AI Growth Drives Unprecedented Expansion of Data Center Construction
In a groundbreaking turn of events, the United States experiences an astonishing surge in data center demand throughout 2023. This phenomenon, as revealed by recent research conducted by CBRE, not only defied prevailing economic uncertainty but also shrugged off concerns regarding power availability. What’s the driving force behind this remarkable trend? The relentless growth of artificial intelligence (AI) takes center stage.
The latest installment of CBRE’s North American Data Center Trends Report unveils staggering statistics: an astounding 2,287.6 megawatts (MW) of data center supply are presently under construction in primary markets. This figure sets a new record high, with over 70% of these facilities already preleased. To put this into perspective, just a year ago, there were 1,830.3 MW under construction. This data reflects companies’ proactive approach, with many leasing space up to 36 months ahead of construction completion. Their rationale? To meet future demands while securing data center space at current pricing.
Pat Lynch, executive managing director for CBRE’s Data Centers Solution, explains, “Data center construction is at an all-time high, driven by strong demand from all users, including AI, hyperscale, and enterprise.” Indeed, the first half of the year witnessed tremendous growth in both new and existing applications of artificial intelligence. This upward trajectory shows no signs of abating, as AI continues to be the driving force behind leasing opportunities in the latter half of the year.
Despite challenges within the supply chain, the primary U.S. data center markets demonstrated remarkable resilience in absorbing demand during the first half of 2023. The total absorption reached an impressive 468.8 MW. While supply increased by 19.2% year-over-year, vacancy rates remained near a historic low of 3.3%. This strong demand, coupled with limited available power and extended project timelines, has led to continuous upward pressure on rental rates. Average asking rents in primary markets surged to $147.80 per kW/month, marking a substantial 15.9% year-over-year increase from $127.50.
Northern Virginia stands as the most vibrant data center market in the first half of 2023, boasting a staggering 918 MW under construction. This market set a new record with an astonishingly low vacancy rate of 0.94%, while power enhancement projects are underway. Meanwhile, Chicago experienced a remarkable 125% surge in under-construction activity, marking the most significant increase among all U.S. data center markets.
Gordon Dolven, director of Americas Data Center Research at CBRE, notes, “Most major markets are grappling with power constraints, and developers are facing challenges within their supply chain, but it’s not slowing down the demand for data center space.” Data center operators prioritize power availability over traditional factors like location, connectivity, and pricing for water and land.
Dallas-Fort Worth witnessed the most significant year-over-year increase in absorption, skyrocketing by an astounding 327% to 110.6 MW from 25.89 MW. Additionally, Hillsboro experienced substantial inventory growth, surging to 248.4 MW from 139.4 MW, representing an impressive 78% year-over-year increase.
This remarkable surge in data center demand in the U.S. is a testament to the pivotal role of artificial intelligence in shaping the digital landscape, reinforcing the need for robust infrastructure to support its growth. As we look ahead, it’s clear that AI will continue to be a driving force, reshaping the data center industry and propelling it to new heights.