The demand for data centers is on the rise as the world becomes increasingly digitized. In the first half of 2023, there was significant growth and construction in North America’s data center market. However, according to reports from CRE, demand continues to exceed supply.
CBRE’s North America Data Center Trends H1 2023 report revealed that primary markets saw a 12% increase (491.5 MW) in supply during H1 2023 compared to H2 2022. Year over year, there was also a significant increase of 19% (738.2 MW).
The CBRE report also stated that there is currently a record-high of under-construction space at an impressive total of 2,287.6 MW in primary markets alone with an occupancy rate of pre-leased space at around73%. The overall vacancy rate for primary markets sits at just over three percent.
JLL’s “North America Data Center Report” noted that all markets saw a total under-construction capacity reaching up to approximately3166MW during this period and most major and secondary areas are struggling with balancing their supply and demand needs effectively.” JLL further explained how many options have already been leased or are exclusive contracts which will result in limited choices for potential users.”
Investor interest remains high due to strong appeal factors such as secure investment opportunities within this sector despite ongoing market volatility across other asset classes throughout much higher-interest rates seen through much higher-interest rates seen throughout most sectors since early last year,” Matthews Real Estate Investment Services highlighted within its “Data Centers Fall Update.”
Matthews’ update goes on further by explaining how one advantage these facilities offer investors is being able not only generate revenue but continue doing so even when economic downturns occur because consumers typically don’t limit their usage habits or change plans often enough.” As such it offers stable fundamentals making them attractive investments regardless what happens elsewhere.
As per JLL analysts comments, this will continue to attract diverse financing options for growth. “The demand for data centers is being driven by artificial intelligence in most major markets with many AI startups seeking large requirements between 5 and 25 MW,” CBRE added.
JLL also noted that as AI needs grow, operators must adapt their infrastructure to accommodate high-power density server clusters.” As a result of these supply and demand imbalances users need to be in the market well before their preferred go-live date.”
CBRE’s report mentioned how power availability and capacity are becoming more challenging for developers/operators due increased construction costs plus higher building materials/labor expenses which prevent overbuilding or oversupplying. Furthermore, U.S.-based data center operators face challenges reducing carbon emissions while overcoming supply chain delays/power shortages,” JLL agreed adding that they must plan ahead by adapting infrastructure/innovating cooking methods/efficiency levels so sustainability goals can be met.”
In conclusion: The outlook remains positive within the Data Center sector despite some challenges faced during early2023 such as increased demand outpacing available space/supply issues caused by rising construction costs/materials/labor expenses alongside other factors like reduced carbon emissions/reduced Scope1-2-3 emission levels required from U.S.-based facilities.” This was reported through Connect CRE.
