As we noted in our 2024 forecast, the AI boom is creating a resource-constrained world with ripple effects in pricing and site selection. These trends are writ large in the latest data from CBRE.
Released earlier this summer, CBRE's Global Data Center Trends 2024 analysis sees a continued worldwide power shortage as significantly inhibiting the global data center market’s growth.
As such, the commercial real estate services and investment giant discerns limited power availability driving up facility rental rates worldwide.
Across all regions covered by the study, including North America, Europe, Latin America and Asia-Pacific, sourcing power has now become top priority for data center operators, says CBRE.
Meanwhile, secondary markets with ample power are now becoming magnests for data center investment.
Woven through the CBRE report are the underlying trends of AI advancements projected to significantly drive future data center demand, along with increased demand for HPC.
CBRE's analysts feel that expanded demand for both types applications will require rapid innovation in data center design and technology to manage rising power density needs.
Gauging Capacity, Pricing Concerns
Meanwhile, CBRE finds the worldwide power shortage consistently elevating prices for data center capacity. The study also found large corporations face increasing difficulty in securing data center capacity.
The pricing trend isn't new, but the study finds vacancy rates in several key markets, including Northern Virginia, Chicago, Singapore and Mexico City/Quarteraro, in uncharted territory, i.e. the low single digits.
By way of example, Querétaro, Mexico has only 0.6 MW available for lease. Singapore, the world's most power-constrained market, posted a near record-low 1% vacancy rate amid only 7.2 MW of available capacity.
In U.S. dollar terms, CBRE said Singapore still has the highest rental rates globally at US$315 to US$480 per month for a 250- to 500-kW requirement -- while Chicago still has the lowest at $155 to $165.
CBRE North American Market Highlights
-
In Northern Virginia, CBRE found that public cloud providers and AI companies leased most of the market’s space, resulting in a record-low 0.9% vacancy rate. Consequently, the firm found rental rates surged by 41.6% year-over-year as tenants secured leases pre-construction to meet capacity needs.
-
According to CBRE, Dallas-Ft. Worth has cemented its status as the nation’s second-largest colocation market, with 31.9% year-over-year inventory growth to 573 MW. Currently, it has a record 372.2 MW of data center space under construction, with 91.8% pre-leased.
-
CBRE emphasized that available colocation space in Chicago is scarce, with a record-low 1.9% vacancy rate, due to high demand from hyperscalers, enterprise users and especially financial services companies. This limited supply and high demand led to a 33% increase in rental rates over the past year.
-
CBRE said that Silicon Valley's 6.5% market vacancy "is solely in second-generation space, mainly smaller 1-2MW suites, which struggle to meet market standards for performance and efficiency."
-
CBRE said the most notable emerging data center markets in North America are in Northern Indiana and Boise, Idaho. Power and land availability in Indiana, along with tax incentives, are set to drive further greenfield growth growth in 2025. Boise benefits from Idaho Power’s prevalent hydropower, a new solar facility in Pleasant Valley, abundant land and minimal natural disaster risk.
CBRE North American Data Center Market Analysis
CBRE noted that local governments are addressing power constraints by simplifying permitting and integrating renewable energy into the grid. Despite the power supply issues, CBRE found North American data center inventory grew by 24.4% year-over-year in Q1 2024, adding 807.5 MW across Northern Virginia, Chicago, Dallas and Silicon Valley.
CBRE found that North American data center pricing is significantly accelerating due to supply shortages and high demand.
The commercial real estate firm emphasized that average asking rates for a typical 250- to 500-kW requirement across all four featured North American markets surged by 20% year-over-year, the highest global increase.
The study found Northern Virginia led U.S. markets with 391.1 MW of new supply, due to strong demand from public cloud providers and AI companies, which are also driving strong demand for North American data centers overall.
CBRE concluded that North American data center availability keeps tightening due to robust demand. The analyst said significant supply additions from Q1 2023 to Q1 2024 were quickly absorbed, further reducing leasing availability.
CBRE found that Northern Virginia saw the largest decrease in leasing 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).
Vacancy Hits New Lows; Net Power Absorption Increases
Meanwhile, CBRE saw North American data center vacancy rates hit new lows across major markets.
Chicago led again with the biggest year-over-year decrease to 2.4% from 6.7%. Northern Virginia's vacancy rate decline closely followed, dropping to 0.9% from 1.8% the year prior despite an 18% increase in inventory over the same period.
The study also found that all four featured North American markets had major year-over-year net absorption increases, with Northern Virginia accounting for the largest YoY increase at 407.4 MW.
Of the other featured U.S. markets, Chicago absorbed 218.7 MW, Dallas gained 140.2 MW and Silicon Valley secured 62.6 MW.
