A report published today by JLL, a provider of commercial real estate and investment management services, reveals that co-location vacancy rates in commercial data centers decreased to a record low of 2.6% in 2024.
At the same time, consumption of that infrastructure increased to 4.4 GW, four times higher than it was in 2020.
Overall, preleasing of data center capacity before it comes online stands at 72%, with rents having on average been raised 11% in 2024.
Data center capacity is only likely to become more constrained in this year and beyond with the rise of artificial intelligence (AI) workloads, says Sean Farney, vice president of data center strategy for JLL. AI workloads only accounted for 15% of the total number of workloads deployed in 2024, but are expected to account for 40% by 2030, according to the report.
On the plus side, more than 6.6 GW of colocation capacity is under construction, most of which is occurring in areas where there is already a robust amount of networking infrastructure. For example, the report notes that in 2024 there was an 88% rate of absorption of co-location capacity absorption in primary markets such as Northern Virginia , Chicago, Phoenix, Dallas and Toronto. As a result, West Texas, Louisiana, Alabama, New Mexico, Nebraska and Iowa are all emerging as locations for building data centers largely because of the regulatory climate, said Farney.
The report also notes that cities such as Charlotte, N.C., Columbus, OH and Minneapolis are seeing a surge in data center construction. Over the last 24 months, major cloud service providers have acquired roughly 1,900 acres across the Columbus region alone, the report noted.
Regions adjacent to established data center hubs such as the I-35 Corridor in Texas, northwest Indiana and central and southern Virginia are also seeing increased construction activity.
“Local governments in these areas are providing a lot of incentives,” said Farney.
Despite all that construction, data center tenants in some instances looking to renew five year leases, are seeing rent increases of 50% or more, according to the report. Additionally, the report notes that lead time for adding data center capacity is now 50% higher than it was prior to the pandemic. Most equipment is available for delivery in six months or less, but generators, switchgears and transformers take an average of 11 months, according to the report.
In total, there is another 22.9 GW of data center capacity that is expected to be built, but given current demands for power, the pace at which those projects are being approved and constructed is relatively slow. New data centers are now commonly 100 MW, with some projects requesting up to 1 GW of power, and connections to the North American power grid taking as long as four years, the reported notes.
It’s not clear how organizations seeking to deploy workloads in co-location facilities rather than on a public cloud service will respond as capacity continues to remain constrained. As the number of AI workloads continues to increase, demand for data center capacity made available by either cloud service providers or co-location facilities is only going to increase. Some organizations may even decide to build their own data centers, while others may opt to deploy more workloads in regions outside the U.S., said Farney.
That shift, however, would represent a major reversal of a trend toward relying more on external data center services located in North America that has been occurring for the past decade. Nevertheless, when demand for data center capacity far exceeds the available supply, the previous calculus relied on to make those decisions will inevitably change.
