Data center demand in North America shows no sign of slowing over the next 12 months, with pricing approaching record levels according to reports from JLL and CBRE.

In the report by JLL, the company’s managing director of data center markets, Andy Cvengros, said “Demand continues to be at all-time highs, and data center growth is rapidly expanding from core markets in search of power.”

He added that the majority of capacity coming online this year is already pre-leased.

Increase in construction

A lack of availability has led users to secondary markets, which now make up almost 20 percent of capacity under construction, JLL said.

Data center construction reached a new high in 2023, with 3,077.8 MW under construction in primary markets, however, 83 percent of under-construction supply is already pre-leased. In addition, vacancy levels remained at a record low of 3.7 percent in 2023.

In January 2024, availability in Northern Virginia was running at just 0.2 percent, according to a report from Newmark earlier this year.

Salt Lake City, Utah, is experiencing the fastest acceleration amongst markets that are under construction. The city is set to more than double its existing capacity, while Atlanta, Georgia’s pipeline will also boost the city's capacity and national profile.

Data center developments in areas like Columbus, Ohio; Minneapolis, Minnesota; Reno, Nevada; Mississippi; and Indiana are opening new territories. Foreign investors are also expanding into Latin and South American markets in pursuit of land and power.

Karl Beets, a senior manager at JLL, said: “Data center developments will expand to wherever there is enough power and available land.

“As capacity becomes limited in major markets, developers will seek stranded power, especially for AI uses for which latency is less of a concern. New tertiary markets and outposts will open, focused on reusing power capacity developed for other uses.”

Existing expansion

Ground-up construction is just a portion of new data center capacity. Owners are expanding existing data centers to make them denser in megawatts per square foot.

Priya Velamakanni, national data centers lead at JLL, said: “This lack of available land has led to the development of multi-story data centers, and technological advancements have given way to announcements for new developments now commonly exceeding 100MW.”

Data centers are also gaining interest from investors as alternative investment segments, with the sector seeing a nine percent CAGR in transactions since 2013 - the highest of any sector other than life sciences.

“The size of data center user requirements continues to increase at a rapid rate, which has condensed data center development timeframes and increased the need for capital,” said Carl Beardsley, senior managing director, data center leader, Capital Markets, JLL.

Impact of AI

The increased demand has been attributed to AI and Large Language Models (LLMs) such as ChatGPT, which require a great deal of power and are growing in popularity. According to JLL, ChatGPT had 100 million active users weekly in November 2023 and uses as much power as 33,000 households daily.

Matt Landek, managing director of data centers & telecom, JLL, noted that governments and companies are now using AI for customer service chatbots, data analytics, and operations management. However, all of these services increase the need for both power and infrastructure.

US primary markets grow 26 percent - CBRE

Meanwhile the report by CBRE said the eight primary US data center markets grew by 26 percent in 2023. Northern Virginia continued to rule as the largest data center market with 1.6GW of transactions, followed by Phoenix, Arizona, with 748MW of new capacity signed.

Data center capacity in primary and secondary markets exceeds 5.3GW which is enough energy to power all the households in the San Francisco metro area for one year. Led by the Northwest, secondary markets added 554MW and remain critical alongside emerging markets in countering supply challenges.

A previous report by Newmark, a commercial property consultancy, predicted that data center power consumption in the US will reach 35GW by the end of the decade.

Increasing prices

As reported by CBRE, the average asking rental rate declined by 16.9 percent between 2013 and 2021. By comparison, for 2023, the average asking rental rate increased by 18.6 percent across primary wholesale colocation markets for a 250-500kW requirement, from $137.86 per kW/month to $163.44 per kW/month. The year before, prices rose 14.5 percent.

Pat Lynch, executive managing director for CBRE, said: “The US data center market saw the largest pricing increase of all commercial real estate assets last year.”

Construction costs have also risen due to ongoing shortages of generators, chillers, and transformers.