The demand for data center space continues to rise as the world becomes increasingly digital. In the first half of 2023, there was significant growth and construction in the North American market. However, supply is still struggling to keep up with demand according to industry reports.
Key Metrics
According to CBRE’s North America Data Center Trends H1 2023 report, primary markets saw a 12% increase (491.5 MW) in supply during this period compared to H2 2022 and a year-over-year increase of 19% (738.2 MW). The report also stated that there is currently a record-high of under construction space at 2,287.6 MW in primary markets with over three-quarters (73%) already pre-leased. The overall vacancy rate for primary markets stands at just 3%.
JLL’s “North America Data Center Report” revealed that all markets combined had a total under construction capacity of over three thousand megawatts during this same time frame and most major and secondary markets are facing an imbalance between supply and demand due to high levels of pre-leasing or exclusivity agreements.
Investor Interest & Demand Drivers
In its “Data Centers Fall Update,” Matthews Real Estate Investment Services noted that investors see data centers as secure investments due their crucial role in our increasingly digital world despite ongoing market volatility across other asset classes throughout much of this year so far.
One key appeal for investors is that consumers typically do not decrease their usage or change plans during economic downturns which means revenue remains stable even when times are uncertain.
As such, investor interest remains high which will continue attracting diverse financing options according JLL analysts who commented: “(This) will continue fueling growth.”
Artificial intelligence has been identified by both CBRE & JLL as one driver behind increased data center demands from many AI startups seeking large requirements ranging from five-to-twenty-five megawatts each while operators must adapt their infrastructure to accommodate high-power density server clusters.
Data Center Outlook
According to JLL, supply and demand imbalances mean that users need to plan well in advance of their preferred go-live date. CBRE’s report also highlighted the challenges facing data center developers and operators when it comes power availability & capacity as increased construction costs plus higher prices for building materials & labor make overbuilding or oversupply unlikely.
Moreover, U.S. data center operators are being challenged by the need to reduce carbon emissions while also dealing with supply chain delays and power shortages according CBRE which added that this means they must find ways of decreasing Scope 1, 2 & 3 emissions while still meeting sustainability goals.
JLL agreed with this assessment stating: “Operators will have no choice but innovate for cooking efficiency if they want meet sustainability targets.”
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