues to become more restricted. Despite significant supply additions from the first quarter of 2023 to the first quarter of 2024, new inventory was rapidly filled, tightening the leasing market, per the report. Northern Virginia experienced the largest reduction in leasing availability, down 16.2 MW, followed by Chicago, which saw a 10.6 MW decrease, and Dallas, which dropped 1.5 MW. Silicon Valley was the only major market to see an increase, with availability rising 19 MW in that time frame.
On the heels of high demand in North America, data center pricing is escalating rapidly. Averaging asking rates for a typical 250- to 500-kilowatt requirement surged 20% year over year across all four major U.S. markets, CBRE says.
Looking at specific markets, CBRE found that despite record-low vacancy rates, surging rental rates and high power costs in northern Virginia, Dominion Energy’s current transmission line projects “should boost power capacity by 2026, potentially easing existing limitations.” While this may encourage further data center development in the region, developers will be best placed to explore opportunities in surrounding areas such as central Virginia, Maryland and neighboring Virginia counties, CBRE notes.
The power supply issues do still remain, however, with availability and permitting processes deciding data center construction timelines. In addition, a lack of land in Loudoun and Prince William counties in Virginia may increase development costs, with extended timelines eating into profit margins for developers.
The report further notes that Dallas-Fort Worth “cemented its status as the nation’s second-largest colocation market,” growing inventory 31.9% year over year to 573 MW. While the market has a record 372.2 MW of data center space under construction, over 90% of that space is pre-leased, driving rental rates up across all requirement sizes, CBRE says.
The real estate services firm added that due to the independent decision-making and faster development timelines of the state’s energy grid operator, the Electric Reliability Council of Texas, the market has a unique advantage over many other markets that face power and supply chain delays. Despite this, “unprecedented preleasing and record-high construction levels raise questions about the market’s ability to sustain current growth and meet future demand,” CBRE says.
The report also points to a limited availability of colocation space in Chicago, due to high demand for hyperscalers, enterprise users and financial services firms. Shortfalls in supply over demand have jacked up rental rates by 33% in the past year, and organizations are continuing to push development westward into new submarkets, “offering a chance for innovative solutions,” CBRE says.
Public cloud providers continue to dominate Silicon Valley, driving lengthy delays as smaller spaces struggle to meet market standards for performance and efficiency. “Several developers who purchased property to build a data center have been informed that they won’t receive utility power for over a decade,” the report says.
In addition to these core markets, the report named Northern Indiana and Boise, Idaho, as emerging data center markets.
