CBRE: Most Data Center Markets Face Low Supply, Construction Delays, Power Shortages In Wake of AI

Across all regions covered by the study, including North America, Europe, Latin America and Asia-Pacific, energy procurement has become a priority for data center operators, CBRE says. Meanwhile, highly-enhanced secondary markets are becoming magnets for data center investment.

The CBRE report interweaves the underlying trends of advances in artificial intelligence that are expected to significantly drive future data center demand, along with rising HPC demand. CBRE analysts believe that rising demand for both types of applications will require rapid innovation in data center design and technology to handle growing energy density demands.

Capacity Valuation and Pricing Concerns

Meanwhile, CBRE believes that global energy shortages are steadily driving up prices for data center capacity. The study also found that large companies are facing increasing challenges in securing data center capacity. The price trend is not new, but the study concludes that vacancy rates in several key markets, including Northern Virginia, Chicago, Singapore, and Mexico City/Quarter, are in uncharted territory, i.e. in the single digits. For example, Querétaro, Mexico, has only 0.6 MW available for lease. Singapore, the world’s most energy-constrained market, has seen a near-record vacancy rate of 1%, with just 7.2 MW of available capacity. In US dollar terms, CBRE said Singapore still had the highest rental rates globally, between $315 and $480 per month for a 250 to 500 kW requirement, while Chicago still had the lowest, between $155 and $165.

CBRE North American Market Highlights

• In Northern Virginia, CBRE found that public cloud providers and artificial intelligence companies leased the most space in the market, with a record vacancy rate of 0.9%. As a result, the company found that rents increased 41.6% year over year as tenants secured leases ahead of construction to meet capacity needs.
• Dallas-Ft. Worth solidified its status as the nation’s second-largest colocation market, with inventory up 31.9% year over year to 573 MW, according to CBRE. It currently has a record 372.2 MW of data center space under construction, with 91.8% pre-leased.
• CBRE noted that available colocation space in Chicago is scarce, with a record vacancy rate of 1.9%, due to high demand from hyperscalers, enterprise users and especially financial services firms. This limited supply and high demand have led to a 33% increase in rental rates over the past year.
• CBRE said that 6.5% of vacancy in the Silicon Valley market “is exclusively in second-generation spaces, primarily smaller 1-2 MW suites, which are struggling to meet market standards for performance and efficiency.”
• CBRE said the most important emerging data center markets in North America are in Northern Indiana and Boise, Idaho. Indiana’s available energy and land, along with tax incentives, will spur further new development in 2025. Boise benefits from Idaho Power’s predominant hydroelectric power, a new solar farm in Pleasant Valley, abundant land, and minimal risk of natural disasters. CBRE North American Data Center Market Analysis

CBRE noted that local governments are addressing energy constraints by streamlining permitting and integrating renewable energy into the grid. Despite power concerns, CBRE found that North American data center inventory grew 24.4% year-over-year in the first quarter of 2024, totaling 807.5 MW in Northern Virginia, Chicago, Dallas and Silicon Valley. CBRE found that data center prices in North America are accelerating significantly due to tight supply and high demand. The commercial real estate firm noted that average asking rates for a typical 250 to 500 kW requirement in the four North American markets profiled increased 20% year-over-year, the largest increase globally. The study found that Northern Virginia leads the U.S. market with 391.1 MW of new supply, driven by strong demand from public cloud providers and artificial intelligence companies, which are also driving strong demand for North American data centers overall.

CBRE concluded that data center availability in North America continues to decline due to strong demand. The analyst said that significant increases in supply from Q1 2023 to Q1 2024 were quickly absorbed, further reducing lease availability. CBRE found that Northern Virginia saw the largest decline in lease availability (-16.2 MW), followed by Chicago (-10.6 MW) and Dallas (-1.5 MW). Silicon Valley was the only major market with increased availability (+19 MW).

Vacancies hit new lows; Net energy absorption increases

Meanwhile, CBRE saw North American data center vacancy rates hit new lows in major markets. Chicago again topped the list with the largest year-over-year decline, from 6.7% to 2.4%. Northern Virginia’s vacancy rate followed closely behind, dropping from 1.8% to 0.9% the year before, despite an 18% increase in inventory over the same period. The study also found that the four North American markets profiled saw significant increases in net absorption year-over-year, with Northern Virginia seeing the largest year-over-year increase at 407.4 MW. Among other major U.S. markets, Chicago absorbed 218.7 MW, Dallas gained 140.2 MW, and Silicon Valley gained 62.6 MW.