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.

CBRE’s latest research indicates that the vacancy rates in primary data center markets have dropped significantly, reaching an all-time low of 2.8% in the first half of 2024, down from the previous year’s 3.3%. In parallel, the vacancy rates in secondary markets also decreased, moving from 12.7% to 9.7% in the same period.

This tightening of available space is becoming a critical issue as the demand for high-power computing continues to surge, especially from AI companies. This spike in demand is creating a disparity in pricing between the new state-of-the-art data centers and the older ones that lack the infrastructure necessary for supporting heavy-duty, modern computing tasks.

As per CBRE’s analysis, “The increasing adoption and utilization of digital applications are pushing the demand for data centers upwards, necessitating expanded capacities for data storage, computation, and processing.”

Moreover, CBRE’s data reveals that a substantial portion of the data center capacity currently under construction, specifically 3,056.4 MW out of 3,871.8 MW, is already preleased. While cloud service providers have historically been the major lessees of these facilities, AI companies are now emerging as significant players, contributing to a considerable fraction of the demand.

The latest data from CBRE indicates a trend towards occupiers needing to secure their data center spaces through preleases significantly in advance, sometimes two to four years prior to their completion, to accommodate future requirements.

As for selecting locations for data centers, the availability of power is a major factor. CBRE’s findings suggest that in the second half of 2024, the timelines for power delivery are expected to lengthen owing to a lack of readily available critical components like transformers, switches, and generators.

Extended lead times for electrical infrastructure are also contributing to delays in construction completions, with a noted challenge in acquiring essential equipment potentially causing delays of up to four years, CBRE mentions.

Amidst dwindling availability of land and power in primary markets, new locations are emerging as viable choices for establishing future data centers.

CBRE asserts that areas such as Northern Indiana, Idaho, Arkansas, and Kansas remain attractive to hyperscalers and developers, attributed to the availability of land and favorable power timelines.

The preference for modern data centers is intensifying as legacy facilities struggle to support the advanced workloads pivotal to contemporary business operations. CBRE highlights that newer data centers, designed to manage AI and high-power computing tasks, are diminishing the allure of older data centers.

CBRE notes a growing price gap between emerging data centers and their older counterparts due to the rising demand for high-power computing capabilities, which many existing centers cannot accommodate, thus reducing their market appeal.

According to CBRE, the necessity for data centers that can support HPC, AI, and other intensive computing needs is evident, yet 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.

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