Data Center Scale-Up Continues – May 12, 2025
Global capacity growth could reach 20% annually, but overbuilding and energy supply are risks
Data centers are never far from the news lately, and new reports from Cushman & Wakefield and Moody’s Ratings show why. The Cushman report, which analyzes 97 global markets, cites surging demand due to relentless growth and expansion of cloud computing and AI workloads, while Moody’s sees growth in global capacity potentially ramping up to 20% or more annually late in the decade.
“We expect total capacity to continue its incredible growth trajectory across all global regions, with each expected to at least double based on the current development pipelines,” said John McWilliams, head of data center insights at Cushman. “The industry experienced rapid expansion throughout the past year, a trend we expect to continue into 2025 and 2026. Artificial intelligence (AI) and machine learning (ML), which gained prominence in 2022, are key drivers of this demand now and into the future.”
Connect CRE readers who follow the coverage we provide on the data center sector should find it unsurprising that the Americas lead the globe in planned data center capacity. In particular, Northern Virginia—already the world’s largest data center market—has a development pipeline of 15.4 gigawatts, nearly triple its current capacity.
Although Americas markets are seeing comparatively lower land costs generally, Cushman notes that pricing is a top consideration in mature data center hubs. That’s driving greater attention to more cost-effective emerging locations like Johor in Malaysia and Pennsylvania in the U.S.
But to flip the often-misquoted mantra from the movie Field of Dreams, if you build it, will they come? “Surging growth in hyperscale data center capacity will eventually level off but identifying that inflection point has become increasingly difficult as AI data center campuses emerge as another key growth driver,” according to Moody’s. “Data center developers and large tech companies, or hyperscalers, continue to invest heavily in large data center projects. But the computing needs they will serve in the future remain uncertain, given the constant flow of innovative technological breakthroughs, posing long-term credit risks to developers, landlords and investors.”
Development in the sector isn’t simply a matter of supply/demand dynamics. Along with rising land costs and a risk of overbuilding, there’s the thorny question of energy use. In the U.S. alone, data centers are expected to add 83.7 GW of energy demand by 2030. That’s the equivalent of adding a new state the size of Texas to the grid, according to the Center for Strategic and International Studies.
Meeting that increased demand may be complicated by the White House’s clampdown on renewable energy sources. In recent days, the data center industry has expressed concern that this clampdown—which has meant suspension of renewable energy development on federal land and cancellation of projects such as Equinor’s $5-billion Empire Wind, which was to have been built in the waters off Long Island—may jeopardize the ability to power the new data centers. Large gas plants and small nuclear facilities touted as alternatives to renewables are years away from completion.
“Strategically, the U.S. could risk undermining its current pole position in the global AI race,” Simon Ninan, SVP at Hitachi Vantara, which builds equipment and infrastructure for data centers, told the Financial Times. “China, on the other hand, has taken a proactive approach towards grid modernization and efficient power distribution.”
Speaking of China, there’s a global trade war going on, which could further complicate matters. “Even as demand for new data center capacity remains robust, rising trade tensions and tariffs will create near-term turbulence that had not been anticipated by the market at the start of the year,” Moody’s warned.
“Tariffs on essential materials and components can increase costs, which could create financial pressures for existing data centers and project delays for those under development,” according to Moody’s. “Abrupt changes in tariff policies increase uncertainty, making it challenging for data center developers to forecast costs and timelines accurately.” Stay tuned.