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Report: Data Center Demand Remains Strong, Limited Supply Mutes Absorption
Data isn’t going away anytime soon. To that end, data centers are becoming more prevalent and necessary to society. JLL’s just-released North America Data Report put numbers to the real estate, indicating that “2023 was yet another strong year for demand” of data centers. But that accelerating demand, combined with a growing lack of space and power capacity, has meant limited availability, increased preleasing and a new focus on secondary and tertiary markets.
The Drivers of Demand
On the demand side, JLL analysts said that Generative AI is leading the way, requiring “tremendous amounts of power, some with up to 300-500 MW.” The data center report said New York and New Jersey experienced “significant deployments” in 2H 2023.
Additionally, an increase in cloud and hyperscale demand is ongoing in larger markets, “making it more difficult for enterprise users to find colocation space and power to meet their needs,” the JLL analysts commented.
Finally, proximity to interconnection points is also boosting site selection for data center demand, but these deployments tend to be smaller, according to JLL.
What’s Happening with Construction
The report explained that under-construction data capacity in primary and secondary markets exceeds 5.3GW or “enough energy to power all of the households in the San Franciso metro area for one year.” However, most of that capacity is preleased, with “significant amounts of unleased capacity two-plus years out in most primary markets,” the report said. Meanwhile, secondary markets compose almost 20% of under-construction capacity.
Additionally, existing data centers are undergoing expansion. “Developers and enterprises are realizing their existing Basis of Design does not support AI’s voracious power demands,” the JLL analysts pointed out. These can be two to four times denser per cabinet than traditional enterprise deployments.
Meanwhile, in the Tertiary Markets . . .
As data center growth consumes land and power, developers are moving from core markets to tertiary markets. The JLL report listed projects in Columbus, OH and Reno, NV, as well as a focus on Minneapolis, Mississippi and Indiana. On the international side, investors and users are expanding into Latin and South American markets.
JLL analysts predict this will be the trend moving forward. “As capacity becomes limited in major markets, developers will see stranded power.” This will be the case for AI uses, where latency isn’t as much of a concern. As a result, “new tertiary markets will open up, or outposts focused on reusing power capacity developed for other uses,” the JLL analysts said.
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